Paul Bradford (Fine Gael)
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I wish to share time with Senators Coghlan and John Paul Phelan.

Rory Kiely (Fianna Fail)
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Is that agreed? Agreed. The Senators know the time is limited but I will be flexible.

Paul Coghlan (Fine Gael)
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We trust the Cathaoirleach's judgment.

Paul Bradford (Fine Gael)
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I am requesting the Minister for Finance to consider his powers through ministerial order to amend section 35 of the Credit Union Act 1997. Representations have been made to me and other Members because the Act restricts the amount of money credit unions can lend to their members on a five-year and ten-year loan basis. Only 20% of the credit union loan book can be lent over a five-year period and only 10% of it over a ten-year period. Overall, only 30% of credit union loans can be granted for medium-term lending purposes. In many cases, the credit unions would like to reschedule some of their loans and grant a longer-term loan but are restricted in doing so.

Money is available to the credit unions which could be lent to members and put to good use. Instead, the credit unions find themselves lodging that surplus money in banks and building societies from where it is lent to their clients. This must be reviewed. We are all aware of the success of the credit union movement. It has transformed the lives of many people and communities. It has done tremendous work through its co-operative structure since it was established many years ago. We must ensure the laws reflect current lending practices and allow the credit unions to help as many people as possible, particularly people whose circumstances may have changed and who may need slight flexibility in their loan terms. Will the Minister for Finance consider the request of the credit unions?

Paul Coghlan (Fine Gael)
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I am grateful to Senator Bradford for sharing his time. I endorse what he said on this subject. We are all aware of the wonderful work done by credit unions. They have made representations to all sides of the House. The credit unions have a large excess of liquidity. However, they are caught in a straitjacket and their operations are restricted by the 1997 Act. We as legislators should be ensuring a level playing field. The Minister for Finance has the power under the Act to vary this arrangement through a ministerial order for the short term. A more detailed review is needed further down the line. No Member wants to see credit union clients being forced into the hands of moneylenders because of these restrictions. The Minister of State has a listening ear and through his good offices I hope he brings this matter to the attention of the Minister for Finance.

John Paul Phelan (Fine Gael)
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I thank Senator Bradford for allowing me the opportunity to contribute on this matter. I concur with the sentiments of Senators Bradford and Coghlan. All Members have been lobbied by those involved in the Irish League of Credit Unions on section 35 of the 1997 Act.

In 1997, there were probably legitimate and understandable reasons these limits were imposed. Ireland has changed much since then and the credit union movement has grown dramatically. It has many thousands of members to which it provides a valuable service. The credit unions are structured to reflect the local circumstances of the areas they serve, whether urban or rural. They are seeking to have a level playing field with the commercial banks.

The Minister for Finance must review section 35 to ensure the credit union movement is treated equally with other financial institutions in loan terms. A ministerial order amending the section would have a great impact on credit union members. Only 30% of the credit unions' loan books are limited to loans of over five years. That is a small proportion and, as a result, the credit unions find themselves having to invest much of their money in the commercial banks. As Senator Coghlan pointed out, we do not want a situation where people are forced into the hands of moneylenders because of the imposition of these limits. After nine years, it is time the Department of Finance reviewed the loan term limits.

Seán Power (Kildare South, Fianna Fail)
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I am dealing with this matter on behalf of the Minister for Finance. Under section 35 of the Credit Union Act 1997, loan terms over five and ten years are limited to 20% and 10%, respectively, of each credit union's portfolio overall. These limits may be changed by ministerial order under the Act.

The Irish League of Credit Unions, ILCU, is proposing a significant increase in the lending limits to 40% for five-year loans and 25% for ten-year loans. The ILCU's position is that the current limits on longer-term lending are affecting the competitiveness of credit union lending, as credit unions are not in a position to compete with the banking sector in one of the more demand-driven areas of the overall lending market.

The registrar of credit unions in the Financial Regulator's office is opposed to any change in the lending limits at this time, primarily because of the danger of increased credit risk. He is of the view that underwriting skills are weak in many credit unions and, in that respect, points out that loan arrears and bad debt provisions in the movement are rising. In his view, the capacity of credit unions as a whole to manage the inherent risks arising from longer-term lending is not sufficiently developed to permit such a substantial increase in long-term lending.

The Minister for Finance recognises the concerns of the credit union movement on the current constraints on longer-term lending in circumstances that an increasing share of the savings of credit union members are invested rather than lent out. In the Minister's address to the consultative general meeting of the Irish League of Credit Unions in April 2006, he noted the strong view held by credit unions that increased longer-term lending could make a substantial contribution to alleviating the issue of surplus investment funds. However, in considering any change to the lending limits the Minister must ensure that it does not lead to any deterioration in the overall risk profile of credit union lending. Ultimately, the overriding objective is to ensure the funds entrusted to credit unions by members are safeguarded.

Given the divergence of views between credit unions and the registrar on this important issue, it was concluded that further assessment and analysis was required of the appropriateness of the proposed easing of current lending limits, balancing the requirement to support the development of credit unions and protecting members' savings. Consequently, the Minister referred the matter to the expert statutory advisory body on credit union matters, the Credit Union Advisory Committee, CUAC, requesting its advice as to whether a review of the current limits on longer-term lending by credit unions should be initiated. The CUAC was provided with a detailed statement of the league's case and was also informed of the registrar's views regarding the risks of increased long-term lending by credit unions.

The advisory committee is acutely conscious of the importance of this issue to the credit union movement and the recommendation of the committee is expected shortly.