Wednesday, 30 September 2015
Credit Unions Regulation
I thank the Cathaoirleach for allowing me the opportunity to raise this important matter in Seanad Éireann. I welcome the Minister of State, Deputy Tom Hayes, who I trust is representing the Minister for Finance, Deputy Noonan. I ask him to pass on to the Minister my concerns about this matter as it relates to credit unions.
The Minister of State comes from the constituency of Tipperary South and I am sure he is aware of the tremendous work being done by his local credit union in Cashel and others in towns throughout the area. I am aware of the Mallow, Fermoy and Mitchelstown credit unions, among others, which have been at the core of the development, sustaining and maintenance of towns and communities.
We have to be careful about the way new regulations or laws will impact on the credit union movement. My question to the Minister of State and the Minister for Finance is, if the Central Bank fully understands the ethos of the credit union movement, does it fully support our credit union movement or, as some people would surmise, does it wish to restrict credit union expansion and see credit union amalgamations? Does the Central Bank wish to impose further restrictions on our credit unions?
If, at the end of the year, the Minister for Finance signs the commencement orders to which I refer, it will have a very serious impact on the credit union movement throughout this country. Personal loans would be restricted to a significant degree from a time limit perspective, and there would be a personal guarantee type requirement on many car loans and house improvement loans, and the credit union movement has been at the very core of that type of lending.
Is the Minister aware that if a person was fortunate enough to have sufficient funds to have a deposit of more than €100,000 in a credit union, that deposit would have to be reduced to a maximum of €100,000? If he or I won €1 million in the lotto in the morning, we would not be entitled or able to put that money in the credit union if these commencement orders are signed because there would be a maximum deposit limit of €100,000. There would be further stringent liquidity requirements placed on credit unions. The credit unions' ability to respond, act and generate economic activity in their local communities will be profoundly hampered.
Currently, from a national perspective, I am told there is €8 billion on deposit in credit unions which is not generating income. Part of the reason for that may be because there was not a demand for this money during the recession. However, because of the restrictions on the lending of that money, it is on deposit but not being put to use.The credit union movement, through the Irish League of Credit Unions, has suggested that this money could play a role in the development of social and community housing and has made proposals to the Government in that regard. However, the money is restricted in its use, and that is a matter of concern. The new commencement order, if required, will further restrict the use of that money. If that €8 billion was being used in today's economy, with a conservative multiplier effect of four, it would amount to the stimulation of €30 billion worth of economic activity. That sum of €30 billion could be used to support social and voluntary housing as well as small enterprises and industries. Today in Brussels the European Commission will publish a paper on the concept of alternative forms of lending and financial support for small and medium-sized industry, while here at home we have a credit union movement with €8 billion on deposit, the use of which is restricted.
I would ask the Minister of State to recognise that this is a genuine crisis as far as the credit union movement is concerned. The representative body, the Irish League of Credit Unions, has sought a meeting with the Minister for Finance on this issue. While I fully appreciate that the Minister is, by some distance, the busiest man in the entire apparatus of Government, I ask that the Minister of State, Deputy Tom Hayes, ask him to meet face to face with the credit unions to discuss the options. They have been seeking a meeting for some time and, while they have received acknowledgements from the Department, no meeting has yet been facilitated. I believe the Minister of State at the Department of Finance, Deputy Simon Harris, may have met the Irish League of Credit Unions some months ago, but a meeting with the Minister himself is needed urgently, before the year is out.
We need to support and strengthen the credit unions. I am concerned that there could be a view that we should slim down the credit unions, with money then being transferred into the banks. When credit union deposits are restricted it is good news for the banks but bad news for the credit union movement. The Minister of State and I know of thousands of families across the country whose financial existence has depended on the intervention, common sense and practicality of the local credit union. Of the moneys provided for bad debts in the credit union system, very little was actually required. The vast majority of credit union loans are fully repaid, which proves that their lending policies have always been wise and locally managed. It is a model that has succeeded, and the credit union movement is seriously concerned that the proposal to commence this legislation will have a negative impact on the movement and on community life in general.
