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Some relief for vulnerable Black Friday shoppers

On the Money: New cap on cost of credit and timely advice from Revenue to avoid surprise additional taxes and charges

New rules capping interest on consumer loans mean people may have fewer regrets about the cost of Black Friday purchases. Photograph: Oli Scarff/AFP via Getty Images

Dominic Coyle's face
Dominic Coyle
Fri Nov 18 2022 - 15:57

Welcome to our new weekly personal finance newsletter On the Money, where we will delve into personal finance issues and how they might affect your pocket. This newsletter, compiled by our personal finance writers, including Dominic Coyle and Conor Pope, will be issued each Friday to subscribers.

The shopping frenzy that is Black Friday is upon us once again. What used to be a one-day post-Thanksgiving feature of American life has morphed into a week long orgy of festive shopping that can put huge financial pressure on the financially vulnerable or unwary.

Timely then that Minister for Finance Paschal Donohoe has activated the Consumer Credit (Amendment) Act 2022, which sets new lower limits on the amount of interest that consumers can be charged for credit.

The Act was first published in March and was formally signed into law in June by the President. But it required the Minister’s commencement order before “going live”. That only happened on Thursday of this week.

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When people think of moneylenders, they often have a stereotypical view of what the term covers. But the 32 moneylenders licensed with the Central Bank include reputable catalogue retailers offering purchases on credit such as Very, formerly Littlewoods, and Oxendales. To avoid confusion going forward, under the new law all licensed moneylenders will in future be known as “high cost credit providers”.

More importantly for the generally less well off consumers who, up to now, could be paying interest of as much as 188 per cent APR before collection charges, a new ceiling on interest rates of 1 per cent per week, or 48 per cent a year, is imposed under the new structure.

There is also a new limit of what lenders can charge on a “running account” – no more than 2.83 per cent a month. Running accounts operate in the same way as a tied credit card and are offered by some of the catalogue shopping companies.

And those collection costs are no more, with lenders now prohibited from levying such charges, which, when included in the cost of credit in the old regime, meant the maximum annual APR interest chargeable on a loan could be as high as 287 per cent.

The new rules will never make such borrowing affordable compared to a more traditional bank loan or credit card but it will come as a considerable relief for people who are unable to access such mainstream banking services and find themselves more financially vulnerable as a result. The Central Bank estimates that as many as 283,000 people use the services of licensed moneylenders and at the end of 2020, there was a total of €141.15 million outstanding in loans to these companies.

People will still buy more than is advisable over the Black Friday extravaganza but at least now the more vulnerable shoppers – people on limited incomes or on social welfare – can look forward to a more modest, if still high, cost of credit.

Watch out for extra charges on that ‘amazing’ online deal

Revenue has also issued a timely reminder for shoppers to check whether the prices they’re paying for goods online include all tax and duties they are liable for before clicking the Order button.

Anything coming to the State from a non-EU country – including the UK – will be subject to VAT and duty. Some sites include those costs but others don’t, leading to unexpected and unwelcome bills when the goods arrive for delivery.

VAT is payable on anything arriving in Ireland from a non-EU country, regardless of the value of the item – generally at 23 per cent. If the item is valued at more than €150, customs duty also applies. They might also be liable to an administration fee from the delivery company. And while duty is charged on the value of the item, VAT is charged on the total costs – so you pay VAT on the cost of the item plus any duty due plus any delivery administration fee.

All told, it means that “amazing” website deal costs close to 40 per cent more than you had initially figured – or worse still with some small ticket items.

If the sites are clearly based outside the EU, most shoppers should be aware of the additional cost implications. But shoppers can be caught unawares by .ie domain names attached to websites that are actually based outside the Republic.

“Shoppers can check where a business is based by reading through the ‘About’, ‘Contact us’ and ‘Terms and conditions’ sections of the websites,” Revenue’s Maureen Dalton advises.

Get in touch

You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.