Oireachtas Joint and Select Committees
Tuesday, 21 March 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Overview of the Credit Union Sector: Discussion
4:00 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I remind members, witnesses and those in the Public Gallery to please turn off their mobile phones as they interfere with the sound quality and transmission of the meeting. Today we are dealing with an overview of the credit union sector, that is, the report by the credit union advisory committee, CUAC, of June 2016 entitled, Review of the Implementation of the Recommendations of the Commission on Credit Unions Report. We are joined by a number of witnesses, all of whom are very welcome. The committee has previously met representatives of each of the pillar banks. This week, the committee will engage with the key players in the credit union sector, which again is hugely important. We will begin our meeting with statements, but before that I want to bring attention to the fact that witnesses are advised that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. I invite the witnesses to make their opening remarks.
Ms Annmarie O'Connor:
The Money Advice & Budgeting Service, MABS, welcomes this opportunity to appear before the committee. First, I wish to note that huge work has been done inside the credit union movement over the last number of years and that is evidenced in the CUAC report. In our view that must now pay a social dividend for members and their communities. MABS works very closely with the credit union movement and has done since its foundation and that work remains very important to MABS and its clients. We have made a detailed submission and I will summarise some of the points now.
Credit unions are a route to social and economic progression for individuals, households and communities. They enable progression between significant stages of life. Short-term lending does not always support that key objective. We concur with the view expressed in the CUAC report that section 35 needs to be reviewed. We also believe that mutuality, combined with appropriate regulation and strong corporate governance, offers a potential solution to some of the difficulties in the mortgage market and is worthy of further consideration.
When we last appeared before the committee in 2012, our main concerns related to financial and social inclusion. We note that there is very little reference in the CUAC report to the issue of financial inclusion and wonder therefore what progress has been made since the commission reported. I will talk about the personal microcredit pilot scheme later.
A credit union exists only to serve its members and not to profit from their needs. In MABS we are seeing more broadly in the credit market a movement of decision making about credit moving further and further away from the people and the communities concerned. We also have a concern that big data and data analytics will come to replace rather than reinforce the relationships of measured mutual trust that are a cornerstone of good lending.
We previously highlighted the need for a robust assessment to underpin lending decisions and in that regard we welcome the new credit register, which will come on stream later this year.
In our experience it is borrowers in their mid-years who most often find themselves in financial difficulty and we believe that if a member and their credit union can re-engage on a pragmatic basis during an arrears difficulty, there is scope for long years of highly productive engagement for the future. More broadly we have a concern about the credit market to the effect that the outsourcing of loan books and of collections to third parties could cause a permanent severing of those important relationships between members and credit unions and could have an adverse impact on credit unions.
We note from the CUAC report that the potential for remuneration of voluntary board members has been mooted by some respondents. We would be concerned if this added to transaction costs within the movement or indeed displaced the contribution that is currently made by volunteers free of charge.
As regards lending, there is a need for balance in making good lending decisions yet not being so risk-averse that regulatory systems and processes serve to prevent credit unions from granting loans to people who need credit.
The continued prevalence of licensed moneylending in Ireland is symptomatic of a failure to provide attractive, affordable and life-enhancing products and services to low income borrowers. We would like to highlight the early success of the "It Makes Sense" loan, which is currently being rolled out by more than 100 credit unions. It is an excellent first step and we are getting lots of positive feedback but it needs to make a much larger and deeper imprint on Irish society to become a competitor product to the doorstep lender. An important feature of its success is that it is a highly branded loan and such brand recognition is very important. There is scope within the credit union movement to roll out a core suite of easily recognisable and strongly branded products such as the "It Makes Sense" loan and that would enable it to attract greater market share.The use of the doorstep lender and moneylender is a type of high-cost overdraft which is relied on by low-income borrowers on an ongoing basis. The view of MABS is that a similar low-cost alternative should be available via the credit union, with borrowers having access to revolving pre-approved credit to a certain limit at an affordable cost. Obviously regulatory issues would have to be explored. On a related point, if we are serious about financial inclusion, loans that are successfully repaid to a licensed moneylender should be recorded in the new credit register and thereby enable those clients to have a stepping stone back into mainstream credit provision
I would like to mention our new service, the dedicated mortgage arrears advice service within MABS. We have already helped 3,000 borrowers who are in late-stage mortgage arrears and 20%of these borrowers also owe debts to credit unions. The casework is often characterised by family tragedy, relationship breakdown, illness and mental health difficulties. These clients absolutely must prioritise the payment of their home mortgage. We also recognise that an appropriate balance must be achieved between the legitimate interests of all creditors but that this should be happening at a far earlier stage, well before the point at which the borrower or member is at risk of losing his or her home.
On insolvency, we believe it is a fact that some loans will never be repaid in full and insolvency is a tool which enables everyone to move on. MABS has a particular interest in debt relief notices. The throughput to this solution has been far lower than anybody had anticipated. Many eligible clients do not proceed because of their allegiance to their credit union and its members. Others are discouraged because they do not wish to damage their future prospects of borrowing from a credit union as they know what the alternative may be. That process needs to work much better.
We have a concern also about younger members and the tailoring of credit union products to suit the income patterns of young people. Their employment can often be fragile and their income unpredictable. We need a suite of products that suits their needs.
In terms offinancial capability, credit unions have a very important role in increasing members’ understanding of credit union products. However, information is not enough. We need to have a capable and financially literate consumer population.
There is a problem with complexity, in MABS's view, which is emerging across a whole range of markets, including utilities, insurance, savings and mortgage markets as competition increases. This is a wider socio-economic development but it underscores the important role of the credit unions and the lasting relationships it forges with individual members and within their communities.
I would like to raise a concern that is reflected on page 59 of the CUAC report around the future business model for the sector and that there remains considerable ambiguity about business model development within the sector.An element of stasis seems to have set in with regard to the vision for the credit union movement, yet at the same time we are witnessing a proliferation of new entrants to the Irish credit market.
We need a strong, capable credit union sector with a recognisable and accessible service offering that is designed around the needs of its membership, including in particular those on low incomes.
Mr. Brian McCrory:
I thank members for inviting us here today and for putting credit unions on the agenda of the committee. We in the Irish League of Credit Unions comprise 390 credit unions from across the entire island of Ireland. There are 297 credit unions in the Republic of Ireland affiliated to the league and 93 in Northern Ireland. My background of over 35 years involvement in the credit union movement is in Belfast, with the Belfast Teachers Credit Union, which operates across all of Northern Ireland, and with the SAG Credit Union, which is anchored in the heart of West Belfast. I am also vice president of the World Council of Credit Unions. I am accompanied here today by Mr. Ed Farrell, the CEO of the Irish League of Credit Unions.
Before the last general election the league set out a succinct policy programme entitled Six Strategic Steps. One of those six steps is for credit unions to feature on a recurring basis on the agenda of this committee.
Credit unions are a vibrant, innovative movement that do a lot now, but critically are positioned to do a lot more for communities and our country. There is a mismatch between our capacity and willingness on one hand, and the willingness and capacity of those with policy and regulatory responsibility to partner with us. In seeking to put our business on the committee's agenda, we are looking for champions who will deliver change that will enable credit unions become a much more dynamic force.
Where credit unions have found partners, we have made progress. In this regard I positively single out the Department of Social Protection. Moneylending is a social scourge. It blights communities and doubles down on the financial exclusion of the poorest. In partnership with the Department and with MABS, the "It Makes Sense" loan scheme is now being rolled out nationally. It is making a difference to communities. It is very much part of our social ethos and we are very proud to be part of that. Where we can find partners to work with, we have a track record of delivering.
On the critical issue of funding for social housing, the then Government in its 2014 policy document, Social Housing Strategy 2020, looked to credit unions for funds. We responded with a very detailed policy paper setting out how that could be delivered in ways that would allow all credit unions to contribute via a centralised vehicle that underpins the credit union ethos and ensures effective regulatory oversight. The response has been very positive. Regrettably, several years later the delivery to date has been nil.
Today's agenda specifically deals with the CUAC report. This review was set up in response to the league's campaign and the implementation group has been established on foot of the review. The implementation group has met once. Effectively its first substantive meeting will be tomorrow. Its programme of work stretches over months. We hope this process will deliver substantive policy change that will be mirrored by appropriate regulatory change. We will be involved in it and we will work hard. However, we are concerned that this process is as much about time management as change management. Volunteers in credit unions ask me if this is just another hop on the merry-go-round.
Credit unions need sustained political support. We need this committee to pursue credit union issues forensically and continually. In 2015 we campaigned hard to persuade the Minister for Finance to pause and review before bringing into force the remaining sections of the Credit Union and Co-operation with Overseas Regulators Act 2012, prior to implementation of CP88, the Central Bank's latest regulations. The Minister, however, would not pause. The last effective control of the Oireachtas over credit unions was handed over at midnight on New Year's Eve 2015. Now, we have had a review, followed by an implementation process in circumstances where the capacity of the Department of Finance, via the Central Bank, regarding credit unions is unclear.
The Department of Housing, Planning, Community and Local Government has advised that it is very interested in our proposal on social housing. Given that the Department elicited it in the first place, it should be. That Department is in turn in discussion with the Department of Finance, which we are led to believe is in discussion with the Central Bank. While I have no doubt such conversations are taking place, I doubt whether any action will ever arise as a consequence.
We have much more to give to communities. We have resources and have a national network, but we are also challenged. On the one hand we must develop our business model, and we are rightly reminded of this by the regulatory authority. However, we are caught in a Bermuda Triangle where we must develop but regulatory approval has not been forthcoming for the changes we wish to adopt. We receive political encouragement from the Oireachtas that ironically handed over nearly all effective responsibility to the Central Bank.
