Wednesday, 13 March 2019
Credit Union Restructuring Board (Dissolution) Bill 2019: Second Stage (Resumed)
The role of Credit Union Restructuring Board, or ReBo, was to plan for the restructuring of the credit union sector, engage with and assist credit unions in the preparation of restructuring plans, consider and decide on restructuring plans submitted to it by, or on behalf of, credit unions, oversee the implementation of restructuring plans including the provision of post-restructuring support and oversee the operational functions of ReBo. Following on from ReBo's role in the restructuring process, the Commission on Credit Unions recommended that any restructuring proposals must have the endorsement of the ReBo board before being submitted to the Central Bank for regulatory approval, funding requirements should be determined based on credit union assessments and funding should be provided from one of three sources in the following order: excess capital from within participating credit unions, the sector itself, or Exchequer funding on a recoupable basis.
ReBo approached its restructuring work in a methodical manner and, in accordance with the recommendations set out by the commission on credit unions, in June 2015 it stated in its interim report to the Minister that while the initial perception of credit unions was that only small credit unions would transfer to larger neighbouring credit unions, during ReBo's lifetime this perception changed and a paradigm shift occurred whereby credit unions were more willing to engage with the process and were approaching restructuring as a strategic advantage rather than solely as a financial necessity. This change in mindset saw credit unions seeking to restructure so as to grow their business and expand their product offerings.
The final date for restructuring was initially 31 December 2015 but, following the interim section 43 review of ReBo's work in October 2015, the Minister for Finance announced that credit unions wishing to enter a restructuring programme under ReBo would be required to have a high level business case with ReBo and to have received an approval letter from it by 31 March 2016. After that date, no further restructure proposals would be accepted by ReBo. By March 2017, ReBo completed the performance of its functions in accordance with recommendations of the commission on credit unions and in accordance with the 2012 Act. While 210 credit unions were involved in 117 potential restructuring projects, at the end of its operational life ReBo had facilitated and overseen the full restructuring of 156 credit unions in 24 countries under 82 projects with assets of almost €6 billion. This equates to approximately 38% of total credit union assets at that time. Some of the uncompleted projects were handed to the Central Bank for further consideration. In addition to these projects, new restructuring projects have continued to be commenced directly with the Central Bank, demonstrating the restructuring of the credit union sector is continuing post ReBo.
The Government provided €250 million in the credit union fund that was established specifically for credit union restructuring under section 57 of the 2012 Act. However, the Minister was entitled to be reimbursed from the credit union fund from any contribution made from the fund to credit unions for the purposes of restructuring. Such reimbursement would be financed from the recruitment of restructuring support by credit unions that had received such support. Half of ReBo's administration costs were met from the credit union fund and half were met by way of a ReBo levy on the credit union sector. Under the 2012 Act, ReBo could, with the Minister's consent, make regulations prescribing the levy to be paid to it by credit unions and when such a levy would fall due to be paid. In 2014, 2015, 2016 and 2017, ReBo made regulations requiring credit unions to make a contribution towards ReBo's operating costs.
To its great credit, and to the credit of the sector itself, of the €250 million provided to the credit union fund all but approximately €11.6 million was returned to the Exchequer in late 2018. The lower than anticipated spend on restructuring was essentially due to the fact the majority of credit unions participating in restructuring projects financed those projects from within their own resources, as was recommended by the commission. Where there was a shortfall, financial assistance was provided in certain cases by the Irish League of Credit Unions using its savings protection scheme. Combined, this resulted in a much lower cost to the Exchequer than anticipated by the commission. This is a great achievement by ReBo and it is highly commendable that the sector itself provided funding for credit unions to undergo and complete restructuring projects from within its own resources.
As I have already mentioned, some of ReBo's uncompleted projects were handed to the Central Bank for further consideration. In addition to these projects, new restructuring projects have commenced directly with the Central Bank, demonstrating the restructuring of the credit union sector is continuing post ReBo.
