Dáil debates

Tuesday, 25 June 2019

Saincheisteanna Tráthúla - Topical Issue Debate

Credit Unions

6:40 pm

Photo of Joan CollinsJoan Collins (Dublin South Central, Independent)
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I received an email from the Irish League of Credit Unions about the industry funding levy on credit unions. I had also seen that in the newspapers. On 14 June, the Central Bank announced plans to increase the industry funding levy on credit unions from approximately €1.5 million per annum to approximately €7.8 million by the end of 2022.

This increase was approved by the Minister for Finance and Public Expenditure and Reform, Deputy Donohoe. The Irish League of Credit Unions has sought clarification from the Minister on whether he consulted the Credit Union Advisory Committee, the statutory body established to advise the Minister on credit unions, in advance of the announcement. I want the Minister of State to answer that question.

The Irish League of Credit Unions is deeply disappointed that despite his stated support of credit unions, the Minister has brought in an exclusively monetary analysis of the co-operative credit union movement. It places little value on its social capital, volunteers, community base or democratic structure, all of which deliver a very positive social benefit to Irish society at zero cost to the Exchequer. The Irish League of Credit Unions wrote to the Minister about the matter in April and it is regrettable that he chose not to engage with it. Why did he not engage with it on this issue?

The Central Bank conducted a public consultation process on increasing industry funding levels in 2012, but it did not take on board a submission made by the Irish League of Credit Unions, in which it indicated that credit unions were different and that their societal impact should be taken into account when calculating the industry funding levy. Credit unions are not-for-profit, community-based and volunteer-led. The misguided equating of credit unions with banks and a hike in the levy by a projected €6.3 million underline the cultural misfit between the credit union movement and the Central Bank. It is a further shift in the wrong direction. Credit unions are a social force operating in this country on a not-for-profit basis. The Charities Regulator is fully funded by the Government and society at large supports the regulatory cost because of the enormous social capital it oversees. The reason is simple and rational; it is a reciprocal co-investment for the time given and commitment made by so many people who are contributing to the country's social capital and cohesion.

The Irish League of Credit Unions made an analysis of how much credit unions, ranging from the very large to the small, would have to pay towards the levy. The very large credit unions would pay €143,000 by 2021, while the smaller credit unions would pay €7,271. This increase is unfair and the levy should not apply to social capital. It is a levy on volunteers and a further drain on already squeezed credit unions when their loan-to-asset ratio is historically low and returns on investment have tanked. The increasing equating of credit unions with banks by the Central Bank, with the approval of the Minister for Finance and Public Expenditure and Reform, is a fundamental problem of attitude and understanding. I ask the Minister of State, in the strongest terms and on behalf of the Irish League of Credit Unions, to address this matter. Nearly every Deputy would have received this email from credit unions and we are asking for the reversal of what is a wrong and damaging policy.

The Irish League of Credit Unions has 3.6 million members, of which I am one. I am disgusted that the levy is being applied to credit unions. In Ireland RepTrak, the reputations agency study, credit unions came out top with regard to respect, trust and esteem among the public. Are we to put a levy on credit unions and treat them like a private bank? I ask that the application of the levy be withdrawn.

6:50 pm

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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As the Deputy is aware, credit unions are regulated and supervised by the registrar of credit unions at the Central Bank which is the independent regulator for credit unions. Within his independent regulatory discretion, the registrar acts to support the prudential soundness of individual credit unions to maintain sector stability and protect the savings of credit union members. Section 32D of the Central Bank Act 1942, as amended, provides that the Central Bank of Ireland may, with the approval of the Minister for Finance, make regulations prescribing an annual industry funding levy to be paid by regulated financial service providers to the Central Bank of Ireland. The industry funding levy is not specific to credit unions and there is no requirement under the regulations for the Minister for Finance to consult the Credit Union Advisory Committee, CUAC.

Since 2004 the amount of the industry funding levy payable by each credit union has been capped at a rate of 0.01% of total assets. Consultation paper 95, Joint Public Consultation Paper - Department of Finance and the Central Bank of Ireland - Funding the Cost of Financial Regulation, CP95, was published in 2015 and set out proposals to move from partial industry funding of financial regulation towards full industry funding, noting the proposal set out in an earlier consultation process conducted by the Central Bank - CP61, Consultation on Impact Based Levies and Other Levy Related Matters - to move credit unions to fund 50% of the cost of regulating the credit union sector. Importantly, the Central Bank's feedback statement on the consultation process for CP61 noted the feedback received from the credit union representative bodies.

