Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

Cuirim fáilte roimh an díospóireacht seo. I welcome the opportunity to speak on behalf of Sinn Féin with respect to the Credit Union (Amendment) Bill 2022. At the outset, I commend the hard work that has been sustained over many years of the credit union movement to advance reforms that will allow our credit union sector to grow.

We all know in this House and further afield that credit unions are trusted. They understand what makes and strengthens communities. The credit union movement has a long and proud history in Ireland, North and South. This is demonstrated by the fact that we have one of the highest rates of credit union membership on this island. It is testament to the skill and dedication of the staff at the heart of that movement.

There are more than 204 credit unions in the State operating from more than 400 locations. It is a movement that places people above profits and prioritises members, not shareholders, and is embedded in our community. Credit unions provide so much to our communities and economy. They can do so much more, but only if they are supported and not held back.

Currently, all credit unions provide saving accounts, products and consumer credit, with many developing capabilities to provide current account and mortgage lending products. Others are expanding into SME lending and this can be empowered to thrive and increase the footprint in the financial services market.

The financial service landscape is undergoing rapid change. In this changing landscape, credit unions can and must be enabled to strengthen their footprint and impact in the sector. The retail banking review was an opportunity to take stock of that change and navigate a way forward. The review recognised that credit unions could play a greater role in the provision of retail banking products and services in the coming years. It also concluded that the credit union sector should be given the opportunity to transform into a community-based provider of universal retail banking products and services, and that the credit union sector has the capacity to provide additional competition in the banking market at scale.

The programme for Government committed to enable the credit union movement to grow as a key provider of community banking. This sentiment has been expressed many times over the years but without tangible results. The conclusion of the retail banking review and the commitments and success of the programme for Government must be delivered.

I want to recognise the perseverance of the credit union movement over many years to secure the legislative reform that would unlock its potential. The Credit Union (Amendment) Bill 2022, which is the first substantive credit union legislation since 2011, is an outworking of that work.

I will now turn to the main provisions of the Bill. The legislation contains 56 sections in total. I will restrict myself to some of the key proposals within it. We often speak of the important role credit unions play in our communities. It is a unique role that no other bank can replicate. This is tied up in the voluntary ethos that underpins the movement, something that is not referenced in the existing Act.

Section 4 of the Bill will include a new object in section 6 of the Act to promote and provide support to co-operative groups and voluntary associations, recognising the role credit unions play in hopefully providing a spur to further reform and action to support them. A key proposal of the legislation is the establishment of corporate credit unions. Currently, every credit union is a separate entity, each with its own board and management team. They have been prohibited from sharing business. While prohibited here, corporate credit unions exist in other countries, allowing them to achieve economies of scale and engage in activities that are simply not possible for individual credit unions. It is well recognised that even the largest credit unions do not have the capacity or scale to develop certain opportunities on their own. Credit unions are already collaborating to increase their offering. For example, we see that 69 credit unions are providing current accounts through collaborative models. We have three other vehicles that have been approved to support up to €900 million in lending to approved housing bodies, recognising the opportunities that collaboration presents to the credit union sector and the broader economy.

Sections 3, 5, 6, 7, 44 and 56 include provisions to provide for the establishment of corporate credit unions and that is an important step. An issue that has been frequently discussed is the interest rate ceiling of 1% on credit union loans. The justification for interest rate caps is strong, primarily to protect borrowers by safeguarding the affordability.

The interest rate ceiling applied to credit unions was reviewed by the Credit Union Advisory Committee in 2017. While underscoring the importance of the interest rate caps to safeguard consumer welfare, the committee recommended increasing the current rates from 1% to 2%. It is important to reflect on why this recommendation was made, the reason being that increasing the interest rate ceiling will provide credit unions with greater flexibility to risk-price loan products and in so doing may create the opportunity for new product offerings.

It should also be noted that this issue was examined in the report on interest rate restrictions for low-income borrowers by academics at University College Cork, UCC, on behalf of the Social Finance Foundation. The report was concerned with the ultra-high interest rate charged by moneylenders, which is something I sought to address through the Consumer Credit (Amendment) Bill. The report recommended a reduced interest rate cap for moneylenders together with an increase in the interest rate ceiling for credit unions so as to increase credit union participation in consumer lending. The motivation behind an increase in the interest rate ceiling is to offer credit unions flexibility and increase their product offering.

Section 19 of the Bill allows the Minister, after consultation with the advisory committee, to increase the interest rate ceiling by order. I would add that an increase in the loan interest rate ceiling does not mean that credit unions are required to raise their loan interest rates. They could apply their own rates within the parameters allowed under the interest rate ceiling.

One of the greatest strengths of the credit union movement is that each credit union is member owned. That underpins its ethos, with credit union serving their members rather than transacting with customers. A feature of each credit union is the common bond and that is based on a social connection to the credit union. It could be based on connections such as an area in which someone lives or works or, indeed, his or her occupation.

In 2017, the Credit Union Advisory Committee considered the common bond and options to change the current arrangements. While opinion on this issue is not unanimous, the advisory committee recommended changes to allow credit unions to introduce business to other credit unions, although it did not specify what changes. In this regard, the Bill provides flexibility to the common bond in four key areas. First, it will allow credit unions to refer their members of other credit unions to provide services that they themselves do not offer, and for credit unions to provide services to members of other credit unions that do not provide them. Second, it will allow for loan participation between two or more credit unions. Third, it will allow for more businesses to be members of a credit union and fourth, it will allow for credit unions to lend to public sector bodies, as designated by the Minister.

The Bill also provides for several other measures. These include enhanced governance with measures aimed at allowing a greater focus on strategic planning by the board of directors. Provision in this regard includes reducing the minimum number of board meetings from ten to six per year and reducing the number of administrative issues that must be approved by the board of directors.

I want to end by acknowledging the work of the credit union movement and its engagement with the Department of Finance in drafting this legislation. The outworking of this legislation must be the commitment made in the programme for Government to support the credit union sector to allow it to grow. Currently, we know the credit union sector is only lending one quarter of the €20 billion of assets it holds. That is a wasted opportunity. What is the prize? The prize is to establish an environment in which the full potential of the credit union sector can be unlocked. We will listen to and work with the credit union movement to improve the legislation with regard to the amendments that will be brought forward on Committee Stage and ensure that the core objectives of this Bill are realised.

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