There are crying needs in our communities. The Irish League of Credit Unions has developed a number of policies on how change can come, many of which the committee members will have seen prior to today. However, change will not happen and credit unions will not realise their potential unless there is sustained political involvement that effectively connects better policy with more appropriate regulation. Our hope is that today is the beginning of that process, which unlike others, will be short and purposeful.
Mr. Tim Molan:
I thank the members for the opportunity to address the committee on the important issues of credit union sectoral overview and the CUAC report. CUMA is the organisation for senior credit union managers, CEOs, chief financial officers, risk managers, compliance managers etc. CUMA has been a proactive participant on the commission and the credit union restructuring board. Our managers have carried much of the burden of change arising from the Credit Union and Co-operation with Overseas Regulators Act 2012 and other legislative requirements. This transition has come at a time of great upheaval in the economy. At the same time, credit unions have remained by far the most popular deliverers of service in Ireland.
The most recent statistics in the report, Financial Condition of Credit Unions 2011-2016, show that credit unions have come through that period very well. In that period average surplus grew from €320,000 to €730,000, average return on assets grew from 0.87% to 1.22%, average arrears fell from 18.15% to 9.69%, and reserves grew from 13.35% to 16.48%.
The credit union sector in future will be a mixture of large credit unions, many with their origins in mergers, and smaller credit unions. Credit unions will continue to have a vital role in the communities they serve, particularly in light of recent and future bank branch and post office closures.
The CUAC report is timely and accurate. Attention is drawn to areas that have been ignored to the significant disadvantage of credit unions and of their members. Tiered regulation, proportionate to the scale and risk in each credit union, has not been delivered. This was a key deliverable of the commission report. Consultation and engagement have been less consistent and transparent than was originally envisaged by the commission. Consultation was expected to be meaningful, with clear impact analysis forming the basis for significant changes. Where consultation has been triggered, sector views have often been ignored, as was the case with CP88.
When it comes to engagements between individual credit unions and the Central Bank, service level agreements do not currently exist. Response times from the Central Bank can be overlong, resulting in indefinite delays around the holding of credit union AGMs and other processes. Where significant issues arise, the American model of “prompt corrective action” is preferable to repetitive and expensive studies by various consultancy firms.
A one-size-fits-all approach to regulatory directives can have very significant adverse impacts on a credit union, both short-term and long-term. Blanket lending restrictions on credit unions caused a loss of lending relationships for many years, from which we are still suffering. Restructuring has gone some way to delivering changes necessary to deliver better services. We acknowledge the work of ReBo, the restructuring board. However, we now fear that restructuring will stall and we believe the legislative framework for restructuring needs to be revisited.
Business model development is the responsibility of credit unions. No other sector is as constrained from innovation as credit unions are under sections 48 to 52 of the Act. The Central Bank’s role should be to have clear frameworks available so development proposals are dealt with in a more structured, timely and appropriate manner. Statutory Instrument No. 1 of 2016 limits our capacity to develop. For instance, the hard-coding of a 10% minimum regulatory reserve requirement puts us at a significant disadvantage in regard to banks. There are significant prescriptions on lending in the instrument, including limits on community lending, commercial lending and mortgage lending. Meaningful consultation and a regulatory impact analysis in all cases would have made for better regulation and allowed a more varied approach to business model development to take place.
It is time these many areas and others are addressed. We look forward to engagement with CUAC and the implementation committee on the issues outlined.
Mr. Kevin Johnson:
CUDA is grateful to the committee for inviting us to this meeting. CUDA was formed in 2003. It is owned by 12 credit unions and currently has 43 of the most professional and progressive credit unions among its members, which in turn mange one third of the total credit union assets of €16 billion. Over the past ten years the financial landscape of Ireland has changed dramatically with the collapse, bailout or closure of every single banking institution in Ireland. It is important to note that of the 420 credit unions that existed in 2007, only two were liquidated and three were subject to directed transfers. Although any one credit union closed is one too many, the committee will take comfort in the fact this represents some 1% of those which were in operation, with 99% coming through the crisis intact.
In recent years we have become more consolidated, stronger and smarter credit unions. However, without Oireachtas support to get rules changed to allow credit unions broaden their business, they will not survive. It will surprise committee members to learn that although this is a success story, the regulation that has come into force over the last decade on savings, loans and payments systems has resulted in credit unions being permitted to do less business now than they could ten years ago. This is neither proportionate nor fair, and it can only lead to marginalisation of credit unions as an effective force in lending if this is allowed to continue. We need the help of the Oireachtas to put this right.
The first slide outlines a clear vision that shows credit unions as capable of being the financial hub of their community, offering real choice to people and being a meaningful alternative to banks. We are doing this by building on the qualities that have made credit unions so successful and earned members' trust and loyalty by being there for them and consistently being on their side, whether they are simply trying to cope with the financial challenges of life or trying to achieve their ambitions for home ownership or financial security. Unless we are allowed to compete, however, members will continue to be deprived of best value.
The next slide sets out the legal objects of a credit union. I draw attention to object (b), which refers to the creation of sources of credit, not just personal unsecured loans, for the mutual benefit of its members. This means that where a credit union can prudently and compliantly provide loans, it will also be able to reward its savers, who are in danger of having their needs overlooked. It is clear credit unions are about the optimisation of surplus to improve the well-being and spirit of the members and their community, rather than maximisation of profit for a small number of privileged people, as we see in other institutions.
The fourth slide sets out some key figures that demonstrate the success, the financial strength and the popularity of credit unions. The growth in savings has driven a significant increase in the level of investments, and with credit unions being forced into bank deposits to meet regulatory liquidity requirements, banks now appear to be taking advantage of that situation and charging for such deposits. This is a very serious threat that needs to be addressed by allowing more lending and wider investment classes for credit unions.
The following slide shows that consumer preference was again evidenced last year, as it was in 2015, through an independent survey of 37,000 customer experiences where people recognised that credit unions provide the best customer experience across all industries in Ireland. Other research has also demonstrated that people would like to see credit unions provide more services. We want to do this to ensure people get what they need when they need it and how they need it, and in a fair and equitable way.
At CUDA we have made real progress in helping credit unions strengthen their governance by complying with the absolute barrage of new legislation and regulation while they also continue to provide services, albeit within the 2016 regulations that impose severe caps on the levels of business that can be done. Our work through the solutions centre includes supporting credit unions to provide home loans to their members in a fully compliant and prudent manner, something that those who are building such capabilities should be allowed to do more of. However, credit unions need the help of the Oireachtas Members. There is a wonderful opportunity for Oireachtas Members to enable credit unions to contribute to solving the housing crisis. They collectively have the power to make a simple amendment to the Credit Union Act 1997 that will enable credit unions to collectively lend to approved housing bodies and local authorities for social and affordable housing projects, as set out in slide No. 7. They can urge the Central Bank authorities to substantially extend lending limits where capabilities and financial strength exist, given short-term lending alone is inadequate for their survival. They can also urge them to enhance the classes of investments; for example, we submitted draft regulations, as set out in slides Nos. 8 and 9, to allow credit unions to invest in funds for housing-related purposes. The third way Members can help us is by keeping credit unions on their agenda. The CUAC review and the findings in its report, as set out in slide No. 10, are simply a reflection of the regulatory failure to implement these issues as recommended by the Commission of Credit Unions in the first place. Members should remember that their involvement clearly drives action.
In conclusion, the effect of the new regulatory rules without proportionality relegates credit unions to compete in less than 10% of the Irish credit market. Yet, we have the capital, competency and community from which we can compete on a fair playing pitch with other lenders. The effect of existing rules is like asking us to win an all-Ireland while marginalising our team to staying inside its square, and at the same time allowing competitors free rein over the remaining 90% of the pitch. The outcome of such actions will be plain for all to see. As we meet these needs, we need to broaden our range of lending options by way of loan periods and rates. To do this we seek to work co-operatively with the Oireachtas and with regulators on behalf of all in this State. This is community building, state building and fairness in action, nothing more. We need the assistance of the Oireachtas to mobilise efforts to do this work immediately and, in doing so, this will allow credit unions to help families finance their homes, improve their lives and breathe life back into their communities.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Thank you. I am not sure Brian Cody would agree with that game plan.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I welcome the witnesses. At this stage we are old friends and have been dealing with each other over many years. To cut to the heart of it, there was a report recently in one of the newspapers, perhaps theIrish Examiner, that credit unions were refusing deposits and did not wish to take in deposits.
Is that reflective of the views of the credit unions on the ground?
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What is the reason?
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
If the credit union takes in €10,000 over the counter, it must come up with €1,000-----
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Out of its existing resources?
Mr. Kevin Johnson:
This relates to what I raised regarding the urgent need to look at the classes of investments. As funds come into the credit union, it can lend them out or invest them. Due to the very strict liquidity requirements and the very restrictive classes of investments, it effectively means putting it on deposit. One bank announced in early January that it was going to apply a negative rate, in other words, it was going to charge credit unions 0.25% for the privilege of keeping their funds there. That was rapidly followed by another large bank, a State-owned one, that increased that to a negative 40 basis points. Between that and the withdrawal of some of the banks from the market, it is a serious compression on the counter parties available to credit unions. Unless we get the rules changed and allow credit unions to compete and offer more services, their options about what to do with that money are seriously compressed.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
The traditional lifeblood of the credit union involved it taking money from its members and then lending it out to its members. Typically, the money would have been on deposit with the local bank. That was the traditional model as I understood it and I have been a member of a credit union for virtually my entire adult life. I want to tease out the practicalities. Could Mr. Molan tease out what happens if someone comes into a credit union with €10,000 they inherited or in savings? I want to understand the implications of that for the capacity of the credit union to function and lend money. Could Mr. Molan distill it down because it may be a bit abstract for some people?
