Joe O'Toole (Independent)

I move amendment No. 1:

To delete all words after "the credit union sector" and substitute the following:

"—and noting that loan impairments in some credit unions are running as high as 15% to 20%;

noting that almost one third of Irish credit unions had first quarter losses which on an annualised basis are between €100,000 and €1.2 million;

noting that many credit unions have been unable to pay dividends this year and that many other credit unions dipped into reserves to pay dividends;

noting that consequently liquidity has dried up completely in many credit unions;

noting the huge investment losses of many credit unions arising from ill-advised investment in perpetual and treasury funds;

noting that the ILCU is unable to provide or is refusing liquidity support to many credit unions as the savings protection scheme, SPS, originally set up to provide such a facility, is inadequately structured and has insufficient liquid funds to satisfy the day-to-day cash demands;

noting that because of flawed legislation unfortunately the regulator cannot take action against or sanction for reckless or bad directors; and

noting also that despite the regulator's attempts to impose higher audit standards and better governance standards, the reality is that the regulator has no power to take action against them for non-compliance;

calls on the Government:

to make funds available to the credit union movement to give it liquidity and to make credit available;

to amend the credit union legislation in a manner which will, inter alia,

(i) establish an independent deposit protection scheme;

(ii) confer additional power and authority on the Credit Union Regulator; and

(iii) allow the regulator to act independently of the Department of Finance.

to establish a commission to examine and report on consolidation, liquidity, investment protocols, governance and amalgamations of credit unions; and

to allow credit unions to benefit from the proposed Government support fund for viable but vulnerable companies."

I welcome the Minister of State, Deputy Sargent, to the House. He and I have a vested interest in this as the founder of the Irish credit union movement, Ms Nora Herlihy, was a member of our trade union. As a founder member of one of the larger credit unions, the INTO credit union, I feel a certain proprietorial interest in this.

There is also a sense of déjÀ vu in that I stood here two years ago trying to put forward a proposal for an independent savings protection scheme for credit unions. It was opposed by the Government at that time on the basis that talks were going ahead between the Irish League of Credit Unions, the regulator and the Department of Finance to do just that. I was given a commitment that the talks would be concluded and that legislation would be brought forward or at least there would be a conclusion to the negotiations by 31 March last year. Nothing has happened.

It is my firm belief, backed up with much information here and there, that the regulator is being stymied in every move he makes by the Department of Finance which takes the view of the Irish League of Credit Unions at every opportunity. The Irish League of Credit Unions does not agree with the concept of an independent, self-regulated savings protection fund. The league wants to run it. It is utterly inappropriate that a representative body should also run the savings protection scheme, and no doubt the Deputy Leader would agree.

Everybody agrees on the issue of the need to have the legislation amended, which the Deputy Leader raised clearly. We discussed that also. It has not happened. My colleague, Senator Ross, who will speak on this, has raised the question of regulation time and again. This is a classic example of where people will no doubt eventually blame the regulator, but I want to put on the record that the Department of Finance has refused to implement the views of the regulator on a number of occasions, as I read in recent newspaper articles, which apparently are true, where there was a leaked letter which showed exactly that. I want to give two examples. This is crucial.

I do not have a problem with the proposal on microfinance but I do have a problem with the idea of extending the structures and putting in place new structures of microfinance when we have not got the existing microfinancing system, namely, the credit union movement, properly regulated with proper levels of governance. I will put this simply. The regulator has time and again put forward guidelines on the type of prudential investment that would be appropriate to credit unions and sent them out, and they have been ignored by many credit unions.

Even though it is correct to say, as Senator Boyle did, that the credit union movement has the difficulties I have outlined in the amendment, it is also important to state that a significant number of credit unions are being run properly and prudentially with good governance. When the people went to form CUDA years ago it is incorrect to state that they left because they wanted to form themselves into banks or a bank. They left because they wanted to modernise the structures at a time when there were all sorts of allegations that the credit union movement was being used to launder funds of criminals and that proper governance provisions were not in place. This was why they wanted to put provisions in place.

The regulator did his job and put forward the guidelines. Those credit unions which thumbed their noses at him were allowed to continue because we, as legislators, would not give him the authority to make them stick. That is a matter on which I hope the Joint Committee on Economic Regulatory Affairs will take strong action.

Similarly, the regulator also put forward guidelines on governance, dealing particularly with how audit and debt should be dealt with. My telephone has been ringing in my office for the past two to three years with people telling of the bad practices in badly run credit unions such as the use of tricks. An example would be people putting tuppence into a loan account of €5,000 once a year to show it was still active and not a bad debt. This goes on and nobody can stop it.

We will ask at some stage, like we asked in the case of Anglo Irish Bank, why the auditors did not spot it. The auditors are watchdogs, not bloodhounds. They cannot pick up these matters. The only way to deal with it is for us to give the power to the regulator to insist that what are now guidelines would be rules the credit unions would have to implement on the management of debt, the provision for bad debt, the issue of investment and all the other areas such as accounting, auditing and reporting standards. Knowing the Deputy Leader as well as I do, I cannot believe that he could not accept the need to put that in place. It is exactly a mirror image at a smaller level of what is going on in the banks and I ask him to look at it carefully.

What the Deputy Leader stated about microfinance is important because the credit union movement has given a good name to sub-prime lending. It is the only sector which has managed sub-prime lending. Well-run credit unions have given loans to people who cannot get them anywhere else knowing that if they gave a loan to a person for painting the front of his or her shop or building a small extension to his or her house, a staff member on their way to the next credit union meeting could see whether anything was happening and if not, could ask whether the credit union gave a loan to that person and what he or she was doing with the money. The debt is managed all the way through. Credit unions manage the liability and the debt right through from beginning to end and do not sell it on. The issue with the banking crisis was not just sub-prime lending. The selling on of the liability was also a problem. There are lessons that we can learn from it.

The credit union is also the only remaining mutual financial institution. I will acknowledge the EBS and perhaps one or two others.