High-cost credit continues to pose significant challenges for consumers in Ireland, despite legislative efforts to curb the most excessive lending practices. The introduction of the Consumer Credit (Amendment) Act 2022 marked a major regulatory step by placing a statutory cap on interest rates for moneylender loans. Under the revised framework, simple interest is limited to 1% per week, with an annual maximum of 48%. When expressed as an annual percentage rate, this equates to a ceiling of 152.35% APR.
While this represented a substantial reduction on previous limits, which could reach close to 188% APR and significantly more when collection charges applied, the permitted rate remains extremely high when compared with mainstream credit products. The reclassification of moneylending as “high-cost credit” under the legislation was intended to reflect this reality more clearly and improve consumer understanding.
According to the Central Bank of Ireland, high-cost credit is defined as any credit product with an APR exceeding 23%. This broad category includes cash loans, credit for household goods purchased through retailers or catalogues, online credit purchases, and borrowing used to pay insurance premiums.
Borrowers often turn to high-cost credit for reasons such as convenience, targeted marketing, limited alternatives, habit, family tradition, or a poor credit history. Over time, repeated use can reduce sensitivity to the true cost of borrowing. A common argument against tighter interest caps has been the concern that restricting pricing would drive lenders out of the market, limiting access to credit for vulnerable consumers and increasing the risk of illegal moneylending.
However, a recent review by the Central Bank indicates that this outcome has not materialised. The study estimates there are approximately 288,000 high-cost credit loans in Ireland, including around 31,000 high-cost cash loan accounts. These loans are typically small in value, averaging about €1,000, with many charging the maximum permitted APR. Importantly, the evidence suggests that the introduction of the interest rate cap has not reduced the overall availability of credit.
The Central Bank acknowledges that the high-cost credit sector plays a role in providing access to finance for individuals excluded from mainstream lending. That role, however, raises a wider policy question. Access to credit alone does not equate to sustainable financial inclusion. Long-term inclusion depends on the availability and use of affordable financial products, a principle reflected in the World Bank definition of financial inclusion.
Internationally, alternatives to high-cost credit have often been delivered through community-based financial institutions. Credit unions were founded on this premise and continue to focus on providing affordable lending to members who may struggle to access bank finance. Similar models exist elsewhere, including community development finance institutions in the UK and the US, which aim to support financially excluded households while building resilience and creditworthiness.
In Ireland, credit unions and banks both provide personal loans, though banks typically set higher minimum borrowing thresholds. Some credit unions offer targeted products such as the It Makes Sense Loan, designed for individuals in receipt of social welfare payments. These loans are structured to reduce reliance on high-cost credit while supporting borrowers to rebuild their credit profiles. At present, uptake remains relatively limited, with approximately 5,000 such loans in place.
Legislative changes under the Credit Union (Amendment) Act 2023 allow for the maximum interest rate charged by credit unions to be increased by ministerial order, although no change has yet been introduced. Research suggests that greater flexibility could enable credit unions to broaden their lending offerings and reach more people who currently depend on high-cost options.
International experience also demonstrates the potential role of policy intervention. In the United States, the Community Reinvestment Act was introduced to encourage banks to meet the credit needs of all communities, including low and moderate income households. While results have varied, the approach highlights how financial institutions can be encouraged, and required, to support wider access to affordable credit.
In Ireland, the ongoing reliance on high-cost credit signals the need for broader solutions. Expanding access to lower-cost alternatives, encouraging innovation in community-based lending, and fostering collaboration across financial institutions, regulators and policymakers would support more sustainable financial inclusion. Addressing the issue requires ambition, engagement and a willingness to rethink how credit is delivered to those who need it most.
Disclaimer: This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.
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