Mr. Tim Molan:
Some of this goes back to the issue of reserves and reserve requirements. A 10% reserve requirement is imposed on credit unions. This has a significant cost at this stage. That reserve requirement has been hard coded under SI No. 1 of 2016. We have no option but to meet those reserve requirements and if a credit union falls below them, it is in trouble with the regulator. If it falls sufficiently low, it is in severe difficulty. This is an actual cost that is visited upon a credit union. Many members have a preference and such is the popularity of credit unions that many members see it as their primary savings institution. Again, because of the local nature of credit unions, it is a significant factor for them. My colleague from MABS spoke about social inclusion. At present, a significant number of people in this country are unbanked and a significant number of people in this country have a preference-----
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is it a fact that some credit unions can afford to take in deposits and that they are profitable enough to be able to live with it? Is the fact that some are refusing to take in deposits a reflection of the individual credit union's financial capability? The fact that credit unions are refusing to take deposits from the ordinary person goes against all the principles of the credit union movement. Is this problem endemic to the entire credit union movement or is it down to individual credit unions whose financial wherewithal means that they cannot afford to take in deposits?
Mr. Tim Molan:
Credit unions must be forward looking and look at the situation as it arises or as it may be. The bottom line is that a number of credit unions have taken a decision to put a cap on savings inflow for prudential reasons. We should bear in mind that in the same statutory instrument, the Central Bank imposed a blanket cap of €100,000 on all credit unions in the country.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Does Mr. Johnson wish to contribute to that same point?
Mr. Kevin Johnson:
I emphasise the point that with some credit unions referred to by the Deputy, it is a self-imposed savings cap. It is not a case of refusing savings from any individual member. The sad part of it is that it is reflective of the restrictive nature of the credit union that it cannot utilise those funds in a prudent and provident manner. We mentioned the ability to lend for housing projects earlier. If we had that simple amendment either to the class of investment or indeed to the Credit Union Act, the funds would be welcomed and members of credit unions would be delighted to see their savings put to very prudent and provident use.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What would be the witnesses' number one priority for the people they represent? What changes need to take place to solidify the growth potential of credit unions so that they would be secure into the future but would not put the prudential side at risk for their balance sheets?
Mr. Brian McCrory:
Using a very simple model, one can look at a credit union as being a simple shop. If it is taking in money, it is taking in stock. Unless that stock is going out the front door in some shape or form, there is no point in continuing to stock the shop. It then takes the prudential decision to stop buying the stock until it can deal effectively with what it already has. Through restrictions on who they can lend money to, the amount, the nature of the person, etc., credit union lending has deteriorated over a number of years since 2015 because of an edict from the Central Bank as to the circumstances in which a credit union can lend money to an individual. There is a direct correlation between the decline in lending and that.
As Mr. Johnson also said, it is about the opportunity to be able to invest funds in other programmes that can earn a social dividend and a capital dividend for the credit union and the community at large. Those opportunities are denied to us. We are forced to become wholesale collection agencies for banks to have our moneys on deposit. The people who benefit from that are the banks, not the community and not the citizens of this country who have amassed billions that are sitting on deposit.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Does Mr. McCrory feel credit unions are like a creamery that does nothing more than collect milk and supply it to the bigger creamery?
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Matters are dictated by the bigger-----
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
It is a bit rural all right.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is there one item Mr. Johnson or Mr. Molan would like to see changed?
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
If Mr. Johnson takes one bite at a time he will have a better chance of getting a result than looking for a myriad of items.
Mr. Tim Molan:
On the issue of lending, we are credit unions after all and the harness, in terms of lending, has to be taken off. There is a sector-wide lending restriction on all of us, and I will give the Senator one simple example. The report states that community loans are restricted to 25% of the credit unions' regulatory reserve and given that a credit union's regulatory reserve is 10%, that is 2.5% we can put out into community lending. The Senator is from a rural community. There is a need in rural communities, as there is in urban communities, for community lending.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What does Mr. Molan classify as community lending?
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What will unlock that? I have said many times that I believe the credit union movement-----
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Senator O'Donnell, you have gone way over your time.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What will unlock that restriction?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
This is your third final question.
Kieran O'Donnell (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What is the key mechanism that will unlock it?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I will call Senator Conway-Walsh shortly but on Senator O'Donnell's point, I presume the interest rate environment the witnesses are operating within and the negative interest rates they are being charged makes it less attractive to take in money than if they were getting a rate of return on it.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is a significant part of the reason some credit unions might be restricting the funds because the more funds they take in, the more money they will be charged by the banks for managing those funds on their behalf. Historically, if they put money into a bank, they got an interest rate back.
Mr. Ed Farrell:
Whether the bank is charging a small amount to mind it or paying a small amount of interest, to go back to Senator O'Donnell's point, it is the 10% capital requirement. If they take in an extra €10,000, an extra €1,000 has to be reserve capitalised by the credit union. Their own earnings are their only form of capital. They are not allowed to inter-bank borrow, borrow on markets or issue bonds. It is a full asset. There is no risk rating. Our capital regime is much higher of a requirement than the banking one would be so we have to have a 10% reserve on our total assets. The banks have to have a 10% reserve on a risk weighting of their assets, which in effect would probably be about half our capital requirement. In terms of the extra moneys, which we are only going to take in from the people as the bank branches close in the towns, if we are going to put it on deposit with a pillar bank or into a Government bond, why make us have a 10% capital reserve requirement on it? The money is going into a risk free environment so we could mind the money for the people at a very small or zero interest rate, and they understand the interest rates as well - if that much greater capital requirement was not on us and the money it is going into is risk free. We could mind the money. We would not make money on it but at least it would stop the people having to go elsewhere, which goes against our grain, and theirs.
Rose Conway Walsh (Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I apologise that I was not here for all the presentations but I have read through them. It is an unusual day with the passing of Martin McGuinness, and I will confine my contribution to five minutes because I am committed to some media interviews after this meeting.
If there is a common theme in the presentations it would be the frustration the movement seems to feel about the political and regulatory decisions, and the management of the sector, some of which the witnesses dealt with. The Irish League of Credit Unions, ILCU, summed it up as being a mismatch between what they are willing and able to do and the capacity of the policy makers and the regulators to match that willingness. The committee will hear from the Department and the regulator on Thursday and we know they will speak about their responsibility to ensure the prudent management of the sector to protect members. Do the witnesses believe this is what they are really concerned about or do they believe they are pursuing a wider policy goal? Are the actions of the Department and the Central Bank compatible with their members' vision of a modern credit union sector? What needs to be changed on their side? Do they believe their side has made the changes necessary to adapt to the demands of the credit union sector in 2017? Do they have confidence in the Central Bank and the Department as partners going forward or do they believe we need to examine the entire regulatory structure? There is a lot being sought in those questions but I ask the witnesses to comment on them.
Mr. Ed Farrell:
In our opening address we gave examples of where political willingness and willing partners worked with the personal microcredit scheme. On social housing, we gave an example, albeit it was Government policy, of an ask from Government for credit union funding to be made available for social housing and a willingness on our behalf to engage with that. It was the 2014 report to which the president referred. Almost three years later, we are frustrated at the lack of a way of getting that done. We need the Departments of Communications, Climate Action and Environment and Finance, the Central Bank and the various arms of the State to figure out a way to get this social housing proposal done, which is Government policy. The credit unions have stepped up to the plate, as it were. Many regulatory requirements were placed on credit unions in the 2012 legislation following the commission report and everyone acknowledges, including the CUAC report from last July, that the governance regime in credit unions in Ireland now is as good as it is in any credit union movement anywhere in the world. Credit unions have stood up but to go back to Mr. Johnson's point on the investments and the lending side of the equation, the rules behind the business side of the house and the balance sheets have not been moved in the expected manner. There is a huge degree of frustration among credit union people about that. They have done the hard work. At all times we encouraged the arms of the State to get together to find the channels and unlock any blockages to get these very important projects for the people of Ireland moving across the line.
Rose Conway Walsh (Sinn Fein)
Link to this: Individually | In context | Oireachtas source
If we take a step back we see that the 2012 report is still largely unimplemented. That is why we had the review published last June. Do the witnesses believe the review's recommendations to set up the implementation body might have been an error as they allowed the Government and the Central Bank to stall on any other recommendations until it was set up, which as we know is happening now, nine months after it was published? What recommendations do they believe the implementation body needs to prioritise?
Mr. Kevin Johnson:
That is a nice easy one. When the Senator says that the report of 2012 is largely unimplemented, that is not necessarily accurate. Our concern and frustration is that all the parts of it that related to the governance and prudential rules were implemented. What heightens our frustration is that prior to the commission report credit unions could do more for their members in their community than they can today.
What we are looking for is that quid pro quo. The strength and governance is all in place and credit unions have embraced that. It has not been easy because implementation continues to be challenging and expensive. It heightens the cost of delivering a service to members.
On the other side of it are items such as the full review of lending limits. Instead of that taking place, we got another layer of limits, by category, imposed on us and fewer options on investments. I commend the credit union advisory committee, CUAC, for its honest report and for highlighting the seven areas which were not implemented. It is not a matter of cherry-picking one or two of them. There are a suite of changes that need to take place.
We are all conscious, not just the Central Bank, of protecting members’ savings. It is constantly put to us as if the credit unions were not aware of that. Of course we are aware of it. That is our primary objective. It is all about the prudent and provident use of those savings for the betterment of the whole community. I would not pick one particular recommendation. The CUAC and the implementation group have to get on with dealing with those outstanding issues and ensuring that they are all implemented this time. As I said in the opening statement, it only exists because they were not implemented the first time. That is why we ask the committee to keep credit unions firmly on its agenda. We would love the committee to play a monitoring role to ensure these things happen properly.
