Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I move:

"That Dáil Éireann:agrees that:

— the Government has no clear policy to support the strategic growth and development of credit unions in Ireland;

notes that:

— the credit union movement is critical to the economic and social well-being of communities all over Ireland with almost 3 million members and nearly 400 offices nationally;

— the sector, offering primarily savings and loan services, employs 4,000 people and has almost 10,000 volunteers;

— credit unions have survived the crisis well with just 1% of credit unions needing State funding support since the financial crisis began;

— the not-for-profit and independent nature of credit unions is vital to the success of the sector;

— in other jurisdictions, the role and function of credit unions is clearly set out at a national policy level and credit unions have been able to develop and grow the products and services that they offer members; and

— with the necessary infrastructure development and support, credit unions could develop into a vibrant, not-for-profit and competitive alternative within the financial services sector in Ireland;

is concerned that:

— the sector is overburdened with restrictive limitations which are disproportionate to the nature of its lending and this is stifling the growth potential of credit unions;

— 35% of all credit unions have been operating with lending restrictions for a period of five years or more;

— current Government policies do not support credit unions developing additional products and services and not a single credit union has received approval for additional services since the banking crisis began;

— the approval process for credit unions seeking to engage in services such as debit cards is unclear;

— transfers of engagements and mergers seem to be the only solution being progressed at the moment with no clear view as to what the long-term positioning of these larger credit unions will be;

— section 35 of the Credit Union Act 1997 restricts the percentage of a credit union's loan book that can extend beyond a ten-year term, thereby restricting credit unions from engaging in any meaningful long-term lending, including mortgages;

— section 35 of the Credit Union Act 1997 further restricts a credit union from lending to any members for a period of one year who have altered their repayments, while no such restrictions apply to the banking sector, thereby placing credit unions at a disadvantage;

— mortgage customers in arrears are effectively forced to rely exclusively on banks or moneylenders for credit;

— recent legislative changes have had the effect of further disadvantaging credit unions and given a competitive advantage to the banking sector;

— the Personal Insolvency Act 2012 has had a disproportionately negative impact on credit unions vis-à-vis other financial institutions;

— the reclassification of credit union funds under Basel III rules has given banks a competitive advantage in attracting deposits;

— the European Bank Recovery and Resolution Directive, transposed into Irish Law in December 2014, offers no protection to credit unions;

— the proposed legislation in the most recent consultation paper, Consultation on Regulations for Credit Unions, on commencement of the remaining sections of the 2012 Act, CP88, issued by the Central Bank of Ireland, CBI, further diminishes the competitive position of credit unions;

— the proposed cap on savings has potential to cause reputational damage to credit unions, will drive funds from the credit union sector into the banking sector and distort competition between the banking and credit union sectors for new deposits;

— the proposed liquidity requirements for less than eight days will diminish any potential for earnings on those deposits for credit unions; and

— the combined effect of all of these factors, which are outside the credit unions' control, could seriously impair the credit unions' ability to grow and flourish and will ultimately lead to the weakening of the sector;

and calls for:

— the Minister for Finance to bring forward a White Paper on the role of the credit union sector within the broader financial services sector in Ireland;

— the establishment of an industry-led forum with representation from all stakeholders that examines the future growth potential of credit unions in Ireland;

— investment in infrastructure development within the sector that will facilitate the growth and development of products and services offered by credit unions;

— a review of section 35 of the Credit Union Act 1997 relating to restrictions on rescheduled loans and term limits on lending;

— a review of the process for the approval of additional services;

— financial impact analysis to be conducted on the extent of losses incurred by credit unions arising from the Personal Insolvency Act 2012;

— an examination of the Personal Insolvency Act 2012 by the Competition and Consumer Protection Commission;

— financial impact analysis to be conducted on any proposed future regulatory changes or additional guidance to ensure that such changes will not damage the sector's income potential;

— appropriate and timely consideration to be given to the impact on the credit union sector of decisions at a European level that affect them; and

— the CBI, in its consumer protection role, to engage directly with credit unions to establish the impact the current legislative and regulatory restrictions are having on communities."

I am pleased to move this motion on behalf of the Fianna Fáil Party on the subject of the challenges facing the credit union movement at this time. I acknowledge the presence in the Gallery of a wide range of members of the credit union movement, including representatives of the Irish League of Credit Unions, the Credit Union Managers Association and the Credit Union Development Association.

The motion is balanced and realistic. It is the result of an extensive consultation process we have engaged in with the credit union movement and I am grateful for the assistance we have received in drafting it. I place on record the Fianna Fáil Party's unequivocal support for the credit union movement. As a party, we are determined to support the continued development of credit unions.

The credit union movement has a proud tradition in communities throughout the country. With expert local knowledge and strong personal relationships with members, credit unions are able to make sound judgments about lending to individuals, small businesses, the self-employed and farmers. Credit unions have a particularly strong presence in rural areas. The significance of this is even greater in the context of branch closures and the decimation of the post office network. This is not to underestimate the importance of credit unions in cities and major towns.

