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High cost credit remains a significant concern for households across Ireland, despite legislative efforts to limit its most extreme impacts. The Consumer Credit Amendment Act 2022 introduced a cap on interest rates charged by moneylenders, limiting simple interest to 1 percent per week, with a maximum annual charge of 48 percent. When expressed as an annual percentage rate, this equates to a maximum APR of 152.35 percent. While this represented a reduction from previous levels, where APRs could exceed 180 percent and rise far higher once collection charges were included, the permitted rates remain exceptionally high by any standard.

The legislation also reframed this form of borrowing by formally adopting the term high cost credit, underlining the consumer protection risks associated with such products. Under definitions used by the Central Bank of Ireland, high cost credit includes any credit offered above 23 percent APR. This extends beyond traditional moneylender loans to cover a wide range of arrangements, including cash loans, retailer credit for household goods, catalogue or online purchases, and credit used to fund insurance premiums.

High cost credit often appeals to borrowers for reasons that go beyond price. Convenience, habit, direct marketing, family tradition, limited choice, and poor credit histories all play a role. Over time, these factors can dull awareness of the true cost of borrowing. Critics of stricter interest rate caps have long argued that tighter limits risk reducing access to credit, potentially pushing vulnerable borrowers towards financial exclusion or illegal moneylending.

Evidence published by the Central Bank following a review of the 2022 interest rate cap suggests these concerns have not materialised to date. The review estimates there are approximately 288,000 high cost credit customer loans in Ireland, including around 31,000 high cost cash loan accounts. These loans are typically small, with an average value of about €1,000, and most charge the maximum permitted APR. Importantly, the review found no indication that the introduction of the cap reduced the overall supply of credit.

The report acknowledges that high cost credit plays a role in financial inclusion by providing access to borrowing for people unable to secure credit from mainstream providers. Access alone, however, does not equate to long term inclusion. Sustainable financial inclusion requires affordable credit options that allow borrowers to meet essential needs without becoming trapped in persistent high interest debt.

Lower cost alternatives have traditionally been provided by community based financial institutions, particularly credit unions. Internationally, credit unions were established to counter exploitative lending and to serve communities excluded from traditional banking. In Ireland, banks and credit unions both offer personal loans, though banks often impose higher minimum loan thresholds. Credit unions also provide targeted products such as the It Makes Sense Loan, aimed at people in receipt of social welfare payments. Around half of Irish credit unions participate in this scheme, with approximately 5,000 loans currently in place.

Legislative change may offer further scope for progress. The Credit Union Amendment Act 2023 allows for the maximum interest rate charged by credit unions, currently capped at 12.67 percent APR, to be increased by ministerial order. While no change has yet been implemented, research on small loan provision highlights the potential for greater flexibility to expand affordable lending options within communities.

International examples point to broader policy approaches. In the United States, the Community Reinvestment Act sought to address unequal access to credit by requiring financial institutions to serve the needs of low and moderate income communities. While outcomes have been mixed, the model demonstrates how regulatory frameworks can encourage wider participation in delivering affordable credit.

Ireland now faces a clear policy choice. Continuing to accept high cost credit as a necessary fixture risks entrenching financial vulnerability. Expanding access to fair, affordable alternatives offers a more sustainable path towards genuine financial inclusion. Achieving this will require coordinated effort, regulatory ambition, and a willingness among stakeholders to rethink how credit is provided 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.