Derek Nolan (Galway West, Labour)
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A taxi driver in my constituency is a friend of my family. He contacted me a number of weeks ago. He had an issue with his car and needed finance to get his car repaired so he could continue going to work and earn a living. Given the industry he works in, his income has declined dramatically over the past number of years, as is the case for an enormous number of people. His mortgage is in arrears. He goes to the credit union for finance. He went to his credit union in Galway and was told that, on the basis that his mortgage was in arrears for a period in excess of 12 months, he was not entitled to access credit and the credit union could not lend to him. He was told this was on the basis of a circular from the Central Bank issued to credit unions on 22 February 2013. The paragraph in the circular to credit unions on prudent lending states, "An important factor in determining creditworthiness in the current environment is whether a member is already in difficulty in repaying existing debt and in particular mortgage debt." The Central Bank expects "a credit union must be fully satisfied as to a member's creditworthiness and ability to service all debts before advancing any new credit or top up facilities". The paragraph suggest that if one is in trouble with debts and unable to manage them, which is the case with this man who is unable to meet his mortgage, they are not to be lent any money. He was refused a loan by the credit union in order to get money for his taxi and get back out on the road to earn a living. As a result of the phone call from my constituent and family friend, I made contact with a number of credit unions in Galway, St. Columba's Credit Union and Naomh Pádraig Credit Union, to get their views on how this is having an impact on customers. While it is not hitting them at the moment, it is working its way through and the credit unions are coming across examples where they are unable to lend to people in trouble because of their interpretation of the guidelines.

Another case arose in my discussion with St. Columba's Credit Union involving people who wanted to borrow money to buy a headstone for their son. They were in a similar situation, with an interest only mortgage for longer than 12 months, and the credit union believed it was prohibited from lending any more money to this type of person. The situation has undermined the spirit of what the credit union movement is about. The credit union is about this kind of case, where someone needs credit on a flexible basis and where the person is known to the credit union as someone in the community with a relationship with the credit union for years. Now, we are pushing people away from the friendly, accessible, fair system, with its community focus. We are running the risk of pushing people from the credit union to moneylenders and loan sharks when they are in desperate need. My friend was able to get finance from his family but if he had not been able to, he would not have had the money to put his taxi back on the road. This is not something I am making up; it really happened and is a problem. I ask the Minister of State to clarify with the Central Bank whether this is the case. The wording before me is what is in the circular. If it is being interpreted this way, it is wrong and the Central Bank needs to change it.

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Deputy for raising this important issue and clarifying it. The Central Bank of Ireland issued a circular to all credit unions on 22 February 2013 regarding prudential lending. The circular emphasises the need for credit unions to assess adequately the creditworthiness of applications for credit and in particular the need to collect sufficient information about borrowers' mortgage circumstances. The Central Bank informed me that the circular does not contain new requirements for credit unions. It highlights the changed operating environment for credit unions arising from the introduction of the new personal insolvency regime and reminds credit unions to take it into account when assessing the credit worthiness of members applying for loans.

An important factor in determining creditworthiness in the current environment is whether a member is already in difficulty repaying existing debt and, in particular, mortgage debt. The circular refers credit unions to their existing obligations under the European Communities regulations of 2010, which were transposed into Irish law on 11 June 2010. Specifically, the attention of credit unions is drawn to their obligation to assess the creditworthiness of customers. The circular states: "Before concluding an agreement with a customer, a creditor shall assess the consumer's creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database." The circular also refers to other conditions that were part of the European framework. The Central Bank expects credit unions to carry out appropriate credit assessment in all cases. The circular does not prohibit credit unions from providing short-term finance to its members, taking account of the credit unions' financial capacity to do so and the members' ability to repay. The Central Bank circular does not impose restrictions on credit unions from lending any funds to people in distress with mortgage arrears. Its focus is on the need to assess creditworthiness properly and to make provisions to cover potential losses within the credit union as a whole.

It must be remembered that within her independent regulatory discretion, the Registrar of Credit Unions acts to support the prudential soundness of individual credit unions, to maintain sector stability and to protect the savings of credit union members. In February, the Central Bank invited banking and credit union representatives to a number of meetings to discuss the creation of a workable burden sharing agreement between secured and unsecured lenders. Discussions between banking and credit union representatives are ongoing. In conclusion, the Government has brought forward a number of reforms to improve the regulatory system in Ireland. The protection of consumers remains a core focus of the Government's attention and we will continue to work on resolving issues that arise. The Department and the Central Bank are aware of the issues raised by the sector.

What was in the circular is not new to the existing regulatory environment and framework. It is probably a matter of interpretation, as Deputy Nolan pointed out, and an overzealous interpretation by local credit unions, which are understandably concerned by this because of the new regulatory situation. Nonetheless, they want to ensure that any assessment of creditworthiness across the customer base is done in a prudential way. This issue arose from the most recent report on credit unions. I welcome the opportunity to put this information on record. If there are significant issues of interpretation, it may be useful for the Registrar of Credit Unions or the Central Bank to issue further directives.

Derek Nolan (Galway West, Labour)
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I thank the Minister of State for the succinctness of his reply. I spent a number of years working in finance. The circular suggests it is the credit union's obligation to assess the creditworthiness of someone before lending money. A person in mortgage arrears for more than 12 months is de facto not a creditworthy person. The Central Bank expects a credit union to be fully satisfied as to the creditworthiness and ability to service all debts before advancing any new credit.

By virtue of being in mortgage arrears, one is not capable of servicing all one's debts. If the circular was written in such a fashion as to give a false interpretation to the credit unions as outlined, clarification needs to be issued by the Central Bank of Ireland to the credit unions so they have it in writing. The Minister of State is right that credit unions are coming under new scrutiny, which they have not come under before, and new regulatory frameworks, which is intimidating to them as it is different, and they are trying to abide by them.

I agree with the Minister of State that this statement was not ambiguous but was straightforward. However, if it is capable of such misinterpretation, it needs to be clarified urgently. Will the Minister of State use his office to ensure that clarity is given to the credit unions so that the instance I outlined, which happened in Galway on two occasions, does not happen again?

Brian Hayes (Dublin South West, Fine Gael)
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This is a useful exchange. There is a recognition in government, as there is on all sides of this House, of the importance of the credit union sector in terms of lending for the short and medium terms. It is an absolutely crucial part of the financial environment for the country. The credit union sector has come through a difficult time, as have other financial institutions, but we need to see a proper assessment and lending policy throughout the sector. However, people must also be aware of prudential risk, which arose in some cases concerning the credit union sector.

The point Deputy Nolan made was useful. We will certainly transmit his views to the Central Bank of Ireland and if further clarification is sought on this matter from the credit union sector, it would be useful. The opportunity the Deputy has afforded me to put this matter on the record, and in terms of raising it in this public way and seeking potential clarification from the Central Bank of Ireland, is useful.