In its Funding Strategy and 2018 Guide to the Industry Funding Levy the Central Bank set out its intention to increase the proportion of financial regulation costs for industry to increase the overall recovery rate and address funding gaps in specific areas of the Central Bank's regulatory activities, with a view to achieving full industry funding in the medium term. In terms of credit unions, the Central Bank set out an initial target of 50% to be implemented on a phased basis by 2021 to 2022. The Minister for Finance, having taken into consideration the unique and important role credit unions played, recommended to the Central Bank that credit unions be provided with a specific exemption from the 100% target. It is the only part of the financial services sector to have such an exemption. Instead credit unions will be set a target of 50% by 2021 to 2022. It is projected that it will be recovered from credit unions on a phased basis, with recovery rates to increase to 20% of the costs of regulating the credit union sector for the 2019 levy cycle, 35% for 2020 and 50% for 2021. Credit union recovery rates from 2022 onwards will be subject to review and a public consultation process to guide strategy once 50% recovery rates have been achieved. The Central Bank has advised that the increase in the proportion of funding to be provided by the credit union sector relates to the estimated cost of regulating the sector. In contrast, the main Irish banks have been subject to 100% of financial regulatory costs since 2012.

The Deputy may be interested to note that the Department of Finance, in collaboration with the Central Bank, has now issued a public consultation paper on potential changes to the credit institutions resolution fund levy which is expected to reduce materially from 2020. The consultation paper is available on the website of the Department of Finance and open to all persons. The deadline for the receipt of submissions is Friday, 9 August. Once the deadline for submissions has passed, the Department, in collaboration with the Central Bank, will consider the feedback received as part of the consultation process prior to finalising changes to the resolution funding regime for credit unions. Following on from this, a statutory instrument will be published in October detailing the 2020 resolution fund levy for credit unions.

Photo of Joan CollinsJoan Collins (Dublin South Central, Independent)
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It would have been good to receive a copy of the Minister of State's speech.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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There are copies available.

Photo of Joan CollinsJoan Collins (Dublin South Central, Independent)
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I do not have one and it is very hard to pick up all of the detail. One of the key points is that section 32D of the Central Bank Act 1942, as amended, provides that the Central Bank of Ireland may, with the approval of the Minister for Finance, make regulations prescribing an annual industry funding levy to be paid. The Minister did not have to give his approval, which is why the Irish League of Credit Unions is asking, in strong terms, for the reversal of a wrong and damaging policy. Credit unions are not banks. I know that the Government has tried to put them in that category, but they did not cause the crash. It was caused by for-profit banks. Credit unions should not be treated in this way with an industry funding levy. It is outrageous and I hope there will be more of a backlash against the Government about it from other Deputies and parties. I hope they will take this head on with the Government and the Minister for Finance. It should not be happening.

The Minister of State has indicated that the legislation means that the Minister does not have to consult the Credit Union Advisory Committee on the matter. The Minister of State is probably a member of a credit union like me and we know what they were set up to do. We know that they are not-for-profit and do not pay their chief executives €140,000 or €150,000. They certainly will not see any change from the Minister's support of a review of the cap on banker pay. The credit unions will certainly not benefit from it. That is not the nature of the movement. Will the Minister of State take this point back to the Minister and ask him to reconsider what he has done with the industry funding levy on credit unions? It is outrageous and should not happen.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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The industry funding levy is not solely applied to credit unions. There is no requirement under regulations for the Minister to consult the CUAC. The Government recognises the important role credit unions play in Irish society as volunteer co-operative financial institutions.

Credit unions help to sustain the economy, with more than €2 billion of new lending every year. That is why the Minister for Finance requested the Central Bank refrain from increasing the cost of the industry funding levy on credit unions beyond 50% until the levy trajectory has reached the planned 50% rate by 2022, at which time the impact on the viability of the sector will be better understood; and a public consultation regarding increasing the levy rate for credit unions beyond 50% is undertaken, which would include a regulatory impact assessment on such a change to the sector.

It is worth repeating that the credit union sector is the only financial services sector currently exempt from the Central Bank's 100% target for funding the cost of regulation. This Government is determined to help support the strengthening growth in the credit union movement. This is evidenced by the recent introduction of the credit unions (interest on loans) Bill 2019. This Bill will permit credit unions to charge an interest rate on loans greater than the current ceiling of 1% per month. It will amend the interest ceiling to 2% per month. This amendment would provide credit unions with greater flexibility to risk price loan products and, in so doing, may create an opportunity for credit unions to provide new product offerings. The Bill followed the recommendation of the Credit Union Advisory Committee, CUAC, made to the Minister on the basis of a CUAC survey conducted in the credit union sector.

Another change introduced to help grow the sector was the revised investment regulations allowing credit unions to invest in tier 3 approved housing bodies, AHBs. The regulation came into effect in March 2018. At a sectoral level, the concentration on this can now facilitate a sector-wide investment of more than €700 million in tier 3 AHBs.

In addition, the Central Bank is currently reviewing the credit union lending framework, CP125, and it is expected to be concluded by the end of this year.