Rose Conway Walsh (Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I commend the work of the credit unions. Coming from a rural community, I know the role they play in tackling social inclusion, addressing poverty and many other issues that affect communities. The credit union movement is crucial in that regard and will be even more crucial going forward. If credit unions are allowed to fulfil their true potential in rural, as well as urban, communities, we all will have a lot to gain.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
I welcome the representative groups and thank them for their time. I am trying to reconcile the gap between the Central Bank, the Department of Finance and the individual member of a credit union, as represented by these groups today. If I start with Consultation Paper 76 - or CP76 - my understanding was that the representative organisations made specific proposals on tiered regulation. I note the point made by Mr. Tim Molan of CUMA earlier:
Tiered regulation, proportionate to the scale and risk in each credit union, has not been delivered. This was a key deliverable of the commission report. Consultation and engagement have been less consistent and transparent than was originally envisaged ... Where consultation has been triggered, sector views have often been ignored, as was the case with CP88.
I want to drill further into that dynamic. I read the speech by the Registrar of Credit Unions to the CUMA spring conference. Objectively, one would think that, from a regulatory point of view, the issues raised by her in that speech seem to apply to many credit unions. If there are still outliers in the system that are not ticking all the regulatory boxes from a legislative point of view, should they be dealt in one parcel, while those credit unions, whether they are large or involved in the hub-and-spoke model, are allowed to progress into areas such as payment accounts, debit cards, longer term lending and investment in social housing? Is it the case that the Central Bank is trying to apply a one-size-fits-all approach? If that is the case, will that hamper the ability of the credit union movement to progress in lending for productive, social and other purposes?
Mr. Tim Molan:
Tiered regulation was a key deliverable of the commission. At the time, the commission envisaged a three-tier regulatory approach. In CP76, issued by the Central Bank in late 2013, a two-tiered regulatory approach was proposed. The tiers were supposed to be around the level of risk and complexity that would be involved. All three representative associations were in favour of a tiered approach to regulation. It never happened, however. That is part and parcel of why, for instance, this CUAC report is being debated. Generally, there are several downsides to the one-size-fits-all approach. First, it overburdens the small credit unions, and, second, it restricts the ability of the larger credit unions to innovate. Innovation is absolutely key to the future for us. The whole area of tiered regulation has to be addressed by this committee. Other than that, we are just going to stagnate.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
Does that involve a change to one of the sections of the legislation or does it involve a change in the culture within the Central Bank regarding how it views credit unions?
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
That is a question which should be posed to the registrar as one of the workings of this interaction when she is before the committee on Thursday. I read her speech to the CUMA conference in which she addressed issues such as everyday payment accounts. She stated:
[T]he market is not large enough to support multiple offerings of the same products and services, but that limit is not one confined to one service model. So far, we have not received any formal applications beyond MPCAS, although our sectoral engagement suggests that this is an area of active interest.
If the credit union movement is talking about innovating and the potential for payment accounts, how does that work its way through the system? What does that mean from the credit union movement's perspective?
Mr. Brian McCrory:
We would challenge the thinking of the Central Bank, as should the committee.
If one considers the history of the matter - the announcement that there was a €1 billion hole in the credit union finances, the clamour around the troika, the crisis and all that ensued, and the subsequent waste of legislative time that caused the creation of two funds that were going to rescue the credit union movement, of which €28 million or €29 million may have been used - at all times, the credit union movement had the wherewithal to address its own financial needs and was precluded from doing so.
The analysis of what can and cannot happen regarding credit unions is best focused, and should be focused, on the credit union side. The regulator should be there to regulate - full stop. If one considers how the system is currently constituted, the regulator essentially dictates who is in the chair, who will manage, who might be on the board, to whom one can lend, the amount one can lend, the reasons for which one can lend, the duration of one's investment, the nature of one's investment and the amount one has on call by way of cash. We proudly espouse our status as a democratic movement. This has essentially been stolen from members because that democracy no longer exists. We do not even have the wherewithal or the freedom to call an AGM or a meeting of our members because the bank can decide not to allow us to do so.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
Mr. McCrory has moved on to AGMs. On that issue, I understand that quite a few AGMs have not taken place and that sanction is needed for an AGM to take place. Why is this the case?
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
I wish to broaden the perspectives on these issues, Mr. Johnson, Mr. Molan and even Ms O'Connor - forgive me, we have not included her in the interaction yet. We are trying to get a better understanding of this. As I said, it is still about the gaps that exist. Mr. McCrory has already articulated a gap in respect of CP88 and spoken about the indefinite delays in the holding of AGMs. What the average member wants to know is why this is the case. How do we close this gap? The theme of the registrar's speech was "Mind the Gap". She referred to:
- Your current v. your needed level of regulatory compliance. Given some of the issues we have found in recent supervisory engagements, I could characterize this as "Mind the basics", and
- the sector's current business model and capability, and the ambitious proposed or evolving business models, which often carry very much different risks and capabilities.
There is then still a massive gap between how the registrar perceives the Credit Union Managers Association and how the organisation perceives itself. Somewhere in between, we are trying to see if we can broker or mediate that gap, and in broad terms there seems to be a long way to go. On the face of it, the registrar seems, if I am reading the speech correctly, to put a major limit on the issue of the payment accounts and debit cards. She seems to suggest a major curbing of one's enthusiasm, for want of a better expression, in respect of long-term lending. She is very reticent, if I interpret her correctly - and she will have a chance to respond to these comments on Thursday - on the investment in social housing.
In addition, I have a difficulty understanding the issues regarding section 35. No review has yet been undertaken, even though we are technically out of recession, on the section 35 rescheduling restrictions because individual impacted members - and this is based on anecdotal evidence - are back in work and have continuing borrowing requirements in excess of the emergency amounts allowed under the regulations. Again, the question on my mind is whether it takes a legislative change to amend this or whether a cultural change is needed within the Central Bank to broker that. I hope that makes sense.
Ms Annmarie O'Connor:
Deputy Sherlock mentioned minding the gap. Moving away from prudential and regulatory matters, the gap, as we perceive it, is between what the members need and what the credit unions can provide. That is the biggest and most important gap. As we are aware, nature abhors a vacuum, and when that gap exists, our concern is that others will enter the market, and others have been entering the market. As we perceive it from the outside, there are fewer constraints on those new entrants to the market than exist on the credit unions. We have a concern about section 35, which we have mentioned. We are all living longer and we all work longer. Long-term lending, therefore, needs to match these requirements. That is a big issue for us. We know there have been amalgamations in the credit union sector but the credit unions have long-lived relationships with their communities, and we are concerned that some of the new entrants do not have such long-lived relationships with borrowers. People are therefore experiencing a real gap day by day in what they need from credit unions.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
Does MABS have a facility to engage directly with the Central Bank on issues such as those in terms of-----
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
What feedback is Ms O'Connor getting on that from the Central Bank?
Ms Annmarie O'Connor:
We engage in the same vein as colleagues here in terms of consultation papers and so on. One sees improvements in regulations, perhaps, but we do not get the opportunity to sit down face to face with the credit union business to talk about the bigger picture matters. This committee is the kind of forum in which we can really engage on these matters.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
Unless there is anything anyone else wishes to add-----
Mr. Kevin Johnson:
We must be conscious that the credit union sector is not homogenous. There is diversity and variety within the credit union movement, and the gap arises when a one-size-fits-all approach is taken. The problem is that there will not be an average, so everybody is probably suffering. These matters of proportionality and regulations that match the nature, scale and complexity of the individual credit union are set out in the legislation. What we have are 285 active credit unions, each of which is a separate legal entity that deserves to be regulated as such, not as one homogenous group. This is possibly-----
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
Tiered regulation is what is needed.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
That is the message we need to hear in a very unambiguous way, and it is coming across clearly.
Mr. Kevin Johnson:
Tiered regulation allows a credit union to have appropriate policies and rules. We are totally cognisant of the need to safeguard members' savings - that is what we all want to achieve - but we want to use them wisely, and the only way we can do so is by matching the needs of the membership of the credit union. Again, we are very conscious of members as consumers as well as owners. They should not suffer because of their desire to do business with their credit unions or related credit unions. There is much scope for us to consider in the future.
Mr. Ed Farrell:
What annoys credit unions is that the speech referred to by Deputy Sherlock shows the attitude of the Central Bank towards the credit unions. That attitude has deteriorated over the years since the Central Bank took over the regulation of the credit union movement. There are thousands of volunteers and staff in credit unions working hard every day to keep their 3 million members serviced well. All these regulatory and governance improvements have been made since the 2012 Act, yet this is the thanks or the praise we get. Also frustrating is that all during the CP88 campaign, all the representative bodies went to long yards to stress that the Central Bank had said the current business model is broken and not viable. However, not only do the CP88 rules not allow enhancement to business and services, but they actually reduce and restrict the investments and lending, as we said earlier. We therefore all agreed we would have to do new things, yet the new rules allowed less than the current rules, and certainly not new things.
Seán Sherlock (Cork East, Labour)
Link to this: Individually | In context | Oireachtas source
In other words, if there is an outlier who does not fit all the criteria vis-à-visregulation, in a one-tier system of regulation one cannot develop new business models or innovate. I think that is the core message we are getting from the witnesses.
Mr. Brian McCrory:
That is a part of it. The Central Bank is often keen to quote international comparisons. The reality is that many of the international movements were created on the basis and experience of the Irish movement; the sad reality is that they have been allowed to pass us at speed.
One third of their book is SME lending, one third of it may well be unsecured personal lending and the other third is either in the form of supporting social housing or other social objectives. The credit union movement in Ireland has been curtailed from evolving. It is not that long ago since the Minister for Finance stood up in the House and said that he foresaw a time when the credit union movement would be the third pillar of financial institutions on the island of Ireland, but I have yet to see action that would enable that to happen.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I welcome the delegation. It is quite easy to see that the credit union movement is trying to operate with its hands tied behind its back, as it were. Is there a difference between the credit unions' lending in the North and in the South?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
They both operate under different Central Bank regulations. Is that correct?