The unique feature of credit unions is that they are rooted in the communities they serve. With 4,000 employees, almost 10,000 volunteers and approximately 3 million members, no one can dispute that credit unions have served the country well. They have a proud past and the purpose of this debate is to help secure their future.

The credit union movement is under attack from excessive and disproportionate regulation. The indifference of the Government towards credit unions is underlined by the lack of any clear strategy for their future.

Much has been made of the high-profile examples of credit unions that got into difficulty. Credit unions are not perfect and many were not immune to the excesses of the Celtic tiger and made mistakes. Some made bad lending decisions and there were examples of poor governance and a lack of robust of internal controls. It is inevitable that further examples of credit unions with serious difficulties will emerge. However, the not-for-profit, volunteer driven and independent nature of credit unions preserved the sector from the worst examples of group-think that prevailed elsewhere in the financial system. This structure reduced the risk of contagion across the credit union movement.

I will address a number of issues, the first of which is the assistance the State has provided the credit union movement to date. Speaking in the Seanad in October 2011, the Minister for Finance, Deputy Michael Noonan, stated the following.

If the movement was one large bank with individual branches, it would have no problems because the good ones would balance the bad ones, but individual credit unions have problems that are coming down the road quickly....Some of them will need to be dealt with immediately, but we will not do it in one big bang. My advice is that this will cost between €500 million and €1 billion.

The Government frequently points to the €250 million fund available to the Credit Union Restructuring Fund, ReBo, for the voluntary restructuring of credit unions and the further €250 million available for resolution purposes. Let us first consider the €250 million available to ReBo. To date, ReBo has drawn down less than €6 million from the credit union fund, half of which was spent on its operating costs. Moreover, set against the €6 million spent, one must consider that €1.4 million has been collected from the ReBo levy meaning the net cost of ReBo's work so far is approximately €4.5 million. I accept the fund has done some good work.

On the resolution side, €35.4 million has been drawn down from the resolution fund by way of expenditure relating to incentives for credit union resolution, Central Bank resolution related expenses and interest expenses. Newbridge Credit Union alone accounted for €27 million of the total. However, over the same period the resolution fund generated income of €29 million, made up of €23.7 million in levy income, €1.4 million in interest income and €3.9 million in income estimated from the Newbridge Credit Union liquidation process. Therefore, the net drawdown from the resolution fund thus far is €6.4 million. Between ReBo and the resolution fund, the overall net cost to the State of supporting credit unions thus far is €11 million. When one considers that the Minister estimated almost four years ago that the cost could be up to €1 billion, one sees how wrong the Government has been on this issue.

Whatever other conclusions can be drawn, it is clear that the credit union sector has not been an undue burden on the financial resources of the State. This is a message that needs to be heard loud and clear.

I state unequivocally that our motion is not a call for lax regulation. I commend the work the credit unions have done in recent years by massively improving their internal controls and governance arrangements. The credit union movement has far more professionally qualified people among its employed and voluntary staff that it had previously. The sector has improved its overall reserve ratio without resorting to the types of tactics employed by some commercial banks which raised interest rates and charges at the expense of existing customers.

While the regulation of credit unions needs to be robust, it must also be fair, proportionate and based on a proper assessment of where the risks lie. In other jurisdictions, the role and function of credit unions is clearly set out at a national policy level and credit unions have been able to develop and grow the products and services they offer members. The Government has failed to implement a strategy in the past four years to underpin and develop the credit union sector. Reports in the Irish Independenttoday indicate there are plans to develop a plan to allow tens of thousands of families to avail of "hassle-free loans" of up to €1,000 as part of "Government moves to break the dependence on moneylenders". This has all the hallmarks of a sop to deflect attention from the failure of the Government to support the credit union sector over the past four years.

Despite having close to 3 million members overall, the credit union movement is effectively stagnant, with the amount of its funds on loan declining year after year. This is unsustainable. The bottom line is that credit unions can only make money if they are able to issue new loans. In too many instances, the ability of credit unions to do just that is being unnecessarily constrained.

Credit unions currently have €4 billion in loans to members, which is approximately 30% of their available funds. On paper, the sector has approximately €6 billion available to lend, with the potential for a massive shot in the arm for the economy.

However, 52% of credit unions are currently subject to restrictions on their lending activity imposed by the Registrar of Credit Unions. When I refer to the registrar, it is not to refer to an individual but, in essence, to the regulator. The restrictions include those on the size of individual loans as well as on overall levels of lending. Of all credit unions, 35% have been operating with lending restrictions for a period of five years or more. These restrictions are impacting the ability of credit unions to earn enough income to pay a competitive dividend.

Section 35 of the Credit Union Act 1997 restricts a credit union from lending to any member for a period of one year who has altered his or her repayments whereas no such restrictions apply to the banking sector. Credit unions are thereby placed at a disadvantage. This is unfair and is stifling the sector and in my view it must be changed. Section 35 of the Credit Union Act also restricts the percentage of a credit union's loan book that can extend beyond a ten year term, thereby preventing credit unions from engaging in any meaningful long-term lending, including mortgages. There is also a strong case for relaxing this restriction to allow the sector to engage in targeted mortgage lending. This could include such areas as tenant purchase from local authorities or where a family member needs to buy out a share in a home from a sibling after inheriting the home. Section 35 requirements increase the risk within credit unions as the average loan is currently repaid within two and a half years. Longer-term lending is critical to manage risk more effectively.