When ReBo ceased to accept new applications for assistance, the registry of credit unions at the Central Bank issued a circular and explanatory note to all credit unions advising interested credit unions to engage directly with it to facilitate further voluntary restructuring. The registrar of credit unions also updated the credit union handbook to include information on the restructuring process. While restructuring has continued post ReBo, the pace has slowed somewhat with a total of 34 transferring engagements confirmed, with 19 in 2017 and 15 in 2018. I am informed 16 transfers of engagement are under way and that a number of credit unions that commenced transfer of engagement discussions during the lifetime of ReBo but did not complete a transfer engagement at that time have indicated that a transfer of engagement remains a strategic option under further future consideration.
Restructuring was achieved under ReBo in such a way that the significant funding that it was envisaged would be required for restructuring at the time was largely not needed. It was also commendable that the credit union movement itself provided financial support from within its own resources and minimised the call on Exchequer funding. Completing 82 projects involving 156 credit unions in 24 counties was a huge achievement for ReBo, and even more so when accomplished in such a tight timeframe.
Following the resignation of the board on 31 July 2017, a caretaker board comprising two officials from the Department of Finance, an existing director and the Central Bank nominated non-voting director has been appointed to meet the requirements of the 2012 Act. The caretaker board must remain in place until ReBo is dissolved under the Bill. I look forward to a constructive debate on the Bill, which provides for the dissolution of ReBo to transfer certain functions from the credit union restructuring board to the Minister for Finance to amend the Credit Union and Co-operation with Overseas Regulators Act 2012 and to provide for consequential amendments of other enactments. I commend the Bill to the House.
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.
The Bill will wind up the Credit Union Restructuring Board or ReBo. Members should recall that at the time of the board's establishment, it was feared that credit unions were likely to be the next domino in the banking collapse. However, although a few difficult years for credit unions followed, the predicted widespread collapses did not occur. Through their own resources and the solid foundations on which they were built, the credit unions weathered the storm with far less damage than predicted. That is to their credit. Their survival was achieved without the political support secured by the banks. In spite of Government policy then and now that puts banks first, the credit unions battled over-zealous regulation and the unresponsive political class who were in power to come out virtually unscathed on the other side of the storm. Credit unions proved resilient and the ReBo fund was barely called upon, with only €20 million of the €250 million being drawn down.
ReBo also assisted credit unions that wished to merge or otherwise change. I know some individuals were put out by the mergers but, in the round, they were sensible moves that allowed some smaller credit unions to find shelter. The Bill, therefore, simply unwinds ReBo, which is no longer needed as the sector has reconfigured itself. I am pleased to confirm that Sinn Féin will support the Bill's passage through all Stages.
The Minister will take on the responsibilities of ReBo, including legal liabilities. Can he clarify whether there are many outstanding legal cases involving ReBo and what anklet has been reserved to deal with those cases?
We support the Bill. I commend the credit union movement on its resilience through very difficult times. While the banks failed the Irish people, the credit union movement remained a rock for many families.
The recently published report of the Credit Union Advisory Committee shows the way forward for the sector. The much-heralded tiered regulation must become a reality. I still have serious concerns that the Central Bank regards the credit union movement as an amalgam of hundreds of small banks to be regulated with a big stick rather than as unique community-based institution serving families in a way that banks do not or do not want to do. I note the report of the Credit Union Advisory Committee also made the case for increasing the lending rate cap from 1% to 2%. This move makes sense and is in line with Sinn Féin's unanimously supported consumer credit Bill, which places a cap on moneylenders. This would, of course, be a voluntary move for each credit union. Will the Minister of State indicate his position on this and consider making such an amendment to this Bill?
It is incredible that, in the midst of an ever-worsening housing crisis, the Government and Central Bank have yet to facilitate the credit union movement to provide for housing loans. It is shocking that the political will to make this happen has been so elusive. The Minister of State at the Department of Housing, Planning and Local Government, Deputy English, gave a commitment that the SPV to be used by the Irish Council for Social Housing would be ready by the third quarter of 2018. He has said since that it would be the first quarter of this year. By my calculation, that gives him a couple of weeks, perhaps, to meet the deferred deadline. Will it be ready? Importantly, will it be in line with Central Bank regulations?
ReBo has served its purpose. It can be wound down. Thankfully, it never became a NAMA, either in the public mind or in reality, because, unlike the banks, the credit unions have a culture that is about sustainability and community. As a proud and, may I emphasise, grateful member of my local credit union, I say "Well done."
