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

I move:

That Dáil Éireann:is concerned that the planned commencement at the end of December 2015, without amendment, of the remaining sections of the Credit Union and Co-operation with Overseas Regulators Act 2012, and the regulations set out in Central Bank of Ireland (CBI) Consultation on Regulations for Credit Unions on commencement of the remaining sections of the 2012 Act (CP88) pose a significant threat to the competitive viability of the credit union movement across Ireland;notes that:— as banks close branches and restrict in-branch services, credit unions provide important competition and choice to consumers;

— predictions of a cost of up to €1 billion to support the sector have proven entirely inaccurate;

— the regulatory measures contained in CP88 were conceived at a time when the Government was convinced that significant funds would be required to support and resolve the sector;

— the recommendations of the Commission on Credit Unions have only been selectively and half-heartedly implemented to date;

— recommendations of the Commission on Credit Unions relating to the growth of the sector have largely been ignored;

— credit unions have adopted a wide range of new compliance measures over the last five years;

— 55 per cent of credit unions would be impacted by the impending €100,000 cap on member savings;

— there is up to €8 billion in un-lent deposits held by credit unions which could be utilised to stimulate the domestic economy; and

— the sector has significant potential to provide funds for mortgage lending for both social and commercial housing in Ireland;agrees that:— the introduction of a €100,000 limit on savings held in credit union accounts will place the sector at a significant disadvantage vis-à-vis the banks;

— the sector should not be regulated on a one-size-fits-all basis, rather a tiered regulatory approach that supports growth and development should be adopted;

— capable, larger credit unions should be allowed to offer a wider range of products and services through broader investments and lending; and

— collaboration and efficiency through shared services should be facilitated within legislation; andcalls for:— the Minister for Finance not to commence the remaining sections of the Credit Union and Co-operation with Overseas Regulators Act 2012 pending a full consultation process with all the stakeholders in the sector;

— an immediate and urgent review of the Report of the Commission on Credit Unions recommendations and the extent to which they have been implemented, particularly in respect of growth and development opportunities for the sector;

— a revised Regulatory Impact Analysis, including financial impact, to be undertaken by the CBI of the regulations which are proposed to be introduced at the end of 2015;

— the immediate appointment of a member of the credit union movement to the Credit Union Advisory Committee; and

— engagement by the Department of Finance and the Department of the Environment, Community and Local Government with the credit union sector to support the provision of mortgage lending by credit unions.

On behalf of the Fianna Fáil Party, I am pleased to move this motion on the future of the credit union sector in Ireland. I wish to share time with Deputies Browne, Maloney and Calleary.

I firmly believe this debate represents a last chance to ensure the credit union sector can operate on a level playing pitch as it competes with the interests of large financial institutions. This is the second time in a short number of months in which we have debated the major challenges facing the credit union movement. Since Fianna Fáil first proposed a motion on the subject back in June, I have sought to engage proactively with local credit unions and their representatives.

I know that Deputies in all parties have received extensive correspondence from credit union members and directors. The credit union movement has been mobilised. It is a recognition of the seriousness with which the movement views its current plight that it continues to urge the Minister to step back from implementing the outstanding sections of the 2012 Act and the regulations contained in Central Bank Consultation Paper 88.

I acknowledge the presence in the Public Gallery of members of the Irish League of Credit Unions, the Credit Union Development Association, the Credit Union Managers Association and many individual members of credit unions throughout the country. Communities owe a great debt of gratitude to the credit union movement in Ireland. Our credit unions should rightly be a source of pride, reflecting as they do the long tradition of community and voluntary service in this country. As banks close branches and restrict in-branch services, as we saw in a recent announcement by Bank of Ireland, credit unions provide important competition and choice to consumers. In fact, in many parts of the country they are now the only local provider of financial services.

The reason there are so many people here, as there were on two occasions in June of this year, is that members are desperately concerned about the future of the credit union sector. I do not believe it is an exaggeration to state that they now fear for the very future of a vibrant credit union sector and they want us, as public representatives, to acknowledge this reality and take appropriate action.

I have been consistently impressed by credit union members, as well as by the passion of their boards and staff members for serving their members. They also have a passion for providing essential financial services for members of the community, many of whom are unable to access services in local financial institutions. They are frustrated, however, and over the course of these two evenings we will outline the reasons that is so.

There have been huge changes in how credit unions are regulated. Credit unions are effectively reeling from the collective impact of a number of measures over recent years. The cumulative impact of those measures is the key issue. Members have told me that in many ways they regard CP88 as the last straw for the sector after being hit by the impact of personal insolvency legislation, section 35 restrictions on lending, and Basel III rules on the investments they can hold. Many are now questioning whether credit unions can earn sufficient income to be able to offer a decent return to their members. Credit unions are no different from any other organisations. They must earn a return which they can in turn pass on to their members.

