Consultation Paper proposes targeted measures to enhance protections for customers of moneylenders

• Measures aimed at further ensuring that moneylenders adopt and implement a responsible lending culture.
• Moneylenders to prompt consumers to consider alternatives, including cheaper options, to moneylending loans.
• Measures to reduce the possibility of consumers over-extending themselves when borrowing from moneylenders.

The Central Bank has published CP118 - Review of the Consumer Protection Code for Licensed Moneylenders, seeking feedback from consumers and other interested parties, proposing new measures which would enhance the framework of protections for customers of licensed moneylenders. As part of its review, the Central Bank is proposing new measures to include:

• Restricting the promotion of moneylending by targeted advertising or unsolicited contact.
• Requiring moneylenders to prompt consumers at relevant pre-contractual points that they should consider alternatives, including cheaper options, before taking out a moneylending loan (in addition to enhanced information and advertising requirements).
• Providing heightened protection for consumers using moneylending loans to pay for immediate basic needs such as accommodation, food, electricity, heating and other similar costs.
• Requiring moneylenders to provide aggregate information to consumers who are seeking a second or subsequent moneylending loan to run concurrently with an existing loan.
• Putting in place a specific limit on how much of a consumer’s income can be devoted to paying off high cost moneylending agreements.
• Enhancing the professionalism of the sector through requirements relating to training, lending policies and procedures and engagement with third parties who are advising a borrower, such as the Money Advice and Budgeting Service (MABS).

The consultation process will be open for comment for a three-month  period until 27 June 2018.

The proposed measures and enhancements have been informed by the Central Bank’s supervisory and annual licensing engagements with the licensed moneylender sector and previous research carried out by the Central Bank.  Within the scope of its specific regulatory role, the Central Bank has also considered approaches adopted by legislative and regulatory bodies in other jurisdictions.  Based on this work, and having regard to the need for a strong framework of protections in order to ensure that the best interests of consumers of moneylending loans continue to be protected, the Central Bank is now proposing to introduce a number of enhancements to the existing requirements and additional consumer protection measures in the Consumer Protection Code for Licensed Moneylenders.

Director of Consumer Protection, Grainne McEvoy, said, “There is already a strong framework of protection in place for consumers who choose to avail of the services of licensed moneylenders, including the protections provided under the Central Bank’s existing Consumer Protection Code for Licensed Moneylenders.  The measures we are consulting on aim to enhance this consumer protection framework further.  These measures will ensure that consumers are dealt with in a responsible and professional manner and are provided with targeted information to prompt consumers to consider alternatives to high-cost loans from moneylenders.  We are also proposing a specific measure to reduce the possibility of consumers over-extending themselves in relation to this form of credit.  We welcome feedback from all interested parties and, in particular, we are keen to receive views from consumers and consumer representative bodies”. 

Note

• Moneylending, as defined in the Consumer Credit Act 1995, is the practice of providing credit to customers on foot of a moneylending agreement which is, in essence, where the total cost of credit is in excess of an annual percentage rate, APR, of 23% or the agreement is concluded away from the business premises of the moneylender.  Credit under a moneylending agreement will usually take the form of a cash loan but may also involve the provision of goods on credit or the purchase of vouchers. 
• There are currently 39 licensed moneylenders¹, down from 52 in 2003, when the Central Bank assumed responsibility for the regulation of the sector.
• In 2017, the total outstanding loan amounts within the sector were in the region of €153 million, compared to approximately €198 million in 2013.  The total monetary amount of loans advanced in 2017 was approximately €268 million, compared to approximately €301 million in 2013².
• Moneylending firms range from those with in excess of 100,000 customers (two firms) to small firms with 100 to 1,000 customers
• A review of the Consumer Protection Code for Licensed Moneylenders 2009 (ML Code) was included as a priority theme of work in the 2017 Consumer Protection Outlook Report.
• When it concludes its review, the Central Bank intends to replace the existing Consumer Protection Code for Licensed Moneylenders and issue the revised requirements in the form of Regulations under Section 48 of the Central Bank (Supervision and Enforcement) Act 2013.
• In November 2013, the Central Bank published a Report on the Licensed Moneylending Industry (the ML Report).  The ML Report provided the Central Bank with an updated overview of the sector since its earlier 2007 report.  The research was undertaken to inform the Central Bank of its regulatory approach to the sector and to find out how moneylenders were treating their consumers.
• The Central Bank is proposing to introduce a specific debt servicing ratio restriction for moneylending loans.  A debt servicing ratio restriction would introduce a limit on the monetary amount of repayments that a consumer could make to service a moneylending agreement or agreements, calculated as a percentage of their gross income.  Such a restriction would reduce the possibility of consumers over-extending themselves in respect of their borrowing from licensed moneylenders.  It would place a clear limit on the amount of high cost credit that can be extended to consumers in order to pre-empt and subsequently prevent over-indebtedness.  The Central Bank intends to gather further data on this topic and conduct consumer research in 2018, before finalising its measures and setting the limit of the debt servicing ratio restriction.  It is likely that a restriction in the region of between 10% and 20% would be introduced.
• Comments on the proposed measures from all interested parties are welcome.  The Central Bank also encourages partial responses from stakeholders on those questions that they believe are most relevant to them. Submissions received will be made available on our website after the deadline for receiving submissions has passed.
• This paper will be open for comment until 27 June 2018.  Submissions should be made to [email protected] clearly labelled with subject title “Moneylending Regulations”.

¹ This figure reflects the number of firms licensed as at the date of publication of this Consultation Paper.

² The 2017 figure is based on information provided by licensed moneylenders as part of their 2017 annual licence applications.  The figure is based on point-in-time data and dependent on each firm’s financial year-end, which in some cases relates to 2016 lending.  The 2013 figure is taken from the Central Bank’s 2013 Report on the Licensed Moneylending Industry.