Mr. Brian McCrory:
The reasons for the decline are different. Much of what happened in the North by way of decline has been caused by uncertainty, that is, economic uncertainty, the fragility of the market and at one stage there was the threat of the withdrawal of British Government funding. Much of the North's employment base is, essentially, Government-funded. Had that funding gone, peoples' job security and associated securities would have disappeared with it. There was a reluctance to borrow, and following the financial crisis, there was a tendency for people to consolidate their household moneys and to reduce their outgoings. Given the current uncertainties over Brexit, that is unlikely to change any time soon.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
In terms of the cash pile held by the credit unions, the witnesses are looking for a change in legislation to allow them to invest in housing projects that-----
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
In both jurisdictions?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
The Central Bank that is governing the North has the same problem with the idea as the Central Bank here. Is that right?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Can credit unions enter the mortgage market in the North?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is there a limit on the amount?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
There is more flexibility in the North than there is here. Is that correct?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Ms O'Connor said that MABS has a very good relationship with the credit unions. Does it have a similarly good relationship with the banks?
Ms Annmarie O'Connor:
In general, we have a good relationship with all lenders. Obviously, at times it can be uneasy because in some cases we are telling lenders that a borrower is not going to be able to repay a loan and we are trying to broker an agreement with an individual credit union or bank. We would work more closely on the ground with credit unions, obviously, because they are on the ground in the same way as MABS-----
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is it easier to work with them?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Would the loans involved be smaller, generally?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I detected from the presentation that MABS has a better relationship with credit unions and Ms O'Connor has clarified that this is because they are on the ground-----
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
-----but the banks are on the ground as well. However, it is quite obvious that the banks' decisions are not made on the ground. Would that be fair?
Ms Annmarie O'Connor:
Absolutely, yes, and we commented on that earlier. We would see that for ourselves. Indeed, committee members can see it in terms of bank branch closures and so on. Having a relationship with organisations that are on the ground is very important for MABS. It is also very important for the borrower to be able to go to a place and talk to somebody - a real person - as opposed to a unit or a call centre.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I think it is extraordinary that credit unions are not paying out any dividends to their shareholders. As I understand it, no dividends are being paid.
Mr. Ed Farrell:
Actually, most of the credit unions would be paying dividends. They would be very modest dividends because the European Central Bank rate is zero, but most credit unions would be paying modest dividends linked to the ECB rate of less than 0.5%. The imposition of DIRT takes half of that away, so one is talking about half of half of one per cent.
Mr. Tim Molan:
From the value proposition point of view, all credit unions have a legislative cap in terms of the interest that can be charged on loans. A very significant number of credit unions would pay less than the maximum amount and a very significant number would pay loan interest rebates. We are dealing with our members and it is all about giving our members the maximum amount of value possible.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
As I understand it, if somebody wants to initiate a savings plan amounting to €20,000 or €30,000 and wants to pay in €200 or €300 per week, some credit unions will not accept that business now.
Mr. Brian McCrory:
That is possibly true in the case of some credit unions. However, one must bear in mind that there are attendant benefits in situfor credit union members that have not been expanded upon. For example, in the ILCU and some other credit unions, members' debts die with them. Savings are doubled on death, and in the ILCU, in the event of accidental death, savings are trebled. The credit union provides a death benefit grant in many instances. These are not benefits that one will find in any other lending institution but they are part of our operating costs. Those costs are not borne by the members
Mr. Kevin Johnson:
It is such a sad reflection that we are not able to utilise peoples' savings in a productive manner. I do not want this to be seen as only an issue for the Central Bank. Legislative change can be made to allow credit unions collectively to lend for housing projects and that is completely within the remit of the Houses of the Oireachtas. We would ask for members' support to do that. There are ways in which credit unions can lend that money out or invest it in schemes that would have a very productive effect.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Will the witnesses tell me why credit unions would like to be able to lend into housing projects in particular? Why do they not want to lend into industry or some other area?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Credit unions are not allowed to invest in anything. Is that what Mr. Johnson is saying?
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
A credit union can only use 2.5% of its funds for community loans for things like GAA or soccer pitches and other community projects. Is that 2.5% of the funds on deposit in the credit union?
Mr. Tim Molan:
The exact wording in the section on concentration limits for a community loan is as follows: "where such a loan would cause the total amount of outstanding community loans to exceed 25% of the credit union's regulatory reserve". If the credit union's regulatory reserve is 10%, then 25% of that is 2.5%.
This is not a level playing field. Those restrictions are not imposed on our competitors, the banks.
Paddy Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source
If the rules were changed, it would allow credit unions to take deposits from people trying to get businesses off the ground and hoping to get loans. It would also allow the credit unions to pay dividends to shareholders and would produce other benefits.
Mr. Brian McCrory:
Absolutely. When others appear, the rhetoric is that they are simply trying to protect members' savings and that we are not trying to do that. On the contrary, we are there, first and foremost, to protect members' savings. We try to afford members the opportunity to reinvest their money in their local communities, whether through social housing, SME lending or some other way to empower the community, such as unsecured personal landing. Such people are not being afforded that opportunity and there needs to be radical change in the mindsets of the people who regulate and govern.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The regulator is acting on foot of the legislation While we focus on Central Bank regulation, it is the legislation which causes the difficulty, Therefore, any change that is needed must be made to the legislation. Can Mr. Johnson separate those two things for us? Some legislation has been passed and is working while other legislation has been passed but is not working. The legislation required to make things work for credit unions is the third heading of today's submissions.
Mr. Kevin Johnson:
The 2012 Act effectively empowered the regulator to make rules. Lending limits were embedded in section 35 of the 1997 Act but this was replaced by a provision giving the regulator the authority to set the limits. In the commission report, the expectation was that in transferring that authority from legislation into regulation there would be a thorough review and that under the tiered regime some credit unions would be allowed to do more. In fact, the existing term rules found their way into the regulations and concentration limits, based on different categories of loans, were placed on top of them. A lot of these rules resided in the legislation but are now the remit of the regulator.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is that the central piece which has to be corrected?
Mr. Kevin Johnson:
One can urge the regulatory authority to use the power in a productive manner and the CUAC review highlighted the seven areas that were not implemented. If not, it should come back to this committee to consider whether to put in place an alternative. Part of our request is that this committee keep a very close watch on how the implementation takes place.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What engagement have witnesses had with the Minister or his officials and the Central Bank or its officials on this issue?
Mr. Brian McCrory:
For ten years, the Irish League of Credit Unions has made it clear that its members had ambitions to invest in social infrastructure. With the financial crisis and the social housing crisis, everybody is talking about the dire straits people are in and how terrible the situation is but the Irish League of Credit Unions and the credit union movement will not be able to satisfy the finance needs in order to solve that. No matter what we say, it does not appear to be acceptable. We asked to be told how high to jump and what our governance structure and capital requirements should be. We need to be told what we need to do to be allowed to do this but we asked over a year ago and have not had an answer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What engagement has the Irish League of Credit Unions had with the Minister, officials, the Central Bank and the regulator?
Mr. Ed Farrell:
During the CP88 campaign, the three representative bodies present today had a meeting with the Minister for Finance, Deputy Noonan, and his officials and some positive things were achieved before the legislation was signed out of law and into regulations, at midnight on that day at the end of 2015. We have had a couple of meetings with his officials since then, such as one nearly a year ago on social housing at the time of the formation of the current Government. A lot of action and work were promised and the Department of Finance, the Department of the Environment and the Central Bank were engaged to push on with social housing following requests by Independent Deputies who were in talks about the formation of a Government at the time. Despite the urgency of that time and meetings of those three bodies with the credit union movement, almost a year later no credit union money is being put to use for social housing. Since then the Central Bank has said that consultation would have to be done in any event and that, even if it wanted to, it could take between six and 21 months to change the rules.
Each of the representative bodies meet the Central Bank on a regular basis, though we do not meet the Department of Finance as regularly as we should or would like to. We pushed very hard for the Minister and the Government not to take the rules out of the legislation because we feared the Central Bank would be more rigid once the rules were taken away from the control of the Oireachtas. During the work of the commission in 2011 and 2012, the thinking was that the rules would be less rigid because they would not require Acts of the Oireachtas to change small operational details relating to credit unions. However, it is actually more straitjacketed now.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
When was the last time the representative bodies met the Minister?
Mr. Ed Farrell:
The last time the Irish League of Credit Unions met the Minister was during the formation of the current Government, approximately a year ago.
