The Money Advice and Budgeting Service has been invited to participate in the Joint Oireachtas Committee on Finance debate on the Consumer Credit (Amendment) Bill 2018 this week. The Bill aims to place a cap on moneylenders’ interest rates, by amending the Consumer Credit Act 1995.
In their submission, in November 2020 MABS highlighted concerns that people on lower incomes should be able to access the lowest rates possible when they borrow. It stated that if the licensed moneylending market can only deliver at a rate that risks pushing MABS clients into further indebtedness, or lock them into poverty, then action is needed.
MABS, therefore, welcomes the objectives of the Bill but also calls for wider measures if the legislation introduced in this area is to be effective. Namely in four areas: Policy, Legislation, Regulation and Operations.
MABS can actively work on operations but a holistic policy focus on the credit, financial inclusion and other needs of households on low incomes is required. The recent pandemic is an example of where a sudden “income shock” can push people towards high-cost lending and a poverty trap that is difficult to get out of.
Michelle O’Hara, Regional Manager, South Leinster MABS said: “Many of our clients struggle to meet household needs, so where there is a change in the household’s circumstances the financial ‘buffer’ in the form of savings is simply not there. This means some households have little choice but to borrow at a very high-cost to bridge a gap.” She added: “Despite what we hear about unprecedented levels of ‘post-pandemic savings’, we just do not see this in our casework. On the contrary, just now, more of our clients seem to be falling behind.”
The MABS submission highlighted the role of the ‘poverty premia’. Many MABS clients often have to pay late fees, so- called ‘dishonour fees’, overdraft fees, disconnection/reconnection fees, and are only ever able to make minimum payments on credit cards. Typically they are unable to afford a lower unit cost when bulk buying nappies or other essentials. Higher tariffs on energy because they are pay as you go customers and, of course, a previous history of arrears, all mean that it can cost more to ‘get by’ in the poorest households.
‘Pressure points’ can occur when a car breaks down, a washing machine gives up, a bill is higher than usual, or a child has an unexpected need. The impact is not just financial. Relationship breakdown is common. “Add to that picture creditors and their collection agents collecting amounts owed, and you see how sometimes our clients become quite desperate in their efforts to meet so many demands out of the same limited pot of resources and how readily loyalties can transfer to the high cost lender – who can sometimes be viewed as a ‘friend’.”
The recent withdrawal of Provident from the Irish moneylending market, considering their market share, now means that there is less choice for those who are desperate to make ends meet. Therefore, MABS have been working with key stakeholder organisations (Citizens Information Board, Social Finance Ireland, credit unions and the Society of Saint Vincent de Paul) to ensure that there is a coherent response to address any potential fall-out as a result of this change.
“MABS is committed to working together with policymakers, regulators, financial service providers and creditors to build financial resilience through innovation and a shared commitment to address this challenge; we can potentially bring many borrowers along a pathway from high-cost, to near-prime, and ultimately mainstream lending.”
MABS would like to remind people that other options are available, and we are here to help.
Michelle O’Hara stressed that; “we recognise that regulated moneylenders have a limited place. However, they should not be considered a long-term solution. It can result in a spiral of debt for families who may feel they have no other choice. MABS can help to break this cycle of dependence and support people in reviewing their options.”
MABS is free, independent and confidential, with over 25 years of experience supporting people in tackling their debt and helping them take control of their money.
MABS is now open for face-to-face appointments and our advisers are available by phone on 0818 07 2000, Monday to Friday, 9am to 8pm. Email email@example.com or WhatsApp 086 035 3141 Follow @MABSinfo on Twitter and Facebook and Instagram for further updates.
Funded and supported by the Citizens Information Board.
MABS Submission on Consumer Credit Bill