The Government is planning to change the way money lenders are regulated to help ensure those who charge excessive interest rates do not have their licences renewed.
The Money Advice and Budget Service (Mabs), which offers advice to the public over budgeting and debt management, will be able to recommend to the Financial Regulator on whether a money lender is charging a reasonable rate.
There are more than 50 licensed money lenders in the State, some of whom charge rates of between 100 per cent and 200 per cent, according to research conducted by Ralaheen Ltd, entitled Do the Poor Pay More?
Minister for Social and Family Affairs Séamus Brennan said that under changes to legislation later this year the Financial Regulator would not be able to issue an annual money lender's licence without first consulting the Mabs agency.
He also said he was taking on board recommendations in the report which found that improved access to financial services could help people on lower incomes avoid poverty and debt.
Mr Brennan said his department was in discussion with banks over establishing a new "basic banking account".
This would provide a person in need of short-term loan an overdraft at a normal rate instead of having to pay the often exorbitant rates offered by money lenders.
However, Mr Brennan's plans were criticised by Labour leader Pat Rabbitte who said the Minister's plans were long overdue and amounted to little more than "political posturing".
Mr Rabbitte said the most effective way to tackle the problem was to ensure people on low incomes had access to reliable sources of credit at reasonable rates of interest.
"Minister Brennan should enter into immediate discussions with the credit union movement with a view to providing such a service. The credit union movement has an extensive network around the country and a proven track record," Mr Rabbitte said.
Research shows that ID requirements for opening bank accounts, restrictive criteria for some free bank accounts and a lack of appropriate financial products are among the barriers facing people on low incomes in seeking to open a bank account.
A recent report by Combat Poverty into financial exclusion found that people on low incomes also excluded themselves from the banking system because they lacked confidence to engage with banks, or they felt such institutions were not interested in poor people.
Helen Johnston of Combat Poverty said its research highlighted the important role played by credit unions and post offices in providing access to savings and affordable credit facilities within disadvantaged communities.
"People on low incomes tend to be familiar with these institutions and therefore more likely to use their services.
"By expanding their services to include a wider range of facilities, such as basic 'no frills' bank accounts and emergency credit, the study suggests that these institutions can further contribute to tackling financial exclusion," Ms Johnston said.