In the UK, the sector is viewed as a valuable social amenity where the work of the sector is recognised at all levels for its contribution to the community. In North America and other developed countries, the credit union sector is an integral part of the financial services network. In those countries, credit unions offer services such as mortgages, payment and card services, and insurance. They are supported and encouraged by their governments. In Ireland, the Government has failed the credit union movement by neglecting to bring forward a strategy over the past four years to underpin the development and growth of the credit union sector.

It cannot be stated often enough that credit unions have survived the financial crisis well with just 1% of credit unions needing State funding. If there is a problem with the provision of financial services in this country, and there has been in recent years, it most certainly is not with the credit unions. The restructuring board, ReBo, has done commendable work and appears to be providing good support to those credit unions which need it. However, the facts are that the advice the Minister for Finance received some time ago about the health of the credit union sector was plainly wrong. His sources informed him, and he went on to inform Seanad Éireann, that up to €1 billion could possibly be required to stabilise the credit union sector. He set aside €500 million in two separate €250 million funds. As we now know, the amount used to date on the credit union sector has been a tiny fraction of that. In simple terms I believe the Minister was grossly misled in relation to the underlying health of the credit union movement by whoever provided him with this advice. The question must now be asked whether these are the same sources that are now encouraging the imposition of even more restrictive rules on credit unions. They are sources that do not understand the underlying ethos of the credit union movement.

The first line of the Government's counter motion states 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 its recommendations". These are fine words but are not evidenced by the facts on the ground. The work of the Commission on Credit Unions is not in dispute. No stakeholder has sought an amendment to its findings. However, the substantive issue is the selective implementation of its recommendations and the interpretations being adopted by the registrar within the Central Bank. The primary example is a failure to implement an appropriate tiered regulatory framework as envisaged by the Commission on Credit Unions. That is an issue that comes up time and again. There is a need for a tiered regulatory framework but it is not happening.

The registrar proposed a tiered system in the previous Consultation Paper 76, which was not consistent with the spirit of the Commission on Credit Unions. The commission had strongly recommended a system that would be reflective of the nature, scale and complexity of credit unions. Such a system would enable smaller credit unions to continue successfully to offer basic services with a lower regulatory demand on them while also enabling other more expansive credit unions, perhaps serving a larger urban population, which wish to expand their range of services for members to put the necessary framework in place to get on with it. That simply has not happened.

While these are regulatory issues, the Minister has the power to postpone the commencement of the final sections of the 2012 Act until such time as the regulatory framework reflects the intentions of the recommendations by the Commission on Credit Unions as opposed to copperfastening the continuation and reinforcement of a one-size-fits-all approach. The latter approach, which is currently being adopted, is stifling the growth and potential of the movement. The Minister should take this course and allow time for an effective consultation with stakeholders.

I assume that the Minister had to leave the Chamber for a good reason. I hope he participates fully and listens to the arguments during this important debate today and tomorrow.

In his countermotion the Minister also notes that "the safety of members' savings and the security of the credit union sector as a whole are priorities for this Government". These are certainly soothing words but by allowing the registrar to cap savings at €100,000 the Minister appears to be suggesting that a person's savings are, in effect, safer in a bank. That is the message this proposal is sending out to the wider community. While less than 1% of members would be impacted by this change, there is huge reputational damage to credit unions which have carefully protected members' savings over the past 50 years.

The Government amendment will refer to how the Central Bank has stated that credit unions can apply to keep funds greater than €100,000. This is not a solution because yet again it pushes the burden back on credit unions. No doubt the Central Bank will also look for credit unions to have their auditors validate the requirements at considerable expense. Following such close oversight by the Central Bank of credit unions in recent years it is reasonable to ask whether the Central Bank cannot determine in advance the credit unions to be exempted from the savings cap. The Minister of State knows as well as I do that the Central Bank has been crawling all over credit unions in this country in recent years. Through that work, the Central Bank should be able to identify the credit unions in respect of which this cap should not be applied. In the case of other credit unions, the cap does not apply because it does not affect their members. For those affected, this sends out a negative signal and amounts to a statement of a complete lack of confidence by this Government and the regulator in the future of this movement.

