Dáil debates

Wednesday, 18 September 2013

Topical Issue Debate

Credit Unions Issues

4:45 pm

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Fianna Fail)
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I welcome the Minister, Deputy Noonan. Newbridge Credit Union has been to the fore during the course of the summer and I expect the difficulties we have been having in Newbridge are difficulties that we may well experience in other parts of the country in the period ahead. I will say to the Minister first and foremost that he should see Newbridge as a template of what should not be allowed to happen if there are difficulties in other credit unions.

In April of last year a special manager was appointed. It has to be said there was a dearth of communication from that special manager until, in the middle of this summer, a local action group was formed, which raised the ante very considerably. The north Kildare Oireachtas Members have all worked closely together on this matter to try to find a resolution. However, we learned from the special manager and, in the last week, from the regulator in the Central Bank that they see only two solutions to the problems at Newbridge Credit Union, namely, liquidation of the union or its forced amalgamation with some other entity. I want to say to the Minister without equivocation that I am convinced the only answer to Newbridge's problem rests in a community-based solution and, therefore, that the solution should be in Newbridge itself and should not include the forced amalgamation of Newbridge Credit Union with any other credit union.

In the course of the last 20 months, the decent, honourable people who, as volunteers, have been directors of Newbridge Credit Union have been subjected to innuendo and rumour, which I am sure the Minister and anybody else in public office would not stand over. However, because of the veil of silence that has been drawn by the Central Bank and the courts over this matter, they have stood accused of mismanagement of the funds available to Newbridge Credit Union, which are substantial - €163 million in savings.

I am firmly convinced that the Minister is the only person who, at this point, can find a resolution to this problem. I welcome the fact that he is meeting the action group tomorrow. I call on him to intervene in this crisis to ensure we can find a community-based solution, so the decent people whose names have been damaged can be exonerated as soon as possible.

4:55 pm

Photo of Anthony LawlorAnthony Lawlor (Kildare North, Fine Gael)
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I thank the Minister, Deputy Michael Noonan, for coming to the House to deal with this serious matter for the members of both Newbridge and Naas credit unions. I am a member of the latter organisation and am coming at the issue from a Naas perspective. I hope the Minister will be able to allay the fears of the people of both towns. Will he ensure, for example, that there are sufficient funds, should the proposed merger take place, to cover the existing loan book of the Newbridge facility? There is a fear among members in Naas that the funds will not be adequate not only to cover already problematic loans but also loans that might become problematic in the future.

There is also a concern among members of Naas credit union that their voice will be diluted as a consequence of the proposed merger. I am seeking an assurance that they will continue to have a strong voice in the organisation they worked hard to develop over many years. As it stands, members receive dividends on an annual basis. Can the Minister confirm that members of the proposed merged entity will continue to be facilitated with an annual dividend?

Photo of Martin HeydonMartin Heydon (Kildare South, Fine Gael)
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I thank the Minister for taking this Topical Issue matter. Under the legislation, the role of the special manager at Newbridge credit union was envisaged as one that would be conducted in an expeditious fashion, for no longer than six months, and at the least possible cost to the State. After 21 months in the role, Mr. Luke Charleton's tenure can be said to have been a failure on all these fronts. The lack of clear and concise information during this time has caused huge confusion among members. People have a great many questions and it is incumbent on the Central Bank to answer them. For example, if the situation is as bad as the bank has indicated, how was it allowed to get to that point? What types of loans were given out and who were the recipients? Where is the money that has been lost? It must be somewhere. When did the Regulator and the Central Bank first become aware of the non-traditional lending to which they referred? Did they act straight away when they made the discovery and, if not, why did they not do so? If immediate action was not taken, there is a significant impact in terms of the credibility of those institutions putting forward solutions.

Any solutions that are considered must be in the best interests of the members of Newbridge credit union and the taxpayer. Why are the alternatives of merger and liquidation the only options being put on the table? If tens of millions of euro in taxpayers' money will be needed, as the Central Bank has suggested, why can it not be put directly into Newbridge credit union as part of a stand-alone resolution? Members do not understand why that cannot be done. Their loyalty to the facility has seen many of them retain their savings in shares without any dividend for the past three years, without any expectation of such in the short term and in the absence of any information as to what the outcome of the resolution process might be.

I do not expect the Minister to be in a position to answer all of these questions today. However, the Central Bank must provide the answers as soon as possible. It is the least people in Newbridge deserve.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I thank the three Deputies from Kildare for raising this issue. I am particularly grateful to Deputy Martin Heydon for keeping me informed throughout the holiday period of the strength of feeling locally. Several Deputies, including the three who spoke today, have in recent months raised issues of concern to the members of Newbridge credit union. My objective is to ensure members' savings are protected, notwithstanding the extent of the very real problems that exist at the union.

This will be the first instance in which the taxpayer is being called upon to advance sizeable sums of money to support a credit union in difficulty. While the figure cannot be disclosed at this time, it is substantial and runs into tens of millions of euro. This funding is required to cover the losses at Newbridge, ensure members' savings are protected and place the credit union on a stable financial footing. The money will come from a resolution fund to which the Government has contributed €250 million of taxpayers' money, recoupable over time from credit institutions via a levy. Combining Newbridge and Naas credit unions will ensure that services continue to be available in Newbridge. There is no question of members of the latter facility having to travel to Naas to access services. Furthermore, Newbridge members will hold full membership rights in the combined credit union.