I welcome the opportunity to speak on this Bill, which I welcome and will be supporting. We need, however, to recall the days when the country was in trouble. As was pointed out earlier, the then Minister for Finance said in the Seanad that the credit unions would require up to €1 billion. It was probably not his view as someone probably gave him that information. Regardless, it was reckless information because it sent a shiver down the spines of many around the country who started off the credit union movement and volunteered from town to town.
We do not realise the amount of good work credit unions do throughout the country. In smaller villages and towns, the banks have absconded after getting the money. The Minister of State referred to a figure of about €11 million. The credit unions have basically stood up to the mark and funded themselves. That needs to recognised when we bear in mind that we put €60 billion into banks and got damn-all out of it. It shows the credit unions were prudent and worked in a good way around the country.
Consider how the banks operated 20 or 25 years ago. When one goes into a credit union now, one does not see a machine, which is what the banks now have. One sees a person who will say hello. This is especially good for the elderly. The credit unions have that touch. I have said time and again that the Government needs to give the credit unions the facility to lend money. I am aware there is a fund of €16 billion or €17 billion but the biggest problem in many areas is lending the money. We need to ensure we can facilitate lending as best as possible. In areas that the banks have left, the businesses have gone to the credit unions. The credit unions provide the change for the pubs and shops and they provide all the various facilities required. We need to make it increasingly possible to use a card at an ATM in a credit union.
There was a problem when the clearinghouses were costing the credit unions serious money. There was a debacle whereby the main banks were causing the block. The credit unions are going to the banks of rural areas that the bigger banks have left. They need all the various facilities of banks because this will be the salvation of many parts of this country.
Coincidentally, I received an email this evening stating St. Jarlath's Credit Union received today an award for being the best credit union in Ireland. This is a great achievement for Mr. Mick Culkeen and all the staff. St. Jarlath's started off in Tuam but amalgamated and is now in Mountbellew and many other locations. It is now providing loans of up to €150,000 in certain cases. The problem, however, is that some credit unions may have €15 million in a bank account but have a problem lending it because only so many bigger loans may be given in proportion to the smaller loans. The Central Bank needs to give the credit unions the facility to work around this. My local credit union, in Glenamaddy, managed by Mr. John Murphy, offers considerable help to people. The credit union is always the first to offer sponsorship or provide funding, be it for a disaster fund or otherwise. This is because it is of the community and people from the community are involved. Although credit unions can hold their local identity, they need to bring numbers together to be able to borrow or lend in larger volumes. We must, however, give them the facility to try to match the banks because there is a deficit in areas that the banks have left.
I learned from the heads of the credit union that they wanted to help with housing, as Deputy Ó Caoláin stated. They have a large amount of money that they were willing to lend on a long-term basis to help with the housing crisis.
It is my understanding they have never been taken up on it. We must keep money circulating. Credit union money is local people's money. Credit unions could also provide long-term schemes which would allow scope, for example, for a State body that wanted to build a lot of houses. It would be a way forward for them to flourish, but it would also be good in addressing the housing problem. We should incorporate credit unions more in such endeavours because they are willing to co-operate in these areas.
We must also remember that credit unions got themselves out of difficulty on their own. There was a lot of fear when the figure came out, but whoever gave it to the Minister was reckless because it had come from the unknown.
I will finish on this point as I do not intend to detain the Minister of State all evening. We need to make sure credit unions can lend more widely, either under legislation or in working with the Central Bank. Farmers are now getting loans from them. Some time ago the amounts they were given in loans were not big enough. Facilities are being made available bit by bit, but they are slow in coming. If the Government could do one thing for rural Ireland, it would be to give credit unions the facility to give more loans. I am not saying they would have to loan every penny, but we must ensure they can compete with the banks because we need them, as bank branches have been closed in so many places. Credit unions operate in small towns and could also do other things as they have sub-offices in small villages that open on a Saturday or a Sundays, which is helpful to people living in rural areas. They might be able to incorporate other services with they financial services they offfer in rural areas. I support the Bill and will vote for it.
I thank Members for their contributions on Stage Stage of the Credit Union Restructuring Board (Dissolution) Bill 2019. I will come back to them prior to Committee Stage with as many answers as possible to their questions. I look forward to interacting with them at that point.