Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I am pleased to be in Seanad Éireann to present the Credit Union (Amendment) Bill 2022. In accordance with Standing Order No. 149(2)(i), I confirm that the reason pre-legislative scrutiny did not take place under Seanad Standing Order No. 143 is to meet a programme for Government commitment to review the policy framework for credit unions.

Credit unions are the most trusted brand in Ireland and the Government wants credit unions to provide a much wider range of products and services to their members. All credit union members should be allowed to access full-service community banking regardless of their credit union’s size. This Bill will help the credit union movement to grow as a key provider of community banking in the country. The passage of this legislation through the Oireachtas will help credit unions to seize this opportunity. It is a priority for the Government to have this Bill enacted as quickly as possible.

The appointment of a Minister of State with responsibility for credit unions in August 2020 was historic. It was the first time ever a Minister of State had been given direct responsibility for credit unions. I am very pleased to be in this role. The review of the policy framework which led to this Bill is a culmination of work done since the programme for Government was agreed. Over the past two years I have held over 50 stakeholder engagements and have met with more than 60 credit unions, either individually or in groups, and many more at conferences across the length and breadth of the country, both north and south. I have met with all representative bodies, the registrar of credit unions, the Credit Union Advisory Committee, the credit union CEO forum and several collaborative ventures. My officials and I analysed more than 100 proposals for legislative and regulatory change. On 10 March this year I held a one-day stakeholder engagement session with sector representatives and all stakeholders gave broad support for the proposals in the Bill.

Credit unions are an important part of Irish society. They are a social community organisation providing vital financial services. I have seen first-hand the strengths of the sector. Credit unions are the largest provider of personal unsecured loans, a lifeline for many families in Ireland today. They hold approximately €17 billion of savings, €5.5 billion of loans and serve 3.5 million members across a network of 204 credit unions and over 400 branches. Credit unions are co-operative, not-for-profit organisations governed by over 2,500 volunteer directors and board oversight committee members whose objective is to pursue the economic and social goals of members and wider local communities. This role is even more important given the withdrawal of Ulster Bank, KBC and the closure of many bank branches.

When I came into office the statistic that struck me most was that credit unions are only lending 27%, or €5.5 billion, of their €20 billion assets. This figure is too low. It is important that credit unions continue to develop plans for lending in the community such as loans to small business, agri-lending, retrofit loans and mortgages, in a safe and cost effective way through collaboration. Collaboration can work well. Roughly 75 credit unions provide current accounts and debit cards and now make up more than 10% of all new current account openings, all supported by two collaborative vehicles. These collaborative vehicles are member owned and provide back-office support for the delivery of common products. Challenges arising from the negative interest rate environment have abated materially and provide a positive tailwind into 2023. It is important we acknowledge the challenges the sector faces while at the same time explaining how we, and more importantly, the sector, will address them.

The Bill itself contains 56 sections amending the Credit Union Act 1997. The Explanatory Memorandum clarifies which amendments are policy, technical or consequential. This is the first substantive credit union legislation since the 2012 Act. The sector has changed a lot in those ten years. There are fewer credit unions now but they are much larger and provide a much wider range of products and services than heretofore. The average asset size is now roughly €100 million and the largest is above €500 million.

In my stakeholder engagement a number of key issues arose. First, if a member’s local credit union does not provide a current account, that member cannot join a credit union that does provide same. Furthermore, the credit union cannot introduce the member to another credit union.While the common bond may appear to protect a credit union from competition from other credit unions, it does nothing to prevent competition from banks or non-banks. I have carefully considered the value of the common bond and would not like to see it being a barrier to members accessing the widest possible range of financial services.

Second, while a local focus is a great strength of the credit union sector, it can lead to fragmentation. In many areas, there are multiple products, price points and varying terms and conditions. This makes it almost impossible for the sector to market itself as a nationwide option to consumers.

The Bill contains measures to address these issues, which I identified in my engagement with the sector. It will support investment in collaboration by allowing for corporate credit unions, a new type of regulated vehicle. Corporate credit unions are credit unions whose members comprise solely other credit unions.

The Bill will also amend section 43 to clarify that credit unions can invest in ventures supporting credit unions. It will support enhanced governance by including: the option of making the manager a member of the board, in line with best practice in corporate governance; a reduction in the minimum number of board meetings to six per annum; a mandatory review of policies every three years, from annually at present, and a removal of the requirement for the board to review procedures; a reduction in five administrative issues to be mandatorily approved at board level; four amendments to streamline the work of the board oversight committee; and a provision to allow credit unions to seek deemed consent from members to receive the annual accounts by electronic means. This could save significant sums in print and postage costs for individual credit unions.

The Bill will improve member services by providing flexibility to the common bond in four aspects, namely, to allow for the referral of members to other credit unions, to provide a service not provided by the referring credit union, to allow for loan participation between two or more credit unions, to allow for more businesses to be members and to allow credit unions to lend to certain public sector entities designated by the Minister. The Bill will also amend section 38 to allow the Minister to set a maximum interest rate, currently fixed at 1% per month.

I believe the draft Bill addresses the core issues I discussed earlier. To fully exploit the Bill, the sector must work together to lessen fragmentation, provide strategic direction and leadership and drive business model change. There are three non-legislative policy actions. First, the Central Bank, CUAC and the Minister will enter into a memorandum of understanding to improve co-ordination on policy matters while respecting regulatory independence. Second, the Central Bank has agreed to introduce an enhanced engagement protocol with credit unions. Third, we have amended the terms of reference of a stakeholder group to widen attendance and enhance transparency with the sector. These are all welcome and sensible changes that are in progress.

The core elements of the Bill come directly from detailed engagement with the sector and research by the credit union advisory committee. My work is fully supported by the Minister, Deputy Donohoe. I look forward to a constructive debate on the Bill as it progresses through the Oireachtas, and I commend it to the House.