There has been a suggestion that Newbridge had a clean bill of health until the appointment of the special manager. In fact, that appointment was made because of Central Bank concerns in regard to the high level of loan losses incurred by the credit union, which impacted on the level of its reserves. There were also concerns about some of the lending made, which went beyond the traditional type of lending normally provided by credit unions. Without the appointment of the special manager, the position of Newbridge credit union would have continued to weaken and deteriorate, which could have had serious consequences in terms of undermining its future viability.

Members raised the prospect of a stand-alone resolution for Newbridge. Under the resolution process it is not possible to recapitalise a credit union on a stand-alone basis. I have been advised by the Central Bank that of the options available under the Central Bank and Credit Institutions (Resolution) Act 2011, a combination with Naas represents the best way of delivering a sustainable credit union presence in Newbridge into the future. The extent of the problems at Newbridge means it is not sustainable for it to continue as a stand-alone entity. As a resolution case with financial difficulties and viability concerns, nor does it meet the statutory conditions for stabilisation support.

The Central Bank undertook a process under the Act involving the examination of possible combinations with other credit unions. As part of this process, Naas credit union submitted a proposal to the bank, setting out the basis upon which it would be prepared to combine with Newbridge. At the request of the Governor of the Central Bank, I have confirmed that I am prepared, in principle, to support the proposal. However, it remains subject, among other requirements, to due diligence, completion of relevant documentation, Naas credit union board approval, regulatory consideration and High Court approval. I expect these steps to be completed expeditiously and that the Naas-Newbridge combination will be finalised by the end of this year. To reiterate, the successful combination of the credit unions is considered the best way to ensure the continuity of services for members in Newbridge.

The issue of dividend payments to Naas members for the current year is a matter for the board of Naas credit union and, following the combination, will be a matter for the board of the merged entity in future years.

The strict confidentiality provisions of the legislation are necessary to allow space for negotiations to be undertaken and concluded. In this case, however, it has also resulted in an information deficit at local level. The Central Bank and the special manager have been working to address this in recent weeks and a number of communications have issued, with further details to be made available. The special manager has also provided members with a dedicated e-mail contact address for queries. It is important that the remaining steps of the process conclude as expeditiously as possible and I have asked my Department to work with the Central Bank to achieve this. While the need for a significant taxpayer injection in this case is deeply regrettable, it is necessary to ensure the protection of members' savings and the continued availability of credit union services in Newbridge.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Fianna Fail)
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I am shocked and disappointed by the Minister's response. It is vital that a local resolution to this matter be found. As these types of problems continue to afflict communities across the country, similar local solutions will be required in other locations. Combining Naas and Newbridge credit unions does not represent an adequate solution. The idea that one would address the problems in Newbridge by forcing its 38,000 members to join up with the 22,000 members in Naas is incredible. It is not the way we should go.

On the issue of non-traditional lending, if such practices were at play in Newbridge over a period of time, surely that should have been known to the auditors of the credit union and certainly to the special auditors, Grant Thornton, appointed to the union to report to the Central Bank on a three-monthly basis.

It is something that should have been known to the Central Bank long before now.

5:05 pm

Photo of Anthony LawlorAnthony Lawlor (Kildare North, Fine Gael)
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I welcome the response of the Minister. I am a member of Naas Credit Union and do not feel reassured by what the Minister said. As has been the problem all along, there is an information deficit concerning the special manager and the Central Bank. Fears about the scale of the loan book of Newbridge Credit Union, the size of the membership of Newbridge Credit Union in merging with Naas Credit Union and the lack of a voice the latter will have in the merged entity have not been allayed.

Photo of Martin HeydonMartin Heydon (Kildare South, Fine Gael)
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I thank the Minister for his response. At our meeting with the Central Bank last Friday I asked direct questions about when the Central Bank had concerns. I specifically asked about a meeting that was supposed to have happened in 2005 between the regulator, the registrar and the board of directors. A fair description is that we were stonewalled, with a lack of information from the Central Bank. I want an assurance that at the end of the process we will have a full and frank outlay of information about who knew what in order that we can ensure the mistakes that happened in Newbridge and the manner in which the matter has been handled do not happen again. If mistakes were made in Newbridge, they were not made by the 38,000 ordinary members or the businesses in the town that have suffered owing to the lack of dividends paid for the past three years.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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There is always a difficulty in giving information on financial institutions under pressure. Everyone in the community in south Kildare knows that there was a significant movement of deposits out of Newbridge Credit Union during the summer and extra information would have fuelled it further. I want to reassure people that there is no risk to anyone's money in Newbridge Credit Union. The Central Bank, through the use of the special fund, will protect the savings of all depositors in Naas, not just depositors below the sum of €100,000. It gave these guarantees coming out of August and stopped the movement of deposits. While it is regrettable that Deputies were not given full information, the provision of full information for the public would have made matters worse in midsummer. There is a real difficulty in Naas and Deputy Seán Ó Fearghaíl will revise his opinion when he gets the full information and the confidentiality clause imposed by the High Court is removed. I will co-operate with Deputies and give them as much information as I can. I am delighted to be in a position to meet the local committee tomorrow in the Department and will be as frank as I can with information. I assure everyone that there is a real difficulty that has been taken in hand. It will cost the taxpayers an awful lot of money. It is the first big credit union to be in difficulty. We have all had reports on the credit union movement and, by and large, it is sound. There are over 400 individual credit unions, of which about 30 are in difficulty. The credit unions, the Central Bank and the regulator of credit unions are moving systematically to ensure one of the finest institutions we have is secured nationally and in all of its branches by one intervention or another.