Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

It is worth examining what credit unions may do under the law as it currently stands because they may not be taking up the options available to them under current legislation.

The commission report into the credit unions notes that services may be shared in a number of ways, including the establishment of central credit unions, corporate credit unions, credit union service organisations, CUSO, or local alliances. Shared service arrangements are already in operation in the credit union area. For example, the credit union services co-operative limited or Irish League of Credit Unions own payments service, CUSO. The commission recommends that the establishment of such shared services arrangements should be facilitated by legislation where necessary. The Government agrees that the sharing of services offers credit unions an opportunity to benefit from economies of scale and allows them access to expertise which credit unions may not normally have the resources to engage. This may become increasingly important in the future, given the increased complexity and running costs which would be expected from a modernised regulatory framework and enhanced service offering. The Irish League of Credit Unions has accepted that there is no obstacle to establishing shared services arrangements at a credit union level. That is the first position.

I do not propose to accept the amendments on CUSOs as there is no need to provide for them in legislation. CUSOs are not regulated financial services providers and they do not require to be regulated as such by the Central Bank. The Bill already sets out provisions for outsourcing which will ensure that services can be shared safely. As Deputy Doherty said, that is the back-office range of services. They are enabled in law as it stands to do so and I would encourage them - as would the Central Bank - to do so.

It is not so much a case of shared services - known as shared branching. Shared services involve establishing an entity, usually a company or a co-operative, to provide certain back-office services to credit unions on a shared basis. This can reduce costs, enhance expertise and improve efficiency. I have outlined the commission's recommendations. There is no problem in doing this under the law as it stands. Deputy McGrath in the first instance and Deputy Boyd Barrett moved to deal with what is not shared services but rather is shared branching. Shared branching is a different concept; it involves credit unions providing front-of-house services, not back-shop services, to each other's members. This activity operates primarily in the US credit union system. Shared branching was not considered by the commission on credit unions and does not form part of its final report. In the public consultation process, shared branching was not a key issue in the submissions received from credit unions or other stakeholders, nor did it emerge from survey returns from credit unions.

In simple terms, shared branching would allow a credit union member to use the services of other credit unions as a customer - as do the banks. For this to work securely, a number of important provisions must be put in place. First, a settlement system would be needed and this is not in place at present. Otherwise, a person could withdraw his or her savings several times over from different credit unions without any safeguards to provide against this. Second, an underwriting process is needed to establish proper assessment of ability to repay a credit union issuing a loan on behalf of the member's home credit union. It will also need to be clear who would be responsible if the loan were to run into arrears; whether it would be the member's own credit union or the credit union which issued the loan. Third, an accompanying prudential framework would be needed to ensure, for example, that proper liquidity management practices are in place to guard against large unpredictable withdrawals at small credit unions that are connected to larger credit unions. Furthermore, shared branching raises fundamental questions about the common bond, notwithstanding the commission recommendation that the common bond remains unchanged.

However, the fact that shared branching operates apparently successfully in other jurisdictions indicates that this is worth exploring. It is not a decision to be made quickly as it would need an underpinning framework to be in place before we move in that direction. If it is the practice in America and if that is the direction in which the international credit union movement is moving then it should be explored but not in this legislation.

Perhaps the best way to provide what shared branching seeks to achieve - members being able to access their money - is with the use of debit cards, as Deputy Heather Humphreys suggested. The changes in the Bill to the additional services provisions on the attached savings will further support credit union debit cards.

I consider that it would be premature to enshrine shared branching in legislation in the absence of the supporting infrastructure and prudential framework, developed in consultation with all the relevant credit union stakeholders and the Central Bank. For that reason, I do not propose to accept amendment No. 7. However, there is merit in the debate. It is a space into which the credit unions may go in future but in the absence of the architecture to support this initiative and which I have described, it is premature to go there.

If Deputies wish to press the matter, I am happy to request the credit union advisory committee to examine and report on this issue, in consultation with stakeholders. If there is an appetite for it which did not come across in the submissions made to the commission, and if it can be done safely, I would be open to looking at it again.

Deputy Doherty spoke about the credit union moving into the space where investment in desirable community projects - especially those funded by the State or by local authorities - would be open to credit union investment. The commission report recommends that a formal process of engagement be established between the credit union representative bodies and the Government, to determine safe ways to invest collective credit union funds into community projects, employment initiatives and small co-operatives. I remain open to proposals from the credit union movement on this front. My Department is available to engage with credit union groups and other relevant players to explore what can be done in this area. There is nothing in law to prevent it. Primary legislation is not required in order to facilitate this. It is wise not to limit the scope for projects in this space by confining it to lending projects only.

I would like to hear more from the credit unions about the type of projects they have in mind and how they see this working, whether in the form of PPPs, as suggested by the Deputy, or otherwise. I emphasise that any such project would have to accord with the investment requirements of the Bill. Legislation is not required to enable them to move into the space as suggested by Deputy Doherty but in the working through of the projects, they would be required to comply with the investment requirements of the Bill.

The investments would not involve undue risk to members' savings. It is important to remember that the billions in cash held by credit unions belong to those who save with them. That money is callable on demand by savers; it is not spare money and cannot be used for double purposes. It cannot be callable on demand and invested in a PPP at the same time.

The second point is that the potential impact on credit unions, including on liquidity, must be assessed beforehand, as must their financial position. The third aspect is that the funds to be invested are those which are surplus to need and not immediately required. Deputies will accept that investment criteria are important. If a credit union approaches the Department or the Central Bank with an investment project, we will be open to considering it.

It is worth noting that section 44 of the Credit Union Act 1997 provides for a credit union to establish a dedicated fund for social and cultural purposes. Many credit unions use such funds to support local projects in their areas. Again, legislation is not required. However, there are so many credit unions that some of them are not aware of how they are already empowered to do certain things. I know members are in contact with their local credit unions and perhaps they might highlight this fact to them. Some credit unions are using the power available to them to establish dedicated funds for social and cultural purposes but others are not.

Given that no change in primary legislation is required to support this initiative, I do not propose to accept the relevant amendments. However, I invite credit unions to bring forward proposals they have in respect of this matter. I assure them that they will be assessed with an open mind.

Deputies Heather Humphreys and Billy Timmins referred to debit cards. I will be in a position to provide a comprehensive response to their concerns in this regard in the context of the next group of amendments.