Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank the Deputy for raising this important issue and clarifying it. The Central Bank of Ireland issued a circular to all credit unions on 22 February 2013 regarding prudential lending. The circular emphasises the need for credit unions to assess adequately the creditworthiness of applications for credit and in particular the need to collect sufficient information about borrowers' mortgage circumstances. The Central Bank informed me that the circular does not contain new requirements for credit unions. It highlights the changed operating environment for credit unions arising from the introduction of the new personal insolvency regime and reminds credit unions to take it into account when assessing the credit worthiness of members applying for loans.

An important factor in determining creditworthiness in the current environment is whether a member is already in difficulty repaying existing debt and, in particular, mortgage debt. The circular refers credit unions to their existing obligations under the European Communities regulations of 2010, which were transposed into Irish law on 11 June 2010. Specifically, the attention of credit unions is drawn to their obligation to assess the creditworthiness of customers. The circular states: "Before concluding an agreement with a customer, a creditor shall assess the consumer's creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database." The circular also refers to other conditions that were part of the European framework. The Central Bank expects credit unions to carry out appropriate credit assessment in all cases. The circular does not prohibit credit unions from providing short-term finance to its members, taking account of the credit unions' financial capacity to do so and the members' ability to repay. The Central Bank circular does not impose restrictions on credit unions from lending any funds to people in distress with mortgage arrears. Its focus is on the need to assess creditworthiness properly and to make provisions to cover potential losses within the credit union as a whole.

It must be remembered that within her independent regulatory discretion, the Registrar of Credit Unions acts to support the prudential soundness of individual credit unions, to maintain sector stability and to protect the savings of credit union members. In February, the Central Bank invited banking and credit union representatives to a number of meetings to discuss the creation of a workable burden sharing agreement between secured and unsecured lenders. Discussions between banking and credit union representatives are ongoing. In conclusion, the Government has brought forward a number of reforms to improve the regulatory system in Ireland. The protection of consumers remains a core focus of the Government's attention and we will continue to work on resolving issues that arise. The Department and the Central Bank are aware of the issues raised by the sector.

What was in the circular is not new to the existing regulatory environment and framework. It is probably a matter of interpretation, as Deputy Nolan pointed out, and an overzealous interpretation by local credit unions, which are understandably concerned by this because of the new regulatory situation. Nonetheless, they want to ensure that any assessment of creditworthiness across the customer base is done in a prudential way. This issue arose from the most recent report on credit unions. I welcome the opportunity to put this information on record. If there are significant issues of interpretation, it may be useful for the Registrar of Credit Unions or the Central Bank to issue further directives.

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