Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after “Dáil Éireann” and substitute the following:

“notes that:— the Government has a clear policy to support the strategic growth and development of credit unions in Ireland as set out in the report of the Commission on Credit Unions and recommendations;

— the safety of members' savings and the security of the credit union sector as a whole are priorities for this Government. The Government recognises the important role of credit unions as a volunteer co-operative movement in this country and also the importance of getting lending going in the economy;

— 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;

— this Government has:

— put in place a number of measures to ensure that credit unions can continue to provide vital services to their members and to ensure the stability of the sector into the future;

— established the Commission on Credit Unions, which reviewed the future of the credit union movement and made recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect members’ savings and financial stability; and

— accepted fully the report of the Commission on Credit Unions and its recommendations;

— the Commission on Credit Unions participants agreed to the recommendations and that the membership of the commission included members of the credit union representative bodies and other stakeholders;

— over 60 recommendations from the report of the Commission on Credit Unions have been implemented in the Credit Union and Co-operation with Overseas Regulators Act 2012;

— the Government established the Credit Union Restructuring Board, ReBo, which, to date, has assisted with 20 mergers involving a total of 48 credit unions; a further 121 credit unions are currently being assisted in ongoing merger projects and ReBo has met with 338 individual credit union boards since coming into operation;

— the Minister for Finance will conduct a review of ReBo this year to determine whether ReBo has completed the performance of its function;

— the Government:

— established the Credit Union Fund (Stabilisation) Levy Regulations 2014 to support credit unions that are undercapitalised but otherwise viable;

— has made available €250 million for voluntary restructuring of credit unions facilitated by ReBo. In line with recommendations of the Commission on Credit Unions, restructuring is being carried out on a voluntary, incentivised and time-bound basis; and

— has made available €250 million for resolution purposes. To date, the resources of the Credit Institutions Resolution Fund have been utilised to fund the resolution of four credit unions;

— in negotiating the bank recovery and resolution directive, BRRD, a decision was made to apply the directive only to credit institutions which were within the scope of the capital requirements directive, CRD. This was done in order to ensure that excessive demands were not placed on small credit institutions such as credit unions. If BRRD were to be applied to credit unions there would be a considerable cost in the form of yearly contributions. There would also be considerable additional requirements in relation to recovery and resolution planning which would take up a disproportionate amount of resources. Credit unions continue to be covered under the domestic resolution regime. The contributions associated with this are less than would be charged under BRRD;

— the Personal Insolvency Act 2012 applies only to a debtor who is proved to be insolvent. Credit unions and other creditors remain entitled to all other legal means of enforcing debts due to them, including bankruptcy, which is in practice the main alternative option for creditors holding unsecured debts. The Personal Insolvency Act 2012 seeks to provide an additional avenue for creditors and an insolvent debtor to reach agreement out of court on resolving unsustainable debts. This provides an opportunity for unsecured creditors to recover more of the debt due, than would be available to them via bankruptcy or other legal avenues for enforcement, by avoiding the need for enforcement, legal and court costs;

— the current Credit Union Advisory Committee, CUAC, was established in September 2014 for a period of three years to advise the Minister for Finance regarding the improvement of the management of credit unions, the protection of the interests of members and any other matters the Minister may seek the advice of the committee on;

— the CUAC has met with all credit union representative bodies and other stakeholders since it was established; and

— the CUAC has carried out a survey of credit unions which will provide up to date information on the sector in terms of demographics and financial characteristics.”

Credit unions have a key role to play in providing access to credit and other important services in local communities throughout the country. They are an integral part of communities and the Government has put in place a number of measures to ensure that credit unions can continue to provide these vital services to its members and to ensure the stability of the sector into the future. These measures include the establishment of the Commission on Credit Unions; the publication of the Credit Union and Co-operation with Overseas Regulators Act 2012; the establishment of the Credit Union Restructuring Board, known as ReBo; the availability of €500 million to support the stability of the credit union movement; the introduction of the stabilisation support scheme; and the establishment of the current Credit Union Advisory Committee, CUAC, in September 2014.

The safety of members' savings and the security of the credit union sector as a whole are priorities for this Government. I have, on a number of occasions, highlighted the Government's recognition of the important role of credit unions as a volunteer co-operative movement and also the importance of getting lending going in the economy. Credit unions provide a unique and trusted service to their members. The Government has a clear policy to support the strategic growth and development of credit unions in Ireland, as set out in the Commission on Credit Unions report and recommendations.

The Government established the Commission on Credit Unions in May 2011. The Deputy will recall we entered government in March of that year, so there was no delay in addressing the issues around credit unions. We asked the commission to make recommendations in regard to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and their community focus, while paying due regard to the need to fully protect members' savings and financial stability. The commission report was agreed and co-authored by key stakeholders, including credit union representatives. The commission worked intensively over a nine-month period to address and deliver on ambitious terms of reference. The process was a participative one, with wide representation from the credit union movement. The agreed commission report sets out the blueprint for the viability of credit unions in Ireland into the future and its constituent elements are interrelated and mutually reinforcing.