The three representative bodies met the Minister and his senior departmental staff at the end of 2015. We had a session with this committee at that time also. I cannot speak for the other bodies.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
When was the last time you met the Central Bank and the Financial Regulator?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What comes out of those meetings? What was their reaction to the different requests and issues you have? Did they-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is the experience Mr. McCrory has had with the Financial Regulator and the Central Bank?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Tarnish someone with the brush. I am sorry but Mr. McCrory should tarnish someone with the brush because we are here and listening to the submission he is making. Mr. McCrory said in his opening statement that he is searching for champions. I do not believe there is anyone in the Houses who would speak against a credit union. I am a member of a credit union and many Members right across the political divides are members of credit unions. We support the credit unions. I want to see the credit unions allowed to be developed but when we meet with the other side of this argument on Thursday, we want to have all the specifics on this subject. It is either a case that regulation within the Central Bank and its response to the Irish League of Credit Unions is just not up to it or it is the case that the legislation in its entirety needs to be re-examined and amended. One cannot help but note from Mr. McCrory's contribution the frustration and, at times, anger over the fact that credit unions do not have somebody to champion their cause and we note his reference to the poor response from the Government, particularly, in the example given by Mr. McCrory, with regard to the housing strategy. My answer is that within the House and among its Members, the credit unions would have the greatest of respect. I can point to my own constituency and county and say that St. Canice's Credit Union is a magnificent example for anyone to follow. It has helped those who were in debt to moneylenders. It has helped with the local enterprise board in supporting business and helped some of us with regard to election campaigns. A credit union is an essential element in the make-up of any community. I know from listening to the committee members' questions that they want to support what the Irish League of Credit Unions is doing. The fact is that credit unions have champions. Within this committee there would be an agreement to continue to champion and highlight the issues that concern credit union representatives to drive on the change and reform the Irish League of Credit Unions believes is necessary. I am taken aback at the lack of exchange by those who hold the reins, be it on the Department's side or the regulatory side, and that they do not see the value and do not engage sufficiently well to allow credit unions to perform to the full extent in the marketplace. If that is the case then we must go back to identify where the problem lies. We must first identify it and address, as parliamentarians, what appears to me to be a highly disrespectful approach by the regulator to the credit unions. This is how it appears to me. There is also a misunderstanding or lack of understanding about the role credit unions play - and are trying to play in an extended role - in the community, which is a positive for community development. That must be addressed. Mr. McCrory spoke of the housing investment. What kind of money are we talking about? If he was asked to invest in the morning what money would credit unions make available?
Mr. Brian McCrory:
A year ago, I estimated the money immediately available at that time was €800 million. That figure would have increased substantially. Credit unions want to play a part in developing, supporting and contributing to their communities. Part of that will be social housing. We are not talking about putting all the eggs in one basket. It will be part of a range of activities in which they want to be involved. To preclude credit unions from that-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Small business loans?
Mr. Brian McCrory:
Quite some time ago we offered position papers on that subject. We want to play a fair part in society and to contribute to creating a social dividend, as well as a financial dividend for our members. Nobody can give a satisfactory answer as to why we must maintain all our moneys on deposit in banks rather than investing it in our communities.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The credit unions are probably keeping the banks afloat. Essentially that is what is happening. Were credit unions to all pull their money out from the banks, they would all start crying for help again. It seems to be the case that there is a vested interest here.
Mr. Brian McCrory:
During one conversation with a person, who shall remain anonymous, credit unions were likened to children playing with matches because of the amounts of money they were charged with looking after. I suggested to that person that it was not the children who nearly burned the house down.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
How much money have credit unions invested in banks?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It appears to me that the credit unions are a victim of their own success and a victim of the banks' requirement for the maintenance of the status quofor protection of the banking system.
Mr. Kevin Johnson:
If I may go back to the Chairman's earlier point - in fairness to the Chairman and the committee they are cognisant of the uniqueness of credit unions - credit unions are regulated by the registrar of credit unions who is part of the Central Bank of Ireland. The Credit Union Development Association has a lot of engagement with the registrar, as do the Irish League of Credit Unions and the Credit Union Managers Association, and it is quite a professional relationship. There are a lot of good people trying to do their best. This is why it really makes one challenge and question where is the logjam. The Central Bank published information in the last few weeks which highlighted its own concerns around the future viability of credit unions. The Central Bank is very conscious of the financial strains coming down the tracks but at the same time, we do not seem to be able to figure out how to relax these rules to allow credit unions to prudently use the funds and the strength they currently have. The time to act in this regard is now, while we have the strength. We need to look at the structure within the Central Bank and we need to look at how the registrar is positioned within the Central Bank. Increasingly, we are finding that regulations that are appropriate for other types of institutions are coming our way. We have to be conscious of the uniqueness of the credit union sector and it is something that must be preserved in all of this. All we have sought in recent engagements, including in engagements with the deputy governor, is greater transparency around the Central Bank's expectations of what it wants us to deliver. In public speeches we constantly hear about the poor quality of proposals or the lack of proposals, but as Mr. McCrory has said, it would certainly help us if we could have greater transparency around the expectation of what those proposals should be like. If the proposals do fall short of expectation then what is required of us to bring it up and turn a "No" into a "Yes"?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I have to attend another meeting. I apologise for having to leave but I am delighted that the witnesses are here. Senator Horkan will take the Chair. The committee will revert back to today's witnesses after our meeting on Thursday.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I am actually next to speak so will be putting my questions through myself, but that is the way these things happen.
Mr. Tim Molan:
If I may, I will follow on from what Mr. Johnson has said and speak on the importance of regulatory impact analysis and where we are at now. The Central Bank has regulation-making powers. A regulatory impact analysis that is a properly quantified, costed and effective analysis could make a significant difference in ensuring that regulations, if they are made, are made wisely.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The delegates are all very welcome. I got to hear most of the their contributions and to study them in advance of their attending. The league is focusing mainly on the Republic aspect. There are 297 credit unions within the Republic. We were saying one size does not fit all. Are there bands of credit unions? Are there ten or 20 that are huge and 80 that are minute? Could I have an idea of the relative sizes of the credit unions?
Mr. Ed Farrell:
In the past three years, there has been a restructuring board, a semi-State entity that emerged from the commission report. There have been approximately 100 mergers or transfers of engagements. There were approximately 400 credit unions but there are now 300 approximately. As I stated, that has resulted in a smaller number of much bigger credit unions in addition to a number of smaller credit unions. There are approximately 50 credit unions with a balance sheet of more than €100 million. They comprise roughly 50% of the total number in euro and assets. The Central Bank of Ireland has three asset bands, namely, under €25 million, between €25 million and €100 million, and more than €100 million. By and large, those in the latter category have taken over credit unions in the past three years under the restructuring project.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Fifty or so are in the band with assets more than €100 million.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
How many have balance sheets between €25 million and €100 million, and how many have balance sheets below €25 million?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is it envisaged that there will be more mergers or transfers of engagements, perhaps for efficiency purposes?
Mr. Ed Farrell:
There used to be a band for assets under €10 million. During the restructuring in the past couple of years, credit unions in that band felt a lot of pressure to merge with a bigger neighbour. Now that band is for assets worth under €25 million. Those in it fear there will be pressure put on them to continue. We are all in favour of full voluntary transfers of engagements, whereby the board of the smaller credit union, perhaps in the village or smaller town, voluntarily engages with the county town credit union or a bigger credit union that is reasonably close geographically. If it is a matter of two voluntary boards of directors coming to a good conclusion to the joint benefit of all their members, we are all in favour of it. We do not like to see undue pressure being exerted just because of the size of the balance sheet.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Mr. Farrell said there was a band for assets worth less than €10 million. Is there a minimum that has to exist?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is that driving philosophy coming from the regulator or the banks?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Who is it coming from?
Mr. Brian McCrory:
While is not overtly stated, it seems to be an expectation. One might cynically ask whether one should create a bigger entity simply to sustain the burden of the regulatory cost that has emerged in recent years. The regulatory cost is a considerable burden for many credit unions. It effectively takes money from members' pockets. Credit unions are not against proportionate and relevant regulation but what they are challenged with is a costly exercise. I refer to the creation of the number of statutory instruments that require credit unions to contribute to funds that require efficiencies of scale. This has made some credit unions feel compelled to jump. There may not necessarily have been a very sound underpinning business reason in some mergers. In other cases, there might have been compelling reasons. That is fine but the idea that the creation of economies of scale somehow achieves a better outcome is questionable.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is Mr. McCrory arguing, or is the point being put forward, that the regulatory requirements credit unions have been required to meet at present are excessive?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is not the question I am asking. Is the level of regulation of credit unions excessive now as opposed to previously? Is it greater than the delegation believes is required?
Mr. Ed Farrell:
I think it is generally accepted that because the tiering arrangement did not get implemented, the burden on and cost to the smaller group is now excessive. The issue for the bigger group is constraints on its business development. It is generally accepted, and it is also the view of the board, I believe, that the tiering has done as I have described, certainly for the smaller, simpler cohort of credit unions.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is the argument that the regulation, which the delegates admit is expensive, is excessive?
Mr. Tim Molan:
Tiering is what is needed in order that the regulation will be proportionate, such that the higher risk credit unions that wish to have more exotic products and whatever else would be subject to higher levels of regulation. There are disproportionate levels of regulation being imposed on smaller credit unions which have much less exposure to risk.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
As members, we will be asking Department of Finance officials on Thursday for their take on what the delegates are saying today. We will be asking them why all credit unions are being regulated to the same extent. We are trying to pre-empt the discussion and get as much ammunition from the delegates as possible. The cost of regulation is significant and it did not always arise. I believe the delegates are suggesting the smaller credit unions do not need to be subjected to as much regulation as the bigger credit unions.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
For the benefit of viewers, could we have examples of regulations that did not exist heretofore but that now exist and are excessively burdensome, particularly for the smaller entities?
Mr. Ed Farrell:
There is the full suite. The rules state every credit union must have a risk officer, risk committee, compliance officer, compliance committee and an internal audit function. The external audit function was always in place. A credit union must have a board of directors and board oversight committee. There are six or seven layers of checks and balances. With the absence of tiering, the smallest or simplest credit unions are subject to the same requirements as the largest. Some of the bigger credit unions might have a simple business model. We are not necessarily saying it a case of the smaller versus the bigger. The one-size-fits-all-regulatory burden has been imposed and there is a cost to implementing those systems. As Mr. McCrory stated, when the Government talked about the big hole in the credit unions, it created funds, and the credit unions are levied every year to put money into them although the money was already in the movement. Some €20 million or €25 million per year is going into three or four of these key funds. It represents approximately 20% of credit unions' income. The funds are not needed. The rainy day has passed, as it were.
Without giving too much detail, one of those funds was the credit institutions resolution fund. It was set up for four years and it was to have €100 million after that period. The banks were to pay in €17 million, the credit unions were to pay in €7 million and what I call the IFSC companies were to pay in €1 million. Therefore, €25 million per year was to go in for four years.