I acknowledge the independence of the regulator. However, the scope of its powers in respect of the cap on credit union savings are being utilised in a manner that is neither fair nor equitable. It is a regular refrain of the Central Bank that credit unions need to get back to their traditional lending model. They are certainly keen to do that. However, the figures relating to lending are stark. Credit union members have in excess of €11 billion in savings but only €3.5 billion on loan from a total of more than €13 billion in assets. Approximately €8 billion is placed in investments by the credit union movement at the moment, much of which could be put to productive use in the economy through small, medium and large-scale lending. This should be facilitated in a prudent and responsible manner.

I understand the loan-to-deposit ratio has fallen by a sizable 11% since the Commission on Credit Unions carried out its report. This trend is simply unsustainable. Credit unions need to be given the freedom to earn enough income to survive. The alarm bells are ringing in terms of the longer-term sustainability of these trends. The Minister of State must sit up, take notice and respond accordingly.

Certainly, credit unions are keen to be able to make available loans of smaller amounts. These can help to keep people out of the clutches of moneylenders. Money lending is the inevitable consequence of the continued implementation of the section 35 restrictions and the onerous constraints placed on credit unions as well as their capacity to serve their members. The Government is pushing people into the hands of moneylenders, some of whom are legal, many of whom area illegal, but all charging excessive and exorbitant interest rates. This work is central to the function of credit unions, but lenders in credit unions are being stymied.

Personal insolvency legislation is having a seriously detrimental impact. There is a strong argument to the effect that credit union loans should never have been categorised as unsecured loans. After all, members' money is at stake, as the Minister has pointed out repeatedly. An example was brought to my attention recently. It related to a credit union which had issued a loan of €6,800. It will now receive €163 as part of an insolvency settlement. This is a write-off of members' savings, not shareholder profit. Credit union loans should be categorised as a separate class of loan in insolvency legislation to reflect the unique nature of credit unions and their role in society.

The long-term lending capability of credit unions is an important consideration. The Central Bank CP88 regulations copperfasten the existing rules from section 35 of the Act around loan maturity limits such that no more than 10% of a credit union loan book should be for a period of greater than ten years. These limits are restricting the day-to-day operation of credit unions and denying them some vital lending opportunities currently available in the marketplace at a time when the economy is recovering. One of the central findings of the Commission on Credit Unions was that section 35 would be reviewed, but that simply has not materialised. Again, this is an example of the selective treatment of the recommendations of the commission.

Prudential returns indicate that lending over ten years in credit unions accounts for 2.18% of total loans in the sector, a pitifully low amount. There is nothing to suggest that this is going to increase any time soon. Again, the signal from the Central Bank is negative and regressive in this regard. The Irish League of Credit Unions has delivered a cogent and well-thought-out policy platform in its Six Strategic Steps policy document. This has been backed up with a detailed policy statement on how credit unions could provide funding for social housing. The Minister for the Environment, Community and Local Government, Deputy Kelly, has that proposal on his desk. We urge him to consider it actively.

The Government amendment notes that the Central Bank has informed the Minister how since 2010 it has received less than ten applications for approval of additional services under sections 48 to 52 of the Act. This is disingenuous and my consultation with credit unions suggests it is misleading. Some services, such as debit card services, do not require approval under sections 48 to 52, yet they must receive the blessing or consent of the registrar. Some credit unions have been trying for over two years to introduce basic services such as debit cards.

In summary, the key issue in the view of Fianna Fáil is the lack of a national policy to develop the credit union sector in future. Unless this is urgently addressed, the sector is in danger of declining on an ongoing basis. No one in the House, including the Minister of State, is keen to see that happening, but the evidence is clear.

I have no doubt the Central Bank will implement rules from a macro prudential point of view. However, this does not address the need for a policy to support and underpin the growth of credit unions. In simple terms, credit unions have taken the pain in respect of the additional costs and burden of regulation. However, rather than be allowed to harvest the benefits of this work, they are about to be subjected to a further setback with more sweeping restrictions on their potential to grow and serve their members and the wider community. This is the reason we are calling on the Minister to call a halt to the implementation of the remaining sections of the 2012 Act. We call on the Minister not to sign the CP88 regulations. The Minister should immediately conduct an urgent review of the report of the commission and its recommendations, in particular in respect of the growth and development of the sector. The Minister should conduct a revised regulatory impact analysis of the regulations to date, including a financial impact analysis. The Minister should immediately appoint a member of the credit union movement to the credit union advisory committee, which seems to have an important role in shaping policy in this area. The Minister should ensure full and proper engagement with the Department of Finance, the Department of the Environment, Community and Local Government and the sector in respect of the provision of longer term lending to support the housing sector and lending to mortgages. I look forward to the debate this evening and tomorrow evening. I hope we are being listened to.

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