Derek McDowell (Labour)

I am pleased to contribute to the debate. The legislation provides the opportunity for a useful discussion on an issue that demands early resolution. I join others in acknowledging the important and vibrant role of credit unions in our society over many decades. However, their role has changed significantly in recent years. When most credit unions were established, they largely dealt with small savers and they provided loans to those who may have found it difficult to secure loans from commercial financial institutions. Over the years, the limits on borrowings increased dramatically and it is open to credit unions to lend substantial amounts and to take substantial deposits, which has fundamentally changed the nature of a number of them. Nonetheless, the movement still maintains a non-profit ethos and a number of credit unisons are still run by voluntary labour.

The consensus among Members is that there is a need for a savings protection scheme but it should be acknowledged, as Senator O'Toole has, that the Irish League of Credit Unions runs such a scheme. However, it does not do all that the Senator is trying to achieve in the legislation. The scheme essentially allows the ILCU to intervene to stabilise credit unions if there is a threat to their solvency, but it does not specifically guarantee the savings of shareholders, which is a deficiency. The ILCU will say with confidence that it has discretion under the current scheme to guarantee savings and it did so in the Monaghan case, for example, to ensure there was no further call on the scheme. Nevertheless, that is discretionary and I agree with others that the deposits must be guaranteed and a legal entitlement must be enforceable regarding the guarantee.

It would be useful if the principles underpinning a new scheme were set out given. Everybody agrees a new scheme should be introduced. A compensation element, which is legally enforceable, must be included. An issue arises immediately regarding whether that right should be underpinned by statute. That does not necessarily need to happen but it must be underpinned in some fashion by the State. I have an open mind on whether that should be by way of guarantee, which would involve the Central Bank, or by contract, and I would not have a problem in principle with underpinning this by statute.

The money in any scheme or fund must be ring-fenced for the purpose of compensation and stabilisation. The ILCU or other organisations cannot have access to moneys in a fund provided for the purpose. Senator O'Toole referred to the dispute a number of years ago when moneys that were thought to be available for stabilisation were used for other purposes and that caused rancour within the credit union movement. Clearly there can be no repeat of that. Any fund set aside for the purpose of stabilisation and compensation must be used exclusively for that purpose. To avoid a suspicion or possibility of a conflict of interest, the fund must be administered separately from the ILCU.

An analogy can be drawn between this and the solicitors' mutual defence fund, of which I am a member. It is a mutual fund which provides professional indemnity insurance for solicitors. All its members are solicitors who are also members of the Law Society, but the fund is administered on another premises by different management and is quite separate from the society. While the membership is similar, separate administrators, premises and responsibility are needed. There must be no possibility of a conflict of interest.

I very much agree with the principle that the scheme not only must be open to all credit unions but also they must be mandated to be part of it. It is conceivable that more than one scheme could be set up and, for example, the ILCU and CUDA could set up separate schemes. That is not desirable and clearly it would be better if only one scheme applied and all credit unions were mandated to be members of it.

The legislation brings up the issue of the general regulation of credit unions. When the Irish Financial Services Regulatory Authority was established, there was much discussion about whether the credit union movement should be brought under its remit. Many credit unions felt at the time that their ethos was substantially different from that of commercial banks and for-profit financial institutions and that IFSRA would be more focused on them. Concern about this remains. There is a feeling that IFSRA considers credit unions in the same light as banks and does not appreciate the difference in ethos. Perhaps that needs to be bedded down. Will the Minister of State comment on whether he is satisfied with the way in which regulation has evolved since IFSRA took responsibility for it a few years ago?

We cannot ignore the fact that the Bill is a product of a split in the credit union movement as a result of a major dispute a number of years ago. Nobody should adjudicate on the split but there is clearly merit in the case put forward by the CUDA and Senator O'Toole, so I do not propose to oppose Second Stage. However, I accept the Minister of State's comment that it makes no sense to travel parallel roads at the same time. I hope Senator O'Toole's proposition of the Bill will provide the incentive needed to bring the ongoing talks to a successful conclusion. The Minister of State has set out the basis on which the talks are progressing and no Member will have a difficulty with the principles he set out. Those are largely replicated in the legislation. I hope the debate will provide the incentive needed to reach a successful conclusion because we are all agreed that the ten-year lacuna that has existed since the 1997 Act, which mandated the establishment of such a scheme, is not acceptable.