The commission published its final report in March 2012, one year after we went into government. The Government fully accepted all the recommendations in the commission's report. Over 60 of its recommendations have been implemented in the Credit Union and Co-operation with Overseas Regulators Act 2012. The legislation contains measures which will reform and strengthen credit unions and deals with four broad areas: prudential regulation; governance; restructuring, including the establishment of the Credit Union Restructuring Board, or ReBo; and stabilisation.

Recognising the vital importance of the credit union sector, €500 million has been set aside to support credit unions in difficulties, to protect members' shares and to keep credit union services in communities. The Government has made available €250 million to the credit union fund for the voluntary restructuring of credit unions being facilitated by the Credit Union Restructuring Board, ReBo. This board was established to work with the credit unions on a voluntary, incentivised and time-bound basis. The Government has also provided €250 million to the Credit Institutions Resolution Fund for resolution purposes.

The Credit Institutions Resolution Fund was established by section 10(1) of the Central Bank and Credit Institutions (Resolution) Act 2011 (as amended) - the 2011 Act. Under section 10(2) of the 2011 Act, the resolution fund is to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution. This definition includes a credit union. To date, the resources of the resolution fund have been utilised to fund the resolution of four credit unions. In the case of three of those credit unions, the resolution action taken was a directed transfer under the 2011 Act, and the resolution fund funded a financial incentive for the transferee. The remaining case was a liquidation, and no financial incentive was paid from the resolution fund in respect of that action.

In each of the four cases, the Central Bank discharged its third party resolution related costs against the resolution fund. In each case, I am pleased to say that arrangements have been reached with neighbouring credit unions to maintain credit union services in the area.

The European Bank Recovery and Resolution Directive, BRRD, does not apply to credit unions. A decision was made to apply the directive only to credit institutions which were within the scope of CRD. This was done in order to ensure that excessive demands were not placed on small credit institutions, such as credit unions. If BRRD was to be applied to credit unions, there would be a considerable cost in the form of yearly contributions. There would also be considerable additional requirements regarding recovery and resolution planning which would take up a disproportionate amount of resources which, from the perspective of the proportionality principle, could not be justified.

Credit unions continue to be covered under our domestic resolution regime and this has operated successfully to fund the resolution of four credit unions. The contributions associated with this are less than would be charged under BRRD.

The credit union fund was established under section 57 of the Credit Union and Co-operation with Overseas Regulators Act 2012, and the Government contributed €250 million to it. Its purpose includes provision of financial support for restructuring of credit unions and to meet the expenses of ReBo in discharging its functions under the 2012 Act. To date, ReBo has drawn down €5.9 million from the credit union fund. Approximately 50% of ReBo's operating costs are recoverable in the form of a ReBo levy on the credit union sector. This levy came into effect in December 2014.

The Credit Union and Co-operation with Overseas Regulators Act 2012 provides the statutory basis for the restructuring of credit unions and placed the Credit Union restructuring board, ReBo, on a statutory footing from 1 January 2013. ReBo is currently in the process of overseeing and facilitating restructuring on a voluntary, incentivised and time-bound basis, and is working towards the timetable set out in the report of the Commission on Credit Unions, with a view to completing the process by the end of 2015.

The Government has made available €250 million to the credit union fund for the voluntary restructuring of credit unions. ReBo undertook a high level assessment of all credit unions based on financial data from the Central Bank and engagement with each credit union. To date, 48 credit unions have been assisted in ReBo approved mergers. A further 121 are currently being assisted in ongoing merger projects. Based on these figures, ReBo estimates that it will assist up to 169 credit unions in achieving a voluntary restructuring solution. This represents a significant number of credit unions, given that approximately 376 credit unions are currently in operation. ReBo is continuing to engage with credit unions to provide an opportunity for those credit unions to merge on a voluntary basis.

The Commission on Credit Unions in its report recommended the introduction of a statutory stabilisation scheme funded by mandatory contributions from credit unions. In November 2014, I announced the introduction of the stabilisation scheme. The target level of funding for the stabilisation fund is €30 million to be built up over ten years, with the levy rate being reviewed after three years. To be eligible for consideration for such support, a credit union must have a regulatory reserve ratio equal to or greater than 7.5% and less than 10% of the credit union's total assets and must, in the opinion of the Central Bank, be viable as a credit union.

Deputy Michael McGrath referred to the imposition of lending restrictions, which I will now deal with. It is the responsibility of the Registrar of Credit Unions, who is the independent regulator for credit unions. Within her independent regulatory discretion, the registrar acts to support the prudential soundness of individual credit unions, to maintain sector stability and to protect the savings of credit union members. As Minister for Finance, my role is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions.

