Éamon Ó Cuív (Galway West, Fianna Fail) | Oireachtas source

I am pleased to have an opportunity to speak on the Credit Union Bill. Before we get into the minutiae of the Bill we should look at the background and purpose for which credit unions were founded. The basis of credit unions was that people’s savings, in the form of shares, would be used to lend money to the same group of people. In other words, they were mutual societies and mutuality was at the core of everything they did. One could not get one’s money in the form of a loan unless one bought shares and one had a stake in the society. Every member of the society had a vote at the AGM. Credit unions were also based on a common bond, be it a work bond or geographic bond. That was crucial to their operation.

The other characteristic was volunteerism. Credit union committees were manned by volunteers and in many cases in the early years those who ran credit unions were volunteers as well. The final characteristic of credit unions and why they were so important to people who would not otherwise get access to credit is that credit decisions were based on local knowledge not on a big, complicated form that gave one a credit rating in the conventional way utilised by banks. That meant people could borrow money from a credit union where the credit union believed the money would be repaid and in the vast majority of cases that trust was honoured. The same people had to have savings in the credit union because the basic principle on which they operated is that one could not borrow unless one saved.

Some credit unions have grown to a considerable extent over the years. Perhaps that is a good thing. There is room for an alternative banking system based on mutuality, but there is still room for the small credit union based in the community and working on local knowledge. No matter what could go wrong with such a credit union it could not in any way upset the national finances. Therefore, when one considers regulation, one cannot compare large credit unions with hundreds of millions of euro at their disposal with the small local credit union that still operates in a valid field on the basis of the original concept of the credit union, namely, the small mutual society that takes in small deposits and gives out small loans.

The regulation of the sector is focused on the bigger credit union operations. I will be told that there are criteria governing the regulation but it seems that it is very much focused on the higher end rather than the needs of a small society. There seems to be big pressure for amalgamations and the corporatisation of credit unions. It is interesting to note that of the 404 credit unions, 295 have less than €40 million. Everyone who has spoken in the debate has placed emphasis on that issue. It is interesting also to note that more than 100 credit unions have more than €40 million and some of them are very large. I have noticed this growth over the years.

I was involved for many years in a small co-operative. It was not like the big dairy co-operatives but a small community co-operative. I worked for it, was chairman of it and am still involved in it. I always worried that the credit unions were going the same way as the building societies. Building societies started as mutual societies. The idea was that people saved for their housing and that the only thing for which the building society loaned money was housing. The only people they loaned money to were the people who saved with them. Perhaps the Minister of State, Deputy Alex White, remembers the system. One could ask what went wrong. Building societies became big as they got more money. First, they got rid of the rule that one could not get a loan if one did not save. Then, they got into all sorts of activities that had nothing to do with building houses for ordinary people as their primary purpose. Following that, they lost a pile of money and had to go to the State to get bailed out. If they had not been bailed out the consequence for depositors would have been unthinkable.

Element of the credit union movement are going through the second phase, namely, the big mutual phase. I have no doubt that as organisations get bigger those that run them get even bigger aspirations. In time they aspire to become even bigger organisations and eventually the whole idea of any connection between the saver, that is, the member, feeling that it belongs to him or her, will be lost. If one does not believe that happens then one should look at the co-operatives that turned into plcs the building societies that turned into something that was very different to what building societies were originally about.

Therefore, before we start talking about the minutiae of the Bill, we must decide what is the role of the credit union. I accept that in the case of bigger credit unions their role is to act an alternative banking system. I hope they will remain as mutual societies but I would not have any particular objection if they developed a plastic card system. However, the bigger they get and the more one amalgamates them, the more one will depart from the original purpose of catering to the needs of the person needing a small loan for a first communion or confirmation or burst pipes in the house or other disasters people face. What will happen is that just as credit unions replaced building societies to a certain extent with their mutual philosophy, one will get a new growth of small credit societies. One can call them what one likes.

Credit unions will grow bigger and become more professional. They will require longer forms to be filled and they will become more strict on credit controls not based on local knowledge but on objective criteria - whatever that is. The term "objective criteria" has become such a catch-cry. However, objective criteria are not objective. As is the case with the Department of Health, it depends on the criteria one says are the objective criteria. That is not an objective exercise. The more one does all of that, the more one will leave a vacuum for the small person who needs a loan that was previously given based on trust and knowledge, not on a credit rating by filling a complicated form. The biggest tragedy is that with the corporatisation of credit unions making it difficult for a person of limited means to get a loan as they do not have the asset backing because, for example, they are living in a local authority house, there will be nowhere to go for a small amount of money and people will have to resort to moneylenders. Perhaps we should be discussing an urgent Bill to control interest rates for moneylenders. I fear that because of what we are doing the small co-operative idea with which I am familiar will be lost, in some cases by big credit unions. Can people not see the danger of over-regulation, in particular of the lending of small amounts of money by credit unions, through form-filling?

Can the Minister of State not see that this will push people back to the moneylending, both legal and illegal, that credit unions did so much to reduce?

