"There is no justification for such high rates, most of which are short-term loans of a few hundred euro taken out by families on social welfare to pay for one-off events like communion days for their children, " said social welfare minister Seamus Brennan. "It seems that the poorer you are the more you pay, which is the exact opposite to the way it should be".

Under current regulations, there is no cap on interest rates charged by the banks, with rates determined by the market. But if a loan company charges 23% or more it is deemed a moneylender and must apply each year for an operating licence from the Financial Regulator. The regulator must agree the interest rates the moneylender can charge before an operating licence is issued. A couple of hundred of these loan companies or money-lenders operate in Ireland.

"The average annual interest rate being charged by these couple of hundred moneylenders operating in Ireland, most of which originate from the UK, is 39% but I am aware of charges up to 70% and 80%, " said the minister. These loan companies or moneylenders justify such high interest rates by saying that their rates are sanctioned by the Financial Regulator, he pointed out.

"These loan companies have also argued that lending to low-income families is very risky, " Brennan said. "They add that if they are pushed out of the market then these low income families will be forced to borrow from illegal moneylenders which would significantly worsen their situation.

It is a complex and tricky problem."

Twelve thousand new clients, with outstanding debts of over 76m to banks, loan companies and moneylenders, were dealt with last year by the Money Advice Budgeting Service (MABS), the state-funded service to help people in debt.

"Legal advice from my officials was that I cannot cap interest rates because that would undermine the banking system, " Brennan said.

But in the context of pending new legislation to put MABS on a statutory footing, he said he would insert a clause which would allow MABS to assess whether the interest rates proposed by a moneylender to the regulator were justified or not.

"The regulator will be obliged to consider the MABS report on the moneylender before agreeing a rate and issuing a licence. This should push down rates, " said Brennan.

The minister is also in discussions with the main banks to get their agreement to introduce what is termed a basic bank account, targeted at lowincome families. Most people go to a loan company or money lender because they do not have a bank account or credit card, which most people use for access to a quick loan, said the minister.

A spokesman for MABS said many of its clients have literacy problems and cannot fill out the many forms required under the anti-money laundering laws before they can open a bank account.

"These new banking accounts would give lowincome families access to the banking system, including overdrafts, with just a basic level of proof needed, " said Brennan.

This scheme has been successful in Britain and adopting it here would allow low-income families access to cheaper credit, he said.