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.