Moneylending: Amending Act will restrict interest and term of loan agreements and modernise the sector
The recently enacted Consumer Credit (Amendment) Act 2022 (the “Act” – here) will set a ceiling on interest rates charged by “high cost credit providers” (ie moneylenders), limit the maximum term of a loan agreement and modernise the industry more generally. The Act was signed into law on 29 June 2022 but awaits a commencement order from the Minister for Finance. This briefing outlines the main proposed changes that should be of interest to the moneylending sector.
What important changes are proposed by the Act?
Interest rate cap: The Act permits the Minister for Finance to set the maximum interest rate at which a “high cost credit” loan can be offered. The maximum rate will be imposed in separate regulations to be made by the Minister (following consultation with the Central Bank of Ireland) in accordance with prescribed principles and policies. While the Minister is given discretion to specify the interest rate, this discretion is subject to a maximum cap of 1% per week or 48% per year (save in relation to a “running account” where the cap is 2.83% per month).
Maximum term: In the case of high cost credit that is provided as a loan (rather than a running account), a maximum term of 52 weeks (ie 1 year) applies.
Offences: The scope of potential offences for breach of moneylending legislation is extended to include the new provisions implementing the above-mentioned interest rate cap and maximum term.
Other important changes: The Act will change several other aspects of the regulation of moneylending businesses, including:
- replacing terms such as “moneylender”, “moneylending” and the like with “high cost credit provider”, “high cost credit” etc;
- prohibiting high cost credit providers from charging for collection services;
- streamlining the licensing regime so that licences:
- are granted for five years (rather than one year); and
- can be obtained on a national basis (rather than applying in each District Court area in which moneylending is to take place);
- requiring high cost credit providers to provide consumers with a choice of having the required repayment book in a paper form or in another durable medium (such as an electronic form). The repayment book will also need to specify the total cost of credit both in euro and as a percentage of the amount borrowed;
- ensuring that agreements contain in a prominent position the words “High cost credit agreement”; and
- providing the Central Bank with broader discretion in relation to the granting or renewal of a licence.
The Consumer Credit (Amendment) Act 2022 represents a significant change to the moneylending sector. While the streamlined licensing regime will be of significant benefit to licensed moneylenders, the Act largely creates new obligations that they will need to ensure are observed. Notwithstanding that the Act is not yet in force, pending a commencement order from the Minister, all moneylenders should be taking steps now (if they have not already) to ensure that they will be compliant on the commencement date of the Act. This will entail updates to standard-form documentation, the assessment and amendment of existing processes (especially around interest rates and collection charges) and a general review of existing business models to ensure they will remain compliant and viable.
McCann FitzGerald LLP will continue to monitor developments in this area, especially in relation to the publication of the required commencement order to bring the changes set out in the Act into force.
Also contributed by Jonathan Murchan
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.