I have been informed by the Central Bank that it has been necessary to put lending restrictions in place in some credit unions where there are regulatory concerns and resultant risk to members' savings. The Registrar of Credit Unions informs me that currently about 51% of all credit unions are subject to lending restrictions. Lending restrictions are, in most cases, intended to be short-term in nature and kept in place until the credit union has addressed the issues giving rise to the particular concerns.

Almost all credit unions with lending restrictions in place have a maximum individual loan size restriction. For those credit unions with an individual loan size restriction, the level at which the limit is imposed ensures that the vast majority of these credit unions can continue to make loans of significantly more than the average value for gross loans outstanding for the sector of just above €6,000, with the majority of restrictions enabling credit unions to lend amounts of between €10,000 and €30,000. The Registrar of Credit Unions informs me that only four credit unions have a maximum loan size restriction of less than €10,000.

In February 2015, the Central Bank commenced a lending restriction review initiative, whereby credit unions that are subject to a lending restriction, but are satisfied that they have made the necessary improvements and have embedded these improvements in robust risk-sensitive lending practices, may apply for a review of their lending restriction. A communication has been issued to all relevant credit unions outlining the process for the review of lending restrictions and requested them to indicate by 31 March 2015 whether they intend making an application for a review of their lending restrictions. The closing date for receipt of the applications to review lending restrictions under this initiative is 30 September 2015.

We had a situation where credit unions, like all lending institutions in the country, were under severe threat when we came into government four years ago. We have taken a range of initiatives and have provided funding to reconstruct the credit unions individually and as a movement. We appreciate that lending restrictions can irk certain credit unions and, in their view, inhibit them from doing business to the best of their ability. A review process is now in place, and any credit union that is unhappy with the lending restrictions may look for a review and must submit an application before 30 September 2015. I will ensure that Deputies receive information if they table questions to me in the next session of the Dáil.

Separately, I have introduced a legislative change whereby, as of 1 August 2013, regulatory directions are appealable to the Irish Financial Services Appeals Tribunal. Some Deputies made the point that the Registrar of Credit Unions was acting in an arbitrary fashion and there was no system of appeal or recourse. Such a system has been in place since the legislative changes introduced from 1 August 2013 and I will repeat regulatory that directions can be appealed to Irish Financial Services Appeals Tribunal. I ask the wider credit union movement that where there is a communications problem to communicate such information to its members.

The Credit Union Advisory Committee, CUAC, was established on 22 September 2014 for a period of three years to advise the Minister for Finance regarding the improvement of the management of credit unions, the protection of the interests of members and any other matters that the Minister may seek the advice of the committee on. The committee is chaired by Professor Donal McKillop, the former chairman of the Commission on Credit Unions.

The CUAC has met a number of credit union stakeholders, including the ILCU, CUDA, CUMA, NSF, Central Bank, ReBo and individual credit unions. It has carried out a survey of credit unions and over 100 responses have been received to date. I have been informed the responses will provide a profile of individual credit unions in terms of demographics and financial characteristics, and assist in exploring the competitive pressures they face and their views on potential challenges in the future.

I look forward to receiving the findings of the survey in due course.

The Government has a clear policy to support the strategic growth and development of credit unions as set out in the report and recommendations of the Commission on Credit Unions. The commission report was agreed and co-authored by key stakeholders, including credit union representatives. The safety of members' savings and the security of the credit union sector as a whole are priorities for the Government. The Government recognises the important role of credit unions as a volunteer co-operative movement and in getting lending going in the economy. I am always open to considering new proposals on credit unions, particularly those that would see the development of the credit union business model and an increase in income for the sector. I have met with credit unions to examine the opportunities for collaboration with An Post. All proposals to date have been at an early stage and we await further details as the projects progress.

I note the six-point policy programme from the Irish League of Credit Unions, ILCU, which was presented to us recently. It includes a range of proposals to support credit unions going forward. I welcome ongoing engagement with the ILCU and other credit union representative bodies, including the Credit Union Development Association, CUDA, the Credit Union Managers' Association, CUMA, and the National Supervisors' Forum, NSF.

I recognise the importance of credit unions in the economy. Credit unions have almost 3 million members and nearly 400 offices nationally, employ 4,000 people and have almost 10,000 volunteers. Credit unions have gone through a period of considerable change since the commission report, and the movement has risen to the challenges it posed. The Government has worked closely with key stakeholders in the credit union movement to reach agreement on the report of the Commission on Credit Unions and its recommendations. The Government will continue its ongoing engagement with the movement to ensure the safety of members' savings, to support credit unions in broadening the range of services to members and to safeguard the credit union sector as a whole into the future.

I thank Deputy Michael McGrath and the Fianna Fáil Party for putting down this motion. There is not much difference in our objectives. I have no problem in taking advice from the Opposition if there are any lapses in our policy approach to ensure we can lend a hand and move forward. Historically, the credit union movement has provided great services in different communities across the country. I hope it can continue to thrive and prosper as well as extend its services as the economy grows.

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