Ireland’s largest money lender, Provident Financial, has announced it will close its home lending business as Monday’s annual results highlighted the pressure from the coronavirus pandemic and growing complaints from clients on risk lenders.
The move comes just days after Finance Minister Paschal Donohoe said the government planned to “gradually” lower the current cap on interest rates on loans from approved lenders. They can currently charge customers up to 288% per year.
In a statement posted on the company’s Irish website, he said: “Over the years we have taken pride in helping people who need a loan and cannot get one elsewhere. However, the difficult economic situation led us to make the difficult decision to stop lending.
“As of May 10, we will no longer issue new loans. This includes new loans to existing customers.
He said loans would still be given to clients who had previously applied for funding and signed their loan agreements. Existing loans must be repaid in accordance with their terms and conditions.
Sinn Féin finance spokesman Pearse Doherty called for “swift action in the area of personal credit”.
“There is no doubt that its withdrawal from the Irish market requires a coordinated response to protect the interests and resilience of borrowers,” he said, calling on the government to work on legislation that “protects borrowers and ends to the scandalous interest rates charged by these lenders ”. Sinn Féin introduced legislation that would limit lenders to charge interest not exceeding 36%.
He also pushed for a law to double the interest rate credit unions can charge on loans – from 1 percent per month to 2 percent. “This would allow credit unions to play a greater role in the personal credit market and provide an affordable and more sustainable option for borrowers who need access to credit.
Provident Financial is also ending its home lending business in Great Britain. The company reported a pre-tax loss of £ 113.5m (€ 132m) for 2020, compared to a profit of £ 119m (€ 138m) the year before. The biggest drag was a loss of £ 75million (€ 87million) in its consumer credit division, which includes mortgage finance.
Provident’s business has also been affected by a series of self-inflicted and external difficulties. Its consumer credit division has been in deficit since a botched effort to modernize the unit in 2017, which led to a pair of profit warnings and an emergency rights issue.
More recently, its recovery has been hampered by an increase in customer complaints which sparked an investigation by the UK regulator, the Financial Conduct Authority.
The Central Bank said it had been made aware of Provident Personal Credit Limited’s decision to stop providing new money lending in the Republic.
“While Provident is no longer issuing new loans, customers can continue to engage with the business as usual with any questions about existing loans,” the Central Bank said. He added that the lender had assured the regulator that it would contact all existing customers over the next few days and directed all queries to the company.
Money lending in Ireland peaked in 2013, when some 360,000 people borrowed € 301 million. Since then, however, it has been declining, with the latest Central Bank figures released in February showing that 283,000 people borrowed € 151m from pawn shops in 2020, with an average loan of € 509.
Central Bank approved lenders can charge Irish customers up to 188 percent APR on loans, amounting to 288% APR including collection costs.
Borrowing € 500 over 26 weeks from Provident would cost you € 650 to repay, the Irish Times quoted in a report on the Irish money lending market earlier this year. The extension of these loans to one year will see the cost increase to € 780.
A similar loan from a traditional bank would cost only € 535 to repay after a year.
Jason Wassell, managing director of the UK Consumer Credit Trade Association, which represents alternative and expensive lenders, said Provident’s move meant “access to credit will be reduced for hundreds of thousands of people.”
– Additional reports Copyright The Financial Times Limited 2021