Michael Kitt (Fianna Fail)

I welcome the Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Noel Ahern, and I welcome this Bill also. I do not see it in the same light as the previous speaker because I do not believe that this is a time bomb. The Building Societies Review Group included representatives of the building societies, Departments and the Financial Regulator. The Bill relates to taking measures for reform a package of which were proposed by the group. While the group concluded that a building society wishing to demutualise and develop as a public company should not be unduly restricted, it also stated that any society seeking to continue as a mutual should be adequately protected in terms of retaining mutual status. This is clear in the package proposed by the group.

The key element of the Bill relates to the amendment of provisions relating to demutualisation. This gives building societies discretion to opt out of the five year post-conversion protective provisions in section 102 of the Building Societies Act 1989. These preclude any individual institution holding 50% or more of the shares of a demutualised society for five years. Where a building society takes this option, it will be possible for it to be taken over immediately on demutualisation through an integrated conversion acquisition scheme approved by the members. This opt-out provision is designed to operate in a way that will not adversely affect any society wishing to retain mutual status.

It will be open to any society to demutualise with the cover of the existing protective provisions. The Minister of State stressed during his contribution that members can vote on this issue. He referred to the flexibility that exists and the greater range of options that will be available to building societies.

Senator Bannon raised the issue of corporate status but it is clear that it is dealt with in the Bill. The legislation provides that any building society wishing to remain mutual can do so but allows any society that sees its future outside the mutual sector to pursue such a strategy through several means.

One of the building societies mentioned by Senator Bannon and referred to in the media, is the Irish Nationwide Building Society. It is well known that it has indicated a desire to demutualise without the restriction of the current five year post-conversion provisions. There are two elements in the Bill concerning this matter. First, a society can opt out of the current post-conversion protective provisions and, second, a society choosing to do so can agree a trade sale of the company to be implemented immediately on demutualisation.

Another society that has been mentioned is the EBS which, up to now, has restricted access to membership. It can, if it so wishes, pursue demutualisation immediately under the existing provisions of the 1989 Act in exactly the same way as the other two societies that have converted. The Bill does not alter that option. However, the EBS would have to restrict access to membership for five years before it could avail of the new option under the Bill to dispense with the five year post-conversion protective provisions. There has been no indication that the board or members of the EBS want to opt out of the five year post-conversion protective provisions or to convert under any circumstances. I understand the EBS has been pursuing policies aimed at retaining mutual status.

Some Members have suggested that the Bill is being rushed but I cannot understand that argument. The legislation has been promised for a long time and it was agreed that all Stages would be taken this week. The review group has been discussing this matter for a considerable period of time. It is important to enact the legislation quickly. There is no need for further consultation or analysis.

It would be worrying, as the Minister of State has said, if there was uncertainty in the market. We should bring closure to the issues surrounding the possible future of building societies and demutualisations, and end speculation in that regard. There is a concern that if there is a delay in the enactment of the Bill, it could lead to a degree of instability in the sector.

In his contribution, the Minister of State explained that there are four options regarding the status of building societies: they can remain mutual; demutualise under the existing protective provisions; opt out of those provisions and be taken over immediately; or opt out of those provisions and be sold at a later date. The Minister of State made the point that the five-year buffer period was designed to discourage any potential predators, which is a valid point. I do not see how the Bill will prevent members of a society from discussing conversion. Section 19 contains a provision to protect against pressure for demutualisation being brought to bear through members of a mutual building society.

Another issue raised was the need for additional controls over the process of demutualisation. Two building societies have already converted under the existing provisions without giving rise to difficulties and this Bill does not alter the basic framework under which those conversions took place.

The Minister of State made an interesting point about charging practices in building society. This is not just an issue of concern with regard to building societies but all financial institutions. The Minister of State referred to the financial services ombudsman in this regard and perhaps his office should be granted more powers to ensure dubious charging practices do not continue. We have seen a number of financial institutions having to put their hands up and admit mistakes were made. People received refunds, and rightly so, as a result of investigations that took place.

In the latter part of his speech the Minister of State referred to the further reduction of the distinction between building societies and banks under the Bill and that it has largely removed the rationale for a separate code of building society legislation. In terms of flexibility, one area that has not been covered — I am aware that it does not come under the remit of the Department of the Environment, Heritage and Local Government — is the question of credit unions. I raised with the Minister at the Fianna Fáil parliamentary party meeting last Tuesday the fact that credit unions are restricted as to the amount of money they can lend to members. Credit unions should be given the option to expand their business. As I understand it, section 35 of the Credit Union Act 1997 restricts the amount of money credit unions can lend to members over five and ten years. Credit unions can lend only 20% of their loan book over five years and 10% over ten years. That prevents credit unions from servicing members and their communities who are looking to the credit unions for loans.