The four years have passed. We have been asking the Central Bank and the Department of Finance if that is the end of it. It was a four-year fund. Is that the end of our levy going into that fund? Before they answered us, they took a fifth year’s levy into a four-year fund and we still cannot get an answer. One is pushing it to the other and we are not able to tell our credit unions if the fifth of four is the last one or if there will be six or seven or four.
At the same time, they commenced another fund, the Deposit Guarantee Scheme Fund. We got reassurances in November. Last May we had been expecting it by year-end. We got reassurances in November it was not current, but in less than a month invoices for €12 million went out to credit unions after we had been reassured a month earlier it was not current. That €12 million and €7 million gives a total of €19 million in levies that went out in December. The €7 million is the fifth year of four and the €12 million we were told was not imminent. It is 20% of the credit unions' income and the income is under pressure because of the interest-rate cycle we have been talking about.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Are these funds being created effectively in case one of the entities collapses?
Mr. Ed Farrell:
One could argue about the €12 million one. The deposit guarantee scheme exists throughout Europe and Ireland for every bank, building society and credit union. If one of them fails, the money comes from that scheme. This resolution fund was set up and has not really been used. A stabilisation one has been set up and it is only for credit unions within a very small bracket. It has not been used yet and I do not think there is any real expectation that it will be used. It was a sledgehammer to crack a nut to set up these multi-million funds. Despite the movement maintaining there would be no contagion and that the credit unions would be able to handle it themselves, the money is being taken out of the credit union movement. We cannot even plan ahead; the individual credit unions cannot even plan in their cashflows because we cannot even get answers as to when some of these are ending or being reviewed.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Were those funds administered by the Department of Finance, the Central Bank or the credit union regulator?
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Mr. Farrell said he was reassured that it was a four-year deal. Who said that to him?
Mr. Ed Farrell:
The legislation to set up the fund provided for a four-year fund. We got the documentation. The breakdown was €17 million, €7 million and €1 million, a total of €25 million, per annum for four years. I will not keep repeating myself; it is now five years and we cannot get an answer so we cannot even help people to plan their budgets, and prepare their strategic plans and their cashflows.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is very helpful. On Thursday we will have the opportunity to put some of these points to officials and we will hear their take on the sector.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Are these the 50 largest ones?
Mr. Kevin Johnson:
This includes the mid-sized ones and all of the other credit unions that have the risk-management capabilities, compliance officers and internal auditors. They have built up a range of additional capabilities within their credit unions yet their business model has not been allowed to evolve. Without being flippant about it, I start to wonder why that was all brought in.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The sense of frustration from all of the witnesses is palpable. I do not think they are picking on us, but they are wondering where to turn next. We want to do X, Y and Z and we are not being let. Everyone is saying we should, but no one says we can.
Mr. Ed Farrell:
Page 74 of July's CUAC report under the recommendations on governance states:
CUAC considers that governance requirements on Irish credit unions are on a par with international best practice with further additional governance requirements unnecessary. CUAC again emphasises the importance of the Central Bank ‘having regard to the need to ensure that the requirements imposed by the regulations made by it are effective and proportionate having regard to the nature, scale and complexity of credit unions’. CUAC believes that proportionality is currently not evident for those credit unions who operate a simple savings and loan model.
My point is that it is not just us, because we would say that.
Ms Annmarie O'Connor:
I make an observation related to the layers of regulation, but more fundamentally to our interest, which is financial inclusion. The discussion on what is going on in the credit unions has gone on for some time. The CUAC report sets out clearly what has been achieved in terms of the commission's recommendations. What has been achieved is hugely significant. The financial inclusion side seems to be lacking. Listening to some of the dialogue there is frustration over a credit union movement that in part cannot borrow and also people cannot save in it. Where will that end up particularly for people who want to have that service available in their local community? I am concerned at the potential for people to drift out of this model now. The old supports that were once there for many people are not facilitated by the regulatory model. We have an opportunity now; we have a very well structured movement. It is time to put some of those arguments to bed and for the credit union movement to have a vision that supports its membership and indeed new members.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That might bring us to one of the next points. The Chairman alluded to the idea of champions and so on. Most members, not just in this committee but Members of the Houses, have been supportive of the credit union movement over the years. One of the positive points about financial inclusion is the aspect of the "It Makes Sense" loan scheme in co-operation with the Department of Social Protection and MABS. I ask Ms O'Connor to elaborate on that and how it takes over from some of the licensed moneylenders and so on.
Ms Annmarie O'Connor:
It is a loan that is structured with a multi-stakeholder group behind it. It is currently available through 100 credit unions. It came from a pilot project and is now almost a mainstream product across the movement. It targets low-income borrowers. There is a link through the household budget scheme. Borrowers can repay from their social welfare payments where it is linked through the household budget scheme. That provides a degree of reassurance over the repayment of the loan. In our experience of our clients who have accessed it, it is very effective for those clients who were thinking about taking a loan from the doorstep lender or the licensed moneylender. This is a viable alternative for them; there are thresholds on the loan value and so on. We believe it is a product that offers an alternative to that. Given the amount of money credit unions have and given that moneylenders have a client base of I believe 300,000 clients, we wonder what more we can we do now. We have to make this loan and products like it much more widely available to low-income borrowers because those borrowers are simply not attractive to the high street, mainstream-----
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The product has been piloted in 100 credit unions. Is there a fairly high level of compliance in the repayment of loans?
Mr. Ed Farrell:
It was trialled initially with 30 credit unions and it then went nationwide with just over 100 credit unions involved now. As Ms O'Connor said, it was a multi-stakeholder group so the representative bodies of the credit unions, Citizens Information Board and the Department of Social Protection were involved. In his opening address, Mr. McCrory gave it as an example of how we can make a great success of something where we find willing partners. It was done with the Department of Social Protection and the Citizens Information Board under the former Minister of State, Senator Humphreys, and the then senior Minister, Deputy Burton. Even more recently we had a very positive meeting with the current Minister, Deputy Varadkar, as we were moving from a pilot to the nationwide roll-out.
We have 100 credit unions covering more or less every county. The geographical base would be large because the larger towns' credit unions would cover a lot of a county and the people working or living in that hinterland can be a member of the credit union.
A larger than normal provisioning requirement for the pilot was agreed to by the multi-stakeholder group. The good news was that when the pilot was finished it was agreed by all, and the Central Bank is on that stakeholder group, that the arrears were not at a level that required it. I believe it is running at only approximately 2% arrears. The people who have been dogged by the moneylenders are very happy to be able to get back in. The credit unions had almost been afraid to lend to them due to the restrictions and whatnot that had been on them. Everybody is happy to get back in.
The credit unions are not making any money out of it. By law, credit unions cannot charge more than 12% interest, whereas moneylenders are allowed to charge percentage rates in the hundreds. There are numerous reports on the unfairness of that. We have a close relationship with English credit unions and they are allowed to charge 3% per month, which is 36% to 40% APR for that type of payday, as they call it in England, or small lending in that moneylending space. They can charge far more. That is mentioned in the CUAC report. The maximum interest rate of 12% was probably okay 20 or 30 years ago but there is a need to look at that again. We could do a very good social job by helping these people move away from the moneylenders, but at more than 12% we could make a few bob on it as well so it would be a win-win situation for everybody.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
At present, the consumer is getting a loan at a much more reasonable rate of interest.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
But the credit unions are not making anything from it.
Mr. Ed Farrell:
No, not really, particularly in light of the administration burden. The average loan has been approximately €500 so the loan for the year will generate less than €50 in interest, whereas for the moneylender it is €150 in interest. There is a burden in collecting any loan. Certainly, credit unions stood up to the plate. We are all about trying to rehabilitate people who may be cut off from the normal financial wagon.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It comes into the financial inclusion Ms O'Connor mentioned. Does Mr. Johnson wish to speak on this?
Mr. Kevin Johnson:
I wish to emphasise the point Ed Farrell is making and, indeed, your observation that credit unions do not make money on these. If the credit union is to do more to deliver this social benefit this is where the balance is critical, to get the economic return to be able to do more and deliver more of the social benefits. One can see why the business model must evolve so that the less fortunate can benefit more from the credit union, as well as those who are fortunate. The credit union is there for all. The more we can do, the more good work we can do.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is the sense we have all received from today's meeting. I will ask my colleague, Deputy Michael McGrath, to speak shortly, but there is a fairly united message from all of our guests to the effect that they are frustrated with the system as it is. They are being encouraged to contemplate doing certain things but when they try to do them, there appears to be a barrier or a wall of silence. I am not sure what it is, so perhaps on Thursday we will ask those questions, on their and our behalf, as to why some of the progress has not been made. It is almost frightening to think that the implementation group of the CUAC has met only once since that report emerged.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
There has been nothing since.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Our guests are saying that there is slow progress, if any.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I welcome our guests and apologise for my late arrival. I had to cover for the party leader in the Chamber this afternoon. There is nothing worse than somebody arriving late, repeating many of the points that have been made and asking the same questions, so I will make a couple of observations and put one question. The question will be on the recommendations the witnesses would like the committee to make. When I suggested to the Chairman that we hold these hearings, it was with a view to the committee, on an all-party basis and including members of no party, collectively making recommendations to the Oireachtas and the Government that might make a difference. It is not about a long wish list but about the priority areas where we could make meaningful changes. That will be my question presently for each of the witnesses.