Many credit union members have built up their savings with their credit unions over an extended period. In some instances, members will gather large sums of money through pension lump sums and inheritances or through regular savings. While the majority of credit union customers have less than €100,000 in savings, consumers should have choice with regard to their preferred savings institutions. By limiting credit union customers to a maximum of €100,000 in shares or deposits, customer choice is being unnecessarily limited. The symbolism of this proposed restriction is also significant. It is a clear statement by Government and the registrar of their lack of confidence in credit unions. The underlying message is that credit unions cannot be trusted to hold savings in excess of the deposit guarantee limit. This is a ridiculous constraint on credit unions and I seriously question its validity in competition law. The proposed cap on savings, which has already caused reputational damage to credit unions, will drive funds from the credit union sector into the banking sector and distort competition between the banking and credit union sectors for new deposits.

The current regulatory structure does not support credit unions in developing additional products and services. Not one credit union has received approval for additional services since the banking crisis began. The approval process for credit unions seeking to engage in services such as debit cards is unclear. Credit unions need to be able to offers services such as debit cards if they are to be able to attract younger customers and compete with banks. They also need to be able to offer more products online. The message I get from credit unions is that they simply do not know where they stand with the registrar. I strongly believe that the current credit union regulatory framework is too conservative and is restricting credit unions from modernising their business model, which process is essential to the long-term survival and, hopefully, prosperity of the movement. There are a great many opportunities for credit unions if only they were allowed to pursue them. For example, credit unions have the capacity to play a key role in social enterprise funding as highlighted by Forfás and as is already the case in the USA, Canada and Australia.

Healthy credit unions are not being told that they are healthy and that they should continue to do what they are doing. Equally, credit unions that may be unviable on their own are not being given clear feedback from the Central Bank. That is a key problem which is raised time and time again. The question posed to me by credit union management is whether the regulator understands the ethos of the credit union movement and whether there is an agenda to wind it down eventually. People are posing that question in private meetings and it should be posed openly here on the floor of the House. Current research by the Credit Union Managers' Association shows that an estimated 20 credit unions have outstanding AGMs of between two and four years because they are not being allowed to hold them. This is despite the fact that section 78(4) of the Credit Union Act 1997 allows the registrar to direct a credit union, under certain circumstances, to postpone an AGM for a period not exceeding nine months. On the face of it, it would appear that the registrar is not complying with the very legislation it is supposed to police.

Despite the relatively poor take up of options under the personal insolvency legislation, including debt relief notices and debt settlement arrangements, credit unions are concerned that the law is weighted in favour of bank loans and results in the cost of losses arising from mortgage-related loans within the banking sector being transferred to the credit union movement. This must be examined and quantified. If the legislation is found to be defective, it must be amended to ensure a level playing pitch.

In addition to the items I have touched on, our motion also sets out a number of other practical measures to support the sector including the establishment of an industry-led forum with representation from all stakeholders that examines the future growth potential of credit unions in Ireland; requiring the Central Bank in its consumer protection role to engage directly with credit unions to establish the impact the current legislative and regulatory restrictions are having on communities; and the publication by the Minister for Finance of a White Paper on the role of the credit union movement within the broader financial services sector in Ireland. I look forward to hearing the Minister's reply on some of these points.

Since word broke of our motion a number of days ago, I have received many messages from credit union members and those involved in running them. I will provide the Minister with two examples of the responses I have received from those responsible for running credit unions. One person wrote:

To update you on the position of our own Credit Union: we are still in limbo with the Central Bank but at this stage the effects of the restrictions as we predicted have become critical, these restrictions necessary when introduced originally in, are leading us to a situation whereby [our] Credit Union will rapidly be in a very serious state. It is disappointing to note that despite a complete transformation of [our] Credit Union with among other things arrears on new lending for the past number of years averaging just 0.5%, cost cutting policy changes to include a large number of redundancies, changes to management, introduction of a new and vibrant board, it appears that either through negligence or an agenda the Central Bank are allowing this situation to develop.

Another credit union wrote to me in the past 24 hours to state:

It would appear that the RCU [or registrar] impose these sanctions [the lending restrictions] on an arbitrary basis like some form of sentence or penance for bad behaviour. It's sad to see this credit union 'withering' on the vine as we cannot lend. The demand is there but the restriction limits us. It's time that the RCU's role was reviewed independently. We have no recourse and their word is final in these situations. There must be an arbitration or review mechanism in this process.

Having researched this issue extensively over the past number of weeks, I have to say that unless something changes, I am deeply concerned about the future of the credit union movement. Credit unions need our support now more than ever. The last thing any of us wants to see is the gradual decline of a credit union movement which has served this country so well. What is needed is for the Government and the registrar to work with credit unions in a genuine spirit of co-operation. The Minister could start by postponing the commencement of remaining sections of the Credit Union Act 2012 until the impact on credit unions has been properly examined. Above all else, we need a plan that secures the future of credit unions. I look forward to hearing what the Minister has to say.

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