Róisín Shortall (Dublin North West, Social Democrats) | Oireachtas source

I welcome the opportunity to speak on this long-awaited legislation which the Social Democrats will support. I thank the Minister for providing the Opposition with a Bill briefing on Tuesday. It was very much appreciated.

I always find it very interesting to listen to debates and commentary around credit unions, particularly from Government Deputies. Like them, I have high regard for the credit union movement. These trusted, not-for-profit institutions are an integral part of our society. They represent the very best of our community spirit and espouse socially democratic principles, such as a shared commitment to the common good, solidarity and placing the benefit of the many over the privilege of the few. That is why I so often do a double-take when I hear members of this Government praise the credit union movement. I do not for a second doubt their sincerity but I struggle to reconcile their high esteem for a co-operative movement with their otherwise market-driven policies and beliefs. I only wish their belief in this alternative to the for-profit banking system extended to other policy areas such as housing and healthcare.

Returning to the issue at hand, the Social Democrats fully support measures which seek to expand the services of credit unions to put them on a sustainable footing for the future. Although some credit unions have been able to expand their services under the current legislative framework, there is a need to further increase access to current account facilities such as debit cards and online banking and expand mortgage and SME lending across the whole credit union network. Increasing access to these services is vital for so many communities, especially for those communities that require financial services for people on low, modest or middle incomes. Last year, during the debate on the Consumer Credit (Amendment) Bill, I spoke extensively about the need to increase access to small personal loans as an alternative to moneylenders, for example. While that legislation was a welcome step in the right direction, increased access to the It Makes Sense loan is needed to bridge the gap. I hope the referral and resource-sharing provisions of this Bill will assist in that regard because alternatives not only to moneylenders but also to the established for-profit banks are desperately needed. There is a worrying lack of competition in the sector and the recent reduction in the branch network of the pillar banks, most notably in rural Ireland, makes it increasingly difficult for the Government to argue that retail banking is meeting the needs of citizens or SMEs.

The Central Statistics Office, CSO, has found that the average distance to a bank, even prior to the departure of Ulster Bank, is now 11 km in rural areas and 2 km in urban areas, with over 900,000 people living more than 10 km away from a bank. This increasingly sparse provision of services and lack of regard in many ways for customers should come as no surprise. This is because retail banking is undoubtedly and unapologetically shareholder-driven, which is being seen increasingly in the banks' attitudes towards small customers and domestic customers of any kind. They are constantly seeking to cut costs and improve their bottom line.

The exit of Ulster Bank and KBC Bank, along with the dominance of the two or three remaining retail banks, raises serious questions for the future of banking in this country.

That is why a real and open debate on solutions to the crisis confronting Irish banking is so greatly needed. AIB and Bank of Ireland as dominant privately owned banks with a stranglehold over the Irish economy must be challenged. Successive governments over decades have promised to develop a third force in banking. People do not especially like the existing model. They feel tied into a system for which they do not have much of an appetite. Many people, including me, would switch very quickly if there was a real alternative. That is why it is so important that we go beyond what is proposed in this legislation.

The Social Democrats do not accept the approach advocated in last December's retail banking review in which the Department of Finance essentially clapped itself on the back and advocated a business-as-usual approach to banking policy. Conveniently that review found again that despite further deterioration of Ireland's financial sector since the 2018 review, there was still no case for the State to proactively support the development of an expanded public banking ecosystem. One of the main reasons cited for reaching this conclusion was the fear that any such proactivity on the part of the State could displace the credit unions. This is a bit of a straw man advanced by the Department to double down on what has been its laissez-faireattitude and hands-off approach to banking policy.

Hoping that credit unions will fill the gap for the shortcomings of the Government strategy of shoring up the pillar banks is effectively a fool's errand. This is because credit unions are not banks and they do not want to be banks. However, they want a greater level of proactivity from the State in establishing a vehicle in which they can co-operate, develop expertise and lend at scale beyond their existing range of services. Last November, following publication of the retail banking review, the chief executive of the Credit Union Development Association, CUDA, outlined the need for a wider public banking ecosystem. He said that a joint effort between the Government, State agencies, banks, credit unions, An Post and other providers of banking services is the only way forward. All of these entities must come together and agree who will provide cash services and other - sometimes loss-making - bank services in all of our communities.

While the Bill is certainly welcome, it does not address the need for the State to bring together State agencies, credit unions and An Post to provide the necessary community banking ecosystem that is standard in other modern European economies. Across Europe we see that concept and the principle in practice of conscientious ethical banking. Many of us would like to have that as a choice. Given the State's development and its history with the banking sector, we need to move to that kind of model because we need ethics and conscientiousness introduced into our banking system. There is not a lot of it there at the moment.

While the reformed credit union movement is part of the situation, a second tier of public banking with local knowledge between the level of the credit unions and the pillar banks is ultimately required to make a significant and positive difference for customers and SMEs. Some credit unions will not want to scale up and they should not be pressurised into doing so - I am not suggesting that is the intention. We should undoubtedly encourage and support credit unions which wish to expand their services but ultimately the gap in the market must be filled by a public community-owned model of banking.

Nearly two decades of policy drift in respect of public banking policy has not only seen credit unions' savings-to-loan ratios fall to nearly 25%, but has also seen an enormous service gap open up for communities and SMEs. This gap in the market was historically addressed by institutions set up by the State such as the ACC and the ICC. Recent economic history in Ireland has shown that the target clients of these institutions - agriculturally based and industrial SMEs - were served by retail banks during the boom years which ultimately led to the ACC and ICC being sold off to commercial banks. However, when the economy went bust, these SMEs found that their financial support was quickly withdrawn.