When he replies he might answer the following question. His senior colleague stated he would have to put about €1 billion into the credit unions. In relative terms and compared to what was lost in all the other financial institutions, that is a modest sum. How much of that sum arises because of the investments made by credit unions, and how much because of their loans? I understand that only 40% of credit union funds were lent which, even with a bad debt rate of 20%, makes only 8% of the total number of shares. There will always be bad debts: that sum has always been factored in. I am very curious to know what would have happened if the credit unions had not lost money on their investments, in other words, if the big financial system had not collapsed and if credit unions had not bought the subordinated bonds for which the Labour Party were so keen to get a good discount.

As with everything else there are unintended consequences. I attended a meeting of credit unions recently and was told, "You burned the credit unions when you were in government." I asked how this was the case and was told that some credit unions had subordinated bonds and were paid some 10 cent in the euro. I pointed out that it had been amazing how many people had been shouting at us not to pay anything. Not many people thought there would be collateral damage to credit unions with such a policy. This is the problem arising from the complexity of the financial system. When one does not discriminate there are unforeseen problems but if one does discriminate it is not legal. The Minister of State might give us that figure. If I am right about the investments providing the big hit, the irony is that if they had lent more to the small people and invested less in the big banks they might not have needed the €1 billion after all.

There are all kinds of fancy rules being introduced here about membership of boards, connected people and so on. A person cannot be on the board longer than a certain period. That is fine with big credit unions that have a turnover of €20 million, €40 million, €60 million or €100 million. There is a credit union on the Aran Islands, however. With what will the Minister amalgamate it? Why should it be amalgamated? Can the Minister of State tell me how in God's name that credit union can follow all these rules and have a person who is related to nobody else on the board? How will the union have a turnover of board members when there is a small population of 1,500 to 1,800 between three islands? Did anybody think about that? Are we saying that small places cannot have small things? If that is the way we are going we are losing the plot. If one thinks of the real essence of the credit union movement the Aran Islands would surely be a perfect example of a community that would have an intimate knowledge of itself and be able to make very wise lending decisions. These would be very humane but would also be based on a fantastic knowledge of the local community.

I can think of other credit unions, such as Comhar Creidmheasa Cholmcille, which was founded in Indreabhán in south Connemara. When the bank pulled out of Carraroe it was able to put an office in its place. There is another small credit union in Cashel and another at Tullycross which has been fantastically successful and a huge driver of development in the area. If one wished to have the kind of structures the Minister has proposed one would have to take in all of Connemara. The Minister would probably tell us the area in question should be 60 miles long and 50 miles wide. How can people base local knowledge in such a way, whether in the Gaeltacht or the Galltacht? We will be told that is the way to go, the modern thing to do. It is the same in the city where there are locally based credit unions. It is very important that we look to have a system of credit unions that allows flexibility for small credit unions to function and for new ones to be founded within small local communities. That goes back to the heart and soul of what the credit union movement is about.

There is another issue of great concern, namely, the interaction between the Personal Insolvency Bill and credit unions. The banks, or the secured lenders, have the veto. When that Bill was being drawn up and the regulatory impact analysis being done, was there any calculation made as to possible financial damage to credit unions? The banks have effective control over the system of personal insolvency. It seems unfair and wrong that banks which could not look after their own affairs are now being given a veto over the affairs not only of individuals but over decisions in respect of unsecured creditors of organisations such as credit unions.

There is a need to ensure that our financial systems operate properly. When something goes wrong the greatest tendency is to over-regulate the small entity which did not cause the problem simply because the big entity made a big mess. I am not convinced. Mistakes were made in credit unions but the biggest one they made was when they did not follow their own rules. I remember dealing with a particular case in which a lady had managed to borrow far too much money from far too many organisations. The thing that really puzzled and annoyed me was that she had managed to borrow money from four or five different credit unions, this being contrary to their own rules, and on two grounds. The first was that she did not have any savings in the credit unions and should not have been able to borrow in the first place. The second was that most of the credit unions were far beyond the common bond, geographically speaking. She lived in one house only, in one area. Of course, like everybody else, the credit unions had become slipshod, lazy and easy going. They broke their own rules. Rather than making a myriad of rules that in time people will not heed because it is all too complicated, would it not be better to have simpler rules and apply them? If we went back to the basic tenet of the credit union, whereby a person puts in a deposit or shares and gets loans proportionately, the credit unions would be very secure places to invest.

It is true that the bigger an institution is the more it must be regulated. There is much in the Bill I have no difficulty with, in respect of big professional financial organisations which need regulation just as banks do. However, there appears to be total overkill when it comes to small societies that either exist today or those which I suspect will spring up all over to try to help people when bigger financial institutions no longer will. I believe that in the next five to ten years, if there is a suitable vehicle for so doing, we will once again see a springing up of small mutual societies. I hope that this time they will stay mutual and be self-supporting community organisations. People will put their money in and get money out within a small circle. They will work on the basis that made the credit unions what they were - a place where a person with no credit rating could go because he or she was part of a common bond.

When one considers the difference between those on high incomes and those on low incomes in the context of accessing credit, one of the biggest determining factors relates to the capacity of the former to borrow money much more easily when something unforeseen arises. The creditworthiness of those on high incomes is generally much better than people on basic incomes. During the boom times it became far too easy for such individuals to obtain loans of €5,000 or €10,000. To whom will a person on a low income who needs €600 to pay for a family occasion go in the future? Such an individual will discover that all of the normal institutions will be so regulated that, on his or her income, he or she will not be able to borrow the money. What the Government is doing is pushing those to whom I refer into the arms of the moneylenders.

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