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

I welcome the opportunity to speak on the Oireachtas finance committee's report. I welcome representatives of the various credit union bodies in the Visitors Gallery. They might have missed the start of the debate because it started earlier than scheduled but I am glad they are here. I am sure they will be able to watch a recording of the beginning of the debate, introduced by the Chairman of the committee, Deputy John McGuinness, and hear the response of the Minister of State, Deputy Michael D'Arcy.

This is a really important report and it cannot be allowed just to gather dust as time goes by. The Government has not shown enough urgency so far in addressing the challenges facing the credit union sector. These are very real challenges but alongside them are many opportunities. Those opportunities need to be seized. The Credit Union Advisory Committee report was completed in June 2016 and presented to the Minister in July of that year. It is based on a review of the recommendations of the Commission on Credit Unions. The overarching recommendation of the advisory committee was that there be an implementation body to implement the recommendations set out. It furnished its report in July and there was not an implementation body in place until February 2017. The body held its first meeting on 20 February 2017, which said an awful lot about the lack of urgency and about the Government not affording priority to dealing with these issues. That is partly why I suggested to the finance committee that we undertake this body of work and hear from the sector. Each of us, as an individual public representative, had been hearing from representatives of the sector but it was a matter of giving them an opportunity to come in and lay out their concerns and giving us an opportunity to put those concerns to the Central Bank and Government in a constructive manner and in a spirit of co-operation. There is broad agreement as to where we would like to take policy on the future of credit unions.

The Chairman of the committee, Deputy John McGuinness, spoke about the statement in the Seanad by the previous Minister for Finance in the autumn of 2011 to the effect that the bill for rescuing the credit union sector could be anything up to €1 billion. We all know that has proven to be dramatically wide of the mark. When one considers the various levies paid by the sector itself, one realises there has been little or no cost to the State in respect of issues that have arisen in a number of individual credit unions. It would be wrong, however, to understate the significance of the statement in 2011 because it came against the backdrop of a terrible banking crisis — a banking crisis that cost more than €60 billion gross. There was an assumption and perhaps a belief within the Central Bank and the Department of Finance that if one looked under the bonnet of the credit unions, one would find that the problems were proportionately as bad as those in the banks. That has certainly not proven to be the case.

The regulatory and policy responses following the developments in 2011 and 2012 were really predicated on the belief that credit unions were in a really bad way. That has not proven to be the case. That has to be acknowledged. Wherever the estimate came from, it was quite damaging. It had a key influence on the formulation of policy at the time. That is not to say individual credit unions did not have problems because they did. They have been dealt with, however. They have been dealt with largely by the sector itself. There has been some intervention by the Central Bank, but on a very limited basis.

We have to acknowledge that the key recommendation by the Commission on Credit Unions has been ignored. Many other issues arise from the failure to deal with that. I refer to tiered regulation and the failure to recognise the diverse range of credit unions across the country, in addition to the diverse range of services provided. The policy of imposing a one-size-fits-all regulatory approach has been very damaging. In some ways, it has restricted credit unions that are expansive, want to invest in technology, and want to change their business model. Furthermore, it has been really difficult for smaller credit unions, which have a much more simple model, to operate within the constraints imposed on them by the new approach to regulation and the changes in governance. Those issues have been really serious. The sector is facing very significant challenges but opportunities exist also.

Over the course of our meetings, we heard that the loan-to-asset ratio, which is a key indicator of viability, stands at approximately 26%. Therefore, the credit unions cannot give out loans quickly enough. They are being repaid too quickly. The ratio is not where it needs to be. It probably needs to be between 40% and 50%. Therefore, we need to get to a point where credit unions are engaging in more lending, including more long-term lending. That is why the recommendation for the review of the lending limits — the section 35 limits, the concentration limits — is so important. It needs to be implemented swiftly. It is almost two years since the publication of the advisory committee's report so the Government and implementation group need to demonstrate further urgency if we are to deal with these issues.

Members of the committee called for a new appeals mechanism to be introduced to allow credit unions to appeal all regulation-related decisions made by the Central Bank to an independent body. This is very important. It should extend to matters beyond what is currently appealable in terms of what is described within the 2012 Act, and it should provide a forum under which a credit union or group of credit unions has the right to appeal decisions made by the regulator in respect of its new regulation-making powers. This is really important. Currently, one can challenge only a regulatory direction. It is very costly to do so. This issue needs to be addressed.

We need to have a thorough review of the legislation because extensive powers were given to the registrar under the 2012 Act. In a sense, the Oireachtas has divested itself of responsibility and denied itself a role in dealing with these issues. Again, that was against a backdrop of a belief that the problems were far more serious than they turned out to be. Therefore, there is a need to review the legislative framework that we have in place. The Minister of State said in his remarks today that he is committed to implementing all the Credit Union Advisory Committee's recommendations. I would like him to go beyond that. He should be committed to dealing with the majority of the recommendations the Oireachtas finance committee has made. He needs to bear in mind that these are all-party recommendations that were agreed unanimously. That does not happen too often in any Oireachtas committee. Therefore, I ask the Minister of State to bear it in mind and move on the issue of a proportionate regulatory approach by the registrar.

There is a need for much better communication between the registrar and individual credit unions. I know from talking to credit unions that they find it very frustrating. They feel there is insufficient engagement in dealing with the issues they are raising.

We need a better structure and for an independent appeals mechanism to be put in place as a priority.

I spoke earlier about lending and limits. The Minister of State must move on the issue of long-term lending. It is a key issue, particularly for larger credit unions. The restrictions there now of 10%, or 15% in some cases, subject to the approval of the registrar, is not sufficient to enable the credit union movement to invest properly in the underwriting capacity and the expertise that is required to get into long-term lending in the mortgage business in a really meaningful and sustainable way.

Our report is the best effort we could make to identify the key issues and try to come up with solutions. We are keen to work with the Minister of State, the Government and the Central Bank, but the Minister of State will be brought before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach again, as will the registrar of the Central Bank, to provide a response to what is being done on these recommendations. We welcome the implementation group in respect of the CUAC, but the Government needs to go beyond that and embrace these recommendations meaningfully.

We have a provision in the confidence and supply agreement for a new strategy for the growth and development of the credit union sector. To be frank, we have not seen that and we are calling that in now. It needs to happen and to be done as a matter of urgency.

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