Therefore, it is clear that stability is needed in this market and that can only be provided by a public model of banking with a mandate to prioritise its customers' needs. That is why I am at such a loss to understand how another review of retail banking could endorse a more-of-the-same approach to banking. Whatever about the 2018 review, I really thought that following the withdrawal of Ulster Bank and KBC from the market, the 2022 review would have produced some new conclusions. Unfortunately, I was wrong in that expectation. It is as though the Department is oblivious to the very real challenges faced by customers, particularly in rural communities and SMEs.

There is a high level of dissatisfaction among the public about the quality of the service provided by banks. The first thing, of course, is the exorbitant profits that banks are returning at this point. Many people have a very strong sense that the banks are really only interested in big business customers. We see that across the board, for example in the shutting down of branches or the removal of cash machines. People going into a bank branch find it is not very customer focused and they are left waiting a long time standing in a queue. It is just impossible for customers to get to speak to someone in their local branch on the telephone and all calls are diverted to a central number where people are offered ten options. It is impossible through a centralised telephone system to get to speak to another human being.

It is very unfair. Banks are not interested in the general customer. They are doing exceptionally well and they are snubbing their noses at ordinary customers. That is especially the case for more vulnerable groups, such as those on lower incomes and older people who may find it difficult to engage with them. Of course, the backdrop to all of this is what happened in the crash and the price that every one of us is now paying for the bailout of the banks, with the reduction in people's quality of life and the fact that people have lost so much as a result of the decision to bail out the banks.

The headlines in today's newspapers reporting that AIB has agreed 1,900 big write-off deals since the crash are a complete and utter sickener to the public. These are big institutions that were supposed to provide financial services to the public as well as to business. We know where their priorities lie. They have been allowed to operate like that under legislation. They have also been allowed to operate without any kind of serious competition, which is one of the strong reasons there is a very clear appetite among the public for choice in banking. People stick with one of the pillar banks because they have no choice. They may have set up their account there 20 or 30 years ago and where else do they go? The credit unions are starting to do that and have done so in recent times.

People are shifting but we need to go even further than this legislation proposes. We need that choice across all communities. This is welcome but we need to go further.

IBEC has raised concerns about the significant gap facing indigenous firms serving the domestic market in terms of business supports, compared to exporting companies. This highlights the Government's seeming inability to recognise the importance of ensuring the real economy is functioning properly.

The latest credit demand survey for SMEs should also be a cause for concern. It has shown, once again, a lacklustre appetite for credit among Irish SMEs, with only 17% looking for finance. Over the years, the Department of Finance has been sanguine in accepting that SMEs do not look for finance because they have sufficient internal funds. However, that view ignores the consequences of the scarce appetite for credit, namely, lack of innovation and growth in the economy. These are some of the reasons I urge the Government to rethink its approach to banking overall. A public model of banking will not displace credit unions but complement them and, ultimately, better serve the public.

I return to the provisions of the Bill, which I welcome. Throughout the turbulence of the past two decades, the credit union movement has remained steadfast and this Bill will go some way to addressing years of policy neglect. While I believe the credit union movement’s longstanding request to expand its services could have been acted upon earlier, I appreciate the importance this Government has placed on reform, not least appointing a dedicated Minister of State with responsibility for credit unions.

A number of provisions in the Bill are designed to facilitate greater focus by the board of directors on strategic planning in credit unions, rather than operational issues. Many credit union directors have complained of the growing regulatory burden on volunteer boards in recent years without the commensurate rebalancing of responsibilities between the volunteer directors and management. I believe the reforms in this Bill will assist in addressing this imbalance.

The enabling of greater collaborative efforts among credit unions and their being able to take equity stakes in corporate entities to share resources and opportunities is a much-needed and welcome reform. According to the CUDA, this could effectively see their lending double, increasing from €5.5 billion to over €10 billion in the years ahead.

In relation to the common bond, this definition is the subject of legal regulation and confers on credit unions a key defining characteristic. The requirement in this Bill that credit unions publish a digital map or provide a description of their common bond on their website is welcome. Given the spate of credit union mergers in the past and particularly over the past decade, there is much confusion regarding the common bonds of the merged entities. This needs to be clarified. However, the relaxation of the common bond cannot go beyond the practicality of these administrative improvements. Any abandonment or significant dilution of the principle of the common bond would potentially be catastrophic for credit unions. While I support the slight relaxation provided for in the Bill to ensure access to service is not just a postcode lottery, I would have serious concerns about further liberalisation of the common bond. This unique characteristic of the credit union movement must be protected and strengthened, rather than chipped away at.

I support the provision for a potential increase in the interest rate cap to 2%. Many credit unions have long argued that retaining the ceiling at 1% reduces their competitiveness and fuels an unsustainably low loan-to-asset ratio.

Overall, I am happy to support this legislation and to see the Government honour the commitment in the programme for Government to review the policy framework for credit unions. However, I put the Department of Finance, this Government and any future government on notice that they are not off the hook yet. We will still need a State policy in respect of building a public banking system. This is the only way to achieve a proper customer-focused banking model at scale where the communities being served are the stakeholders of the bank. It is critical that we achieve that. We need the Government to be more active in supporting the rapid scaling-up of services offered by credit unions in local communities and providing the joined-up thinking demanded by the credit union movement. This legislation is a welcome step in the right direction but not the final step. I wish the Minister of State well in her new role and hope she continues to strengthen and support the credit union movement, while respecting the principles upon which it was founded.

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