Monday 24 October 2016

Sinead Ryan: State offers small loans, why won't our credit unions?

Sinead Ryan
Sinead Ryan

While it's very good news that Government-backed loans are to be made available to lower income families, the new plan comes firmly under the Department of Why Have One Solution When You Can Have Ten?

With typical bureaucracy the decision to roll out up to 40,000 loans of a maximum of €1,000 each simply means that a sticking plaster has been placed over a gaping wound which needs stitching up.

There are around 40 private money lenders in Ireland catering to customers for whom a regular bank simply isn't an option because they're deemed too much of a risk.

Most of these lenders hand out loans in the hundreds of euro - to replace a washing machine, pay for a child's communion or fix the car. Nothing extraordinary, until it comes to the interest rate -which can be up to an eye-watering 188pc per annum.

Add to that 'collection' charges for agents to call to your house and you'll find yourself owing far more than you ever intended. For many, however, they are a lifeline, and those who take the must be completely on their uppers - as there is certainly nothing logical about the sums involved.

The biggest operator, Provident Personal Credit, recently got rapped by the Financial Services Ombudsman, and not for the first time, over dubious lending practices. It was issuing roll-over loans to repay outstanding ones, which is illegal. It may now have to repay thousands of customers for the breach, which it didn't deny.

Remember, Provident is fully licensed, legal and above board - according to the Central Bank which regulates it and others. Incredibly, as it has paid the fine handed down, it is simply continuing with business as usual, with no restriction on its practice.


Imagine how the many hundreds of illegal money lenders are operating?

Is its Personal Microcredit Scheme the best the Department of Social Protection could do to wean poor families out of their clutches? Why not simply make like Jesus and ban the moneylenders? Or restrict their practices? Or cap their extortionate interest rates? Or just regulate them properly?

There's plenty of money already to be made in selling money. After all, the Government itself will be charging 12pc per annum for each of its loans, which is twelve times the amount it's borrowing it for.

To manage the scheme, it's calling in the very excellent services of An Post, the Credit Unions, the Money Advice and Budgeting Service and the St Vincent de Paul. All these agencies of the State and others already know full well the dangers and grief moneylenders pose to families.

In slamming a nut with a sledge-hammer however, the Government seems to have over-looked a simple and obvious solution.

Our rural post offices are closing rapidly. Credit unions are in despair because people aren't borrowing enough (many see loans as a liability, rather than the asset they are and don't like to 'ask' for borrowings).

Businessman Bobby Kerr is one person who's suggested merging these services. This has been mooted before, not least by this writer.

Put post offices in credit unions and vice versa where towns can't support both. Let them lend properly, with Government backing if necessary. After all, this is why they were set up 57 years ago.

Instead of post offices needing consolidation, it's credit unions that do. There are almost 400 of them and that's about 250 too many; they simply cannot all survive.

They need a stronger regulator - the Central Bank was to get around to them, but tackling the issue head on appears insurmountable.

Loans are the lifeblood of an economy. It's unrealistic to expect people to live without credit and if that credit is not available through normal channels, because we have a defunct and defective banking system, then people will resort to wherever they can get cash.

Any scheme which avoids expensive options is welcome, but they already exist. Support them and finance them to do their current job efficiently and you won't need another layer of bureaucratic red tape.

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