"The Wealth of Nations" Country report from Ireland Liam Edwards Money Advice and Budgeting Service Ireland 1. Introduction Population 4.1 m Credit Providers : Retail banks, Building societies, Credit Unions, Moneylenders (Home Credit), Mail order companies, Hire Purchase organisations, Supermarkets, Local authorities, Gas Board, credit intermediaries such as large retail outlets and car sales. • Mortgage debt 82% of total personal debt. • 76% home ownership 2nd highest after Spain. • Mortgage payment/Income 35%. • Household Debt/Income 132% • No information on numbers of overindebted persons or number in default 2. Access to Credit There is no legal right to an account. In many instances accounts are denied because of insufficient evidence of identification Anti Money Laundering Legislation. No National Identity card in Ireland. Lack of access to credit is a problem particularly for those who are already over-indebted, social welfare recipients and others on low income. • The Government is using funds from dormant accounts for social inclusion projects. The establishment of a Social Lending Fund is being considered as a possible project. • Credit Unions are operating in every local community in Ireland and are more likely to provide loans to people on low income, provided that they have a history of saving. Money Advice and Budgeting Service works closely with credit unions and operates a Loan Guarantee Fund for crisis loans but not to repay debts. • All banks have a stated policy of lending to all customers provide they are satisfied regarding customer’s ability to repay • Moneylenders (includes mail order) provide loans with high interest rates (vary from 23% to 200% APR) and there are also high levels of roll over loans. • Sub prime lenders have an increasing presence in the market – among others they include Citifinancial, GE Money, Start Mortgages. They are willing to lend to those less able to obtain credit from mainstream lenders. Higher rates and penalties are applied. 3. Over-indebtedness • Over-indebtedness is regarded as a serious problem in Ireland. The Ministry of Social and Family Affairs has been funding activities to combat moneylending and overindebtedness since 1988. The Money Advice and Budgeting Service budget for 2006 is €16.41 m. • Local and UK based moneylenders have over 100,000 weekly customers in Ireland. The interest rate varies from 23% to 200% APR. They are licenced by the Financial Regulator. Legislation is Consumer Credit Act 1995. Interest rates are not capped but licences are not extant for lenders charging in excess of 200%. Unlicenced Moneylenders are also prevalent. Prosecutions are extremely rare. • Irish Bankers’ Federation has a Framework Code of Ethics and various Codes of Practice for Customers 4. Money Advice and Budgeting Service (MABS) Features of MABS The key features of the Programme may be summarised as follows: - • a co-ordinated scheme allowing for the sharing of experiences and information on different approaches and progress in local communities in relation to combating money-lending; • the scheme includes a general money advice element for the local community, including publication of information on money management and debt counselling; • an approach which targets families identified as having problems with debt and moneylending, in particular, those dependent on social welfare or on low income; • a prominent role for local statutory agencies, such as the Social Welfare Regional Managers, Community Welfare Officers, local voluntary and community groups, credit unions, Society of Saint Vincent Paul etc.; • an emphasis on practical, budget-based measures that will succeed in removing people permanently from dependence on moneylenders and open up alternative sources of low cost credit through the credit unions. The MABS has a special relationship with the credit unions, which operate a "special accounts" system to enable the MABS client to repay debts and to save small amounts. Payments are made to creditors by cheque or EFT. • A Loan Guarantee Fund also operates to provide "crisis" loans as an alternative to the moneylender; • the MABS give advice and assistance, but do not pay debts. Money advice is close to the core income maintenance business of the Department of Social and Family Affairs. The key elements of MABS are the resources, contacts and expertise of all relevant people in an area who co-operate to provide a special service for people who may require intensive help and advice in working their way out of serious debt; • the aim of the service is to help people to regain control of their finances and to budget for the future. It will help them to prepare a budget plan and to contact their creditors with a view to rescheduling repayments. The Money Adviser will also help the client to maximise their income, prioritise their debts and where necessary contact and refer to other support agencies; • the MABS will frequently intervene to prevent repossession of the family home and also to prevent disconnection of gas and electricity supply; • the MABS will engage with creditors and creditor representative bodies at national level regarding debt recovery practices. Facts and Figures for MABS • The Budget for 2006 is €16.41m • Countrywide network of 65 offices • Staff employed 150 Advisers, 80 Admin, 5 National Development Officers (Communications, Social Policy, Community Education and Technical Support) • more than 16,000 new clients approach the MABS annually and the service deals with a similar number on an annual basis. • Website www.mabs.ie 1)planning a budget 2) Dealing with debt problems • Self help leaflets and booklets • A Good Practice Manual for Money Advice Staff. • Selected by EC in 2004 for Peer Review (Model of Best Practice) • MABS Bill published in 2002. To be enacted in 2006 • MABS National Development Limited with responsibility for a)National Development Officers b) Training of Money Advice Staff c) MABSIS Software application d) establishing a MABS Helpline Financial Regulator The Financial Regulator has drafted a Consumer Protection Code, which will apply to all financial service providers regulated by it containing a number of provisions in relation to credit, including • A provision to ban pre-approved credit • A provision that a regulated entity may only increase a customer’s credit card limit following a request from the customer • A provision that prior to a loan being approved, a regulated entity must explain to a consumer the effect, if any, of missing any of the scheduled repayments. This information must also be highlighted in any relevant documentation, alongside a warning notice that “Failure to make scheduled repayments will result in your account going into arrears and may impact on your credit rating” • A provision that where a mortgage is being offered to a customer for the purpose of consolidating other loans, the regulated entity must provide the consumer with a written comparison of the total cost of continuing with the existing facilitates and the total cost of the consolidated facility on offer. 5.Regulation from EU The Free Legal Advice Centres (FLAC) responded to the department of Finance call for observations on the revised “Credit for Consumers Directive” following discussions with MABS ndl National Development Team. This states that “minimum harmonisation with the scope that it leaves for Member States to introduce more favourable protection for the consumer is perhaps more useful, especially where the maximum harmonisation measure is too weak in terms of consumer protection but leaves a veritable straitjacket for States in terms of doing more”. Full Response in separate attachment. Liam Edwards Money Advice and Budgeting Service Ireland ID: 37326 Author(s): iff Publication date: 26/04/06

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