Credit unions struggling to roll out scheme to compete with moneylenders, committee hears

THERE is no effective protection for vulnerable consumers from the activities of moneylenders, it was claimed.

The Oireachtas Finance Committee was told credit unions are struggling to roll out a scheme to compete with moneylenders because the State-designed scheme is loss-making and bureaucratic for them.

Just half of credit unions offer the ‘It Makes Sense Loans’ targeted at those on social welfare payments.

The scheme was put together by Government departments, credit unions and Social Finance Ireland to take on moneylenders, who have around 350,000 customers.

The credit union loans are approved quickly. They are short-term in nature, with loans available for a month, or two years.

There is a maximum interest rate of 12.7pc (annual percentage rate), compared with moneylenders that can charge up to 187pc, before collection charged are added in.

TDs and senators wanted to know why so few credit unions offer the personal micro loans.

Senator Rose Conway-Walsh, of Sinn Féin, said just two credit unions offer the It Makes Sense Loans in Mayo.

Head of credit union policy at the Department of Finance Brian Corr said there were a number of reasons that not all credit unions were offering the loan scheme.

With interest rates credit unions can charge capped at 1pc a month, the scheme is a loss maker for the locally-owned lenders.

Finance Minister Paschal Donohoe has proposed to allow credit unions to double the money interest rate they can charge.

Mr Corr said the higher rates are not a target and most credit unions would not increase rates.

He said the It Makes Sense Loan has an administrative cost and there are charges imposed, which make credit unions reluctant to offer them.

Chairman of the Credit Union Managers’ Association Tim Molan said credit unions were reluctant to embrace the scheme as they are competing against moneylenders which were not properly regulated.

“With moneylenders it is open season on the consumer. There is virtually no effective protection for people from moneylenders,” Mr Molan said.

He told the committee the Central Bank’s Consumer Protection Code is not applied to moneylenders.

He said moneylenders were free to call to the doors of people a week after they get a It Makes Sense Loan from a credit union.

Mr Molan said there needs to be a holistic legal and consumer protection approach taken to tackle licensed moneylenders.

Ed Farrell of the Irish League of Credit Unions said the typical It Makes Sense loan was small, at around €500. He said there was a heavy administrative burden on credit unions issuing these small loans.

In the period from November 2015 to April last year just 7,500 It Makes Sense loans were drawn down. This works out at just 3,000 a year. This is ten times less than those issued by moneylenders.

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