The frustration coming across is palpable, but there is also an honesty that is welcome. When we consider what has happened over the last number of years in the approach to regulation and so forth we should also recall the context. In October 2011, the Minister, Deputy Noonan, was obviously advised by somebody to tell the Seanad that the cost of rescuing credit unions would probably be over €500 million and might be up to €1 billion. That was the thinking and the context. Somebody advised him that this was the likely scenario for credit unions. It was very wide of the mark. A small number of individual credit unions got into difficulty and did not have good practices. Everybody must acknowledge that. However, I have gone through the numbers and when one takes into account the various levies that have been paid into the different funds, the net cost is negligible. It is a net cost to the State of a few million euro to support the movement. There was a real suspicion within the system as to what credit unions were doing and how healthy or unhealthy they were and that informed the approach of the Central Bank in particular to the credit union movement. That is my understanding of it, and I could be wrong. However, I believe there was a feeling that the movement was in far worse shape than it transpired was the case when the deep-dive assessment was carried out.
The failure to implement the tiered approach to regulation was a travesty and a betrayal. All of the changes that were introduced were supposed to be in the context of the tiered approach. If that approach had been the overarching strategy within which all the other changes to regulation occurred, it would not have been anywhere near as bad as it has turned out to be for credit unions. The CUAC report of last June was refreshing and straightforward. It contained many interesting items. One that struck me was the following statement:
The loan to asset ratio has fallen steadily in recent years to a present level of 26% which is a cause of deep concern. There are only 5 countries out of 105 with credit union movements, which have a loan to asset ratio inferior to that in Ireland. A further major issue for the credit union loan books is that over the period there has been a significant shift away from larger value, longer duration loans to smaller value, shorter duration loans. Both trends raise fundamental questions around the credit union business model(s).
The main recommendation of the report was that there should be an implementation group to oversee the implementation of its recommendations. However, it took eight months for that group to meet. That says it all about the lack of priority afforded to the movement.
We are here to try to make a difference. We will be meeting with the Department and the registrar. What would each of the witnesses like us to recommend? There are many issues involved, including the restrictions on where credit unions can place their investments, the different types of lending restrictions, the longer term restrictions, the issue of the reserves, the difficulty in getting sanction for new services and the issue of lending to approved housing bodies and local authorities and legislation to address that. What can we usefully do? At the end of this process, I hope the committee will agree unanimously on a report, which will go to the Oireachtas for debate and to the Minister for Finance for implementation. If it requires legislation, which I expect it will, so be it. We can do that. If the witnesses would state the key items they would like the committee to recommend after we have had our engagement on Thursday, that would be very helpful.
Ms Annmarie O'Connor:
Our emphasis is on financial inclusion. In terms of the regulatory issues, the review of section 35 and the capacity for long-term lending is important. I also want to reiterate the importance of the personal micro finance loan, the "It Makes Sense" loan. When I look across at the UK, much research has gone into this area and many actual bodies have been set up by industry to examine responsible credit. There is no such analogous organisation here independent of the credit union movement. We have no real think tank on credit. Organisations such as ourselves can make inputs. Organisations such as the Social Finance Foundation have provided research for the credit unions on the "It Makes Sense" loans. There is no independent think tank, however, looking at building financially healthy communities in Ireland which is happening in the UK as part of the recovery. There is this gap and there is in-thinking. We need new thinking if we need to get innovation in the sector. We need to ask those most in need of the support the credit unions can provide about they want for the future.
Mr. Brian McCrory:
Part of what needs to be changed does not require legislative change but a change in mindset. They very same people advising the Minister in 2011 are the same advising him now and those attitudes still prevail. There is still an undercurrent of suspicion that there is something radically wrong with credit unions. I am not saying there are no flaws or issues which need to be addressed or that there have not been problems. In every instance, despite a suggestion by the regulatory authority at one time, credit unions which found themselves temporarily in difficulty have traded their way out of it. At one point the advice to the Minister was that they should be shut. The consequences for society of such an action would have been dire. There must be a change, whether it be legislative or regulatory, that will allow credit unions to invest their collective moneys in the citizens of this State, whether it be for social housing, SMEs or other purposes. There needs to be liberation from the “computer says no” mindset at every turn. There needs to be a relaxation of the lending limits and a reconsideration of the directives issued to credit unions that precludes them from lending to many of their members.
The decline in lending can be precisely traced to a communication from the Central Bank to credit unions which grossly impacted on their ability to lend to a significant number of people. Over time, one can track the pronouncements from the Central Bank and the regulatory authorities and the reduction in lending. A couple of years later, credit unions are heading for difficult times. It is a virtuous circle. What is it that the credit unions are supposed to do to break that virtuous circle because those gifts are not within our control? There needs to be a review of the rules taken from legislation and put into regulation. The rules need to be legislated for, specifically defined and not to be arbitrary. There needs to be a willingness to allow what was at one point a democratically controlled movement to be in control of its own destiny. Whenever people make the statement that we are here to protect members’ savings, the direct inference is that we are not. Nothing could be further from the truth. I find that irksome when it is repeated ad infinitum. It is as if there is one particular party to this with the fitness and probity who can protect members’ money. That requires a mindset change, not a legislative change.
Mr. Kevin Johnson:
One immediate deliverable would be an amendment to expand the common bond legislation to enhance it to allow the credit unions, individually or collectively, to lend to approved housing bodies and local authorities. That would be a definite win all round.
The classes of investments and the long-term lending limits are two urgent areas which need to be addressed. We are entering into the discussion with the CUAC implementation group in good faith. There were seven areas highlighted which were not delivered the first time. We would urge the committee to play a monitoring role to ensure it does happen this time. The tiered regulation is like an umbrella which sits over many of the other parts of the movement. It is there for the benefit of the small, medium and large credit unions and we get that proportionality with the nature, scale and complexity factored in properly.
We have no idea how the €1 billion figure was arrived at. At other committee meetings in the past, concerns were raised that there were more than 100 credit unions on solvency watch lists. The one learning we have taken out of all this is the Judge Judy rule. Things were not written down, so it was assumed they did not happen. We have taken on all the burdens of the 2012 Act and have strategies, policies and procedures coming out of various orifices. What we need now is to use all that newfound capability in a constructive way to deliver more services to more members.
Mr. Tim Molan:
One of the most important practical actions is that there are between 2 million and 3 million credit union members. They, more than us, need a champion. That champion is this committee. Its oversight and scrutiny over the next several months is critical for going forward. CUAC has isolated several specific areas. There is the spirit and the intention of the commission’s report which was agreed by all stakeholders, the Central Bank and the Department. That has to be followed through. All the questions on the outstanding issues have to be answered to our satisfaction. As bodies, we are up for engagement.
Our job is to manage prudentially the funds of our members and to lend to them. Those are the goals on which we need to pursue and deliver upon.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
In her Mind the Gap address to the CUMA spring conference, Anne Marie McKiernan, the registrar stated:
What is striking from our engagements is that, with a small number of notable exceptions, we see little exploration as to how credit unions intend to leverage long term lending to drive future profitability ... Also, we have not received any specific proposal on changing long term lending limits at the sectorial level, or any proposed risk management framework to accompany greater long-term lending.
One can argue there is a lot in that and maybe there is not a lot in that.
What is Mr. Johnson's response to the comment that there is no specific proposal on changing long-term lending or that there has not been that much exploration as to how credit unions intend to use that long-term lending to boost profitability?
Mr. Kevin Johnson:
There is a chicken and egg situation here. When we spoke about this previously, what was quoted was the very low percentage of lending in that particular category. It was stated that little over 2% of the total loans were in the long-term lending bracket. We then set about trying to bring in the capability and expertise. It comes back to the earlier point about what actually constitutes a proposal. We discuss these things and have very good engagement at times. There is a good professional relationship there. At deputy governor level, we have asked for greater transparency around that expectation. We will then set it out and deliver it. We can argue about fairness or otherwise after that but at least if we understood what is expected from a proposal, we can do that. To say there is none is probably unfair.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I just wanted Mr. Johnson's take on what was in that speech.
Mr. Brian McCrory:
I can give the committee a very specific example about model development. Credit unions, CUDA, the ICLU and individual groups have been seeking to introduce debit cards. This technology is almost 60 years old. That process has been in train for over two years. I have lost count. We are no further down the track than we were at the start. It would be mildly disingenuous to say that no propositions have been offered. As Mr. Johnson alluded to, it is semantics.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I am just taking what was said because it is part of the overall dialogue. It is part of what we are trying to consider. By and large, Mr. McCrory knows this industry better than we do. We just want to hear everybody's perspective on it and try to see where the logjams are.
The final point, which I raised at a committee meeting with some people from the Central Bank, is that some credit unions have been fined for non-compliance. One was in Wicklow while another received a fairly substantial fine relatively recently. What are the witnesses' thoughts on or reactions to that level of fine? Were they valid?
Mr. Kevin Johnson:
At various points, we have all supported and endorsed a proper regulatory structure so we would not for a second condone any breach of those regulations. All I would say is that when there is a movement with 9,200 volunteers and 3,500 professional staff, there will be occasions when something goes wrong. As we said in our opening comments, while 1% of the system fails through the greatest crisis we have experienced, overall, we have seen an excellent performance. We certainly would not condone any breach of requirements.
Mr. Ed Farrell:
The thousands of people referred to by Mr. Johnson have to do training every year. There is technical training in money laundering and finance as well as soft skills training so all those volunteers and paid staff do ten, 12 or 15 hours training. It can be online courses, days in classrooms or accredited courses where they are studying for certificates or diplomas. The movement takes training and learning very seriously. The credit unions are as disappointed as we are if any of them falls into a fine category but it seems to be an area where the Central Bank is eager to name and shame. None of us condones that.
Gerry Horkan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I thank all the witnesses for coming here this afternoon, their statements in advance and on the day and their interaction with all of the members. It has been a very comprehensive afternoon and we look forward to Thursday's meeting where we might get to put some of the points raised by the witnesses on behalf of members and their organisations to those officials and the Registrar for Credit Unions.