Mr. Brian Corr:

The credit union advocacy committee, CUAC, recommended the increase in interest rates from 1% to 2% in mid-2016. There are a few reasons for it, the first of which is flexibility. It gives a little bit more flexibility to credit union boards to decide on their rates. It certainly is not saying each credit union should increase rates or that each credit union should target doubling their rates. The credit union representatives here today will be able to give the committee some experience of what interest rates credit unions are charging on the ground.

Credit unions are the only part of the financial sector at the moment which is capped in the interest rates they can charge. Even increasing it from 1% to 2% per month means that credit unions will still be the only part of the financial system capped in charging interest rates to borrowers. Their competitors in unsecured lending do not have any equivalent cap.

One reason to increase interest rates might be that the cost of giving out small loans, which are sometimes riskier and the administrative burden for that small loan, which will be paid back very quickly, does not generate much interest, particularly if the cap is at 1%.

As we discussed with Senator Conway-Walsh, one consideration is potentially assisting in bridging the gap in the moneylender space as well, so credit unions, with a little bit more flexibility, might be able to assist in the moneylending space.

It also gives flexibility to do other products. We expect a decent proportion of credit unions to roll out current accounts and debit cards this year. If they introduce a credit card as part of that offering to their members, they would, at the moment, be capped at 1% per month whereas a competitor credit card would be higher than the figure of 12% per annum. Credit unions are effectively being restricted from providing some services which they might want to provide in the future.

The 2016 paper from CUAC offered some reasons not to increase the rate which came from a credit union survey. It said this was not an issue for credit unions and they did not want to charge more than 8% interest on a personal, unsecured loan. The 1% per month limit did not matter to the credit unions so why change it? Some people came back and said that the credit union ethos is to charge lower rates. They can still do that while the flexibility is given to them to change the rate. Credit unions can still charge fair rates to their customers even if the cap is changed.

Some credit unions said that the cap protects members from excessive charges. While that is true, it might also restrict some potential members from accessing credit, so that needs to be balanced.

Mr. Farrell or Mr. Johnson might want to comment further.