Wednesday, 13 March 2019
Credit Union Restructuring Board (Dissolution) Bill 2019: Second Stage (Resumed)
Michael McGrath (Cork South Central, Fianna Fail)
I welcome the opportunity to make a contribution on the Bill. Fianna Fáil will support the legislation. I acknowledge the good work the restructuring board did in the period from 2013 to 2017, which was quite a challenging period for many credit unions. The fact ReBo facilitated 82 restructuring projects involving 156 credit unions in 24 counties on a voluntary basis was, undoubtedly, a significant achievement. Total assets involved were approximately €6 billion. To achieve this level of restructuring on a voluntary and agreed basis among the credit unions was a notable achievement. It has resulted in significant changes to the landscape within which credit unions operate. There has been a reduction of one third in the number of credit unions, although it should be pointed out this is not a reduction in one third of the number of credit union buildings because while a number of them have amalgamated a credit union may have two or three branches and they are now counted as one credit union.
This was an important initiative designed to help and protect the movement and secure its future. The reality is that post the financial crisis the nature and complexity of the regulation being applied to the credit union movement necessitated a certain scale because regulation is now quite costly and compliance requirements must be adhered to. There are necessary costs that have been incurred as a result, which is why having a certain scale in the credit union movement was important and which is why these restructures and amalgamations had to proceed.
It has to be highlighted that while the initial fund was €250 million, as the Minister of State pointed out, the amount spent from the fund was approximately €20 million. The Oireachtas Library and Research Service has given us a very useful paper on the Bill. ReBo paid a total of €17 million in financial assistance from the credit union fund regarding qualifying costs pertaining to credit union restructuring projects. In total, approximately €20 million was utilised from a fund of €250 million. I assume the balance is the operational costs that ReBo had to incur. It needs to be said that back in 2011 the then Minister for Finance said in the Seanad the total cost of rescuing the credit union sector could be up to €1 billion.
Thankfully, that proved to be very wide of the mark. However, it is indicative of the thinking at that time following the collapse of the banking system which required a historic intervention by the State at great cost to our citizens. The view and assumption within the system was that credit unions were a basket case, but that did not prove to be so. Although the overall estimate was of up to €1 billion, the net cost is negligible when one takes into account the levies that have been collected from credit unions. That is not to downplay the significant issues experienced by a small number of credit unions. The State had to rescue several credit unions and the representative bodies played a very important role in that regard. There were cases where standards lapsed and governance arrangements were not what they ought to have been. Where serious lapses took place, they had to be dealt with. However, it is fair to say that the assumption of there being a significant number of bad loans that had not been properly provided for within the movement did not prove to be the case. It should be acknowledged that the underlying health of the movement was far better than it was assumed to be.
It should be made clear that credit union restructuring can continue. That can be done voluntarily because a statutory basis through the Credit Union Restructuring Board, or ReBo, is not required. ReBo has now been dissolved. As I understand it, in practice, many of the supports that were available through ReBo continue to be provided through the Central Bank such that credit union restructurings can and will continue into the future. It is likely that they will so continue for the reason I outlined at the beginning of my contribution, namely, the complexity of regulation. The change in governance arrangements that flowed from the 2012 Act were very significant and we may see further consolidation within the sector. I do not have a difficulty with that, provided it is done on an agreed voluntary basis such that the credit unions are preserved and continue to provide services to their members in local communities, because that is the essence of this issue.
On the various levies and funds, it would be of assistance if the Minister of State were to provide an information note to the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach prior to Committee Stage of the Bill detailing exactly how much has been paid by way of the various levies by the credit unions, how much is sitting in the funds and how much has been drawn from them. We have the data on the ReBo fund but I am also seeking data for the resolution fund. If that were provided by the Minister of State, it would give the committee a very good backdrop and context for discussion of the Bill on Committee Stage.
I wish to touch on certain issues related to credit unions and relevant to the Bill. Fianna Fáil, along with others, was active in calling for changes to the long-term lending limits for credit unions. I welcome the fact that a consultation process is under way. It suggests that the model will change from the current 10% or 15% of total loan book to a model of 5% or 15% of asset size. It is my understanding that the proposal of the registrar is that in measuring those limits there will be a combined limit for mortgages and small business lending. That will particularly disadvantage community credit unions which may not have enough room in either category to make the investment required to get into long-term lending in a significant way. It could even be suggested that the current proposals give industrial credit unions a distinct advantage because several of them are already significantly involved in the long-term lending sphere of activity.
It is proposed that there be a term limit of 25 years. A recent report for the Central Bank indicates that up to 80% plus of first-time buyers and 50% of second-time buyers avail of terms longer than 25 years. This is a major restriction which impacts on the ability of borrowers to get a mortgage because the shorter the mortgage, the higher the monthly repayment, which leads to affordability issues. If banks are permitted to lend for 30 or 35 years, I do not see why credit unions should be restricted to 25 years. That issue should be examined. I do not see the need for the restriction. I note that buy-to-let mortgages are excluded. I do not have a difficulty with that. There is no great appetite among credit unions to get involved in that product. However, it begs the question as to why, if credit unions are being allowed to get into long-term lending, that is being narrowed in scope. That is an important issue.
I welcome that the review of the €100,000 share limit has commenced. Symbolically, it sent a very negative signal to the members of credit unions. It was almost a coded message that members should not deposit more than €100,000 into a credit union because it was not safe to do so. That was the wrong message and it was unnecessary. I welcome that the review is under way.
On the micro loan scheme, approximately half of credit unions provide that service. If we are serious about tackling illegal moneylending and if we wish to impose interest rate restrictions on licensed and regulated moneylenders, we need greater availability of credit for people who may be excluded from the mainstream lenders. A micro credit loan scheme is a good scheme and it has the support of Fianna Fáil, but there is a need for it to be more widely available. The 50% of credit unions that do not provide it should be given the opportunity to so do.
As the Minister of State is aware, the financial services landscape is changing quickly. The behaviours and habits of younger people in particular represent a challenge for banks as well as credit unions. I refer to the emergence of a significant number of players in the FinTech space. There is a very significant challenge for credit unions to attract their share of younger members. They will need to do so to be a viable long-term proposition. It is a challenge which they need to embrace. I understand that they are making every effort to so do. I and Fianna Fáil will support them in that regard because they play a vital role in communities throughout the country. They have provided a tremendous service to their members over the past half century and we want to see them continue to so do for the next 50 years. We need to protect and preserve credit unions. They need to play their part by continuing to modernise, embracing reform and accepting that governance and compliance are now par for the course and there is no way around it. The single-tier approach to regulation, which, in my view, runs contrary to one of the core recommendations of the Commission on Credit Unions, has still not been dealt with. The one-size-fits-all approach to the regulation of credit unions is unfair and disproportionate and needs to be addressed.
I look forward to a thorough discussion of the Bill section by section on Committee Stage. Fianna Fáil will support the Bill. ReBo has played an important part in helping the credit union movement to restructure, consolidate and become more fit for purpose. Restructurings will continue and we look forward to seeing credit unions continue to play an important part in our society for many years to come.