The Minister for Finance is to bring forward proposals to Government to gradually cap the interest rates that moneylenders can charge.
At present, moneylenders are allowed to charge interest rates with an Annual Percentage Rate (APR) of up to 187%.
Interest rate caps on moneylending are in place in 21 EU countries, including Germany, France and Italy.
Addressing the Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach this afternoon, Paschal Donohoe said the measure would be one of a number he will bring to cabinet shortly to address the issue of moneylender rates and to help modernise and enhance consumer protections in the industry.
Mr Donohoe said he is proposing that the caps be introduced gradually and responsibly and that the Minister for Finance will have the power to vary the interest rate caps in the future by regulation, taking account of appropriate factors and impacts.
These would include the viability of the moneylender sector and the potential impact on supply of a change.
Also to be taken into account would be the evolution of average interest rates and the potential impact on financial exclusion.
He said the regulations would only be made after the Minister has considered a report by regulator the Central Bank, that would assess the potential impact of reducing the caps.
Mr Donohoe added that an interest rate cap at the recommended limit would give the industry time to review their business practices and identify areas in which operational efficiencies can be achieved.
It would also allow time for the Central Bank to monitor the impact of the cap, to check that loan terms and amounts are not being manipulated in order for caps to be met and advise the Department of Finance of its findings.
The minister was speaking during a hearing on the Consumer Credit (Amendment) Bill 2018 – a private members Bill proposed by Sinn Fein’s Pearse Doherty.
It proposes a statutory cap of 36% on the APR that moneylenders could charge.
However, Mr Donohoe said he does not support the bill because an interest rate cap based only on APR is not considered the best approach, particularly for loans with a duration of one year or less.
He also said he is concerned at the proposal to reduce the APR to 36% as it may have an impact on the future provision of credit to people with a need for small amounts of accessible credit.