I thank Senator Bradford for raising this important matter. We are all aware of what credit unions have done for people throughout the country.
The Credit Union and Co-operation with Overseas Regulators Act 2012 was signed into law by the President of Ireland on 19 December 2012. Following on from that, an implementation plan put was put in place which was agreed by all stakeholders. It was agreed that such a plan was necessary for the coherent and timely commencement of all sections of the Act.
Credit unions are regulated and supervised by the Registrar of Credit Unions at the Central Bank, who is the independent regulator for credit unions. Within her independent regulatory discretion, the Registrar acts to support the prudential soundness of individual credit unions, to maintain sectoral stability and to protect the savings of credit union members. The role of the Minister for Finance is to ensure that the legal framework for credit unions is appropriate for their effective operation and supervision.
The outstanding sections of the 2012 Act relate to savings, borrowing, lending, investments, reserves and liquidity. The Minister has been informed by the Central Bank that the draft regulations set out in consultation paper 88 will be introduced on commencement of the remaining sections of the 2012 Act at the end of December 2015. The regulations will replace and, where appropriate, amend a number of requirements that currently exist in legislation and guidance. Additional requirements have also been included in the regulations where necessary to strengthen the regulatory framework.
The Minister is aware that a number of issues have been raised regarding the proposed regulations. The main issues are the introduction of a savings cap, the development of the credit union business model and the imposition of lending restrictions. Following consultation on the regulations, the Central Bank has introduced a number of changes. The introduction of a maximum individual member savings limit of €100,000 is to ensure the protection of members' savings and also to ensure that credit union funding is sufficiently diversified and not dependent on a small number of members. Following consultation with the credit union sector and representative bodies, the Central Bank amended the transitional arrangement for the savings regulations to provide for credit unions that have individual member savings in excess of €100,000 at the commencement of the regulations to apply to the Central Bank to retain these savings where they can demonstrate that it is appropriate and prudent for them to do so. The Minister has been informed by the Registrar of Credit Unions that information relating to this matter and details of the application process will be available to credit unions before commencement of the regulations at the end of 2015.
The Central Bank is currently refining its application criteria for retention of savings in excess of €100,000 to include the following: the asset size of the credit union, with a minimum asset size of €10,000,000; the credit union's liquidity ratio, with a minimum liquidity ratio of 25%; and the level of additional reserves in excess of the minimum 10% level, taking account of the scale, complexity and risk to the credit union. Consideration will also be given to other supervisory information, including whether a credit union has a regulatory direction or a business restriction.
The Registry of Credit Unions intends to engage with the representative bodies and to invite comments from them prior to the finalisation of this application process. When the application process is finalised, the registry will provide an application form and explanatory notes in order to assist credit unions in making such an application. It is anticipated that application forms will be available during December 2015. The Central Bank envisages that applications will be accepted in the first quarter of 2016 and that applicant credit unions will be informed by the end of the second quarter of 2016 on the outcome of the process, which is well within the 12-month transitional period. Where a credit union has demonstrated that it meets the criteria, it will be in a position to retain members' savings in excess of €100,000 held at the commencement of the regulations. The Central Bank has also informed the Minister that it is committed to undertaking a review of the continued appropriateness of the savings limit once the impact of the restructuring process can be assessed. It is expected that this review will commence within three years of the introduction of the regulations. The Central Bank has agreed to provide regular updates to the Department of Finance on this matter.
The Central Bank has further informed the Minister that it is open to working with the credit union sector to ensure that prudent and appropriate business development can be facilitated within the regulatory framework. As set out in the feedback statement on consultation paper 88, the Central Bank intends to invite interested parties to discuss business model development in the coming months. While to date the Central Bank has not received any specific proposals regarding investment projects of a public nature, the bank has indicated that it is willing to consider such proposals, including the type of regulations that would be required to facilitate them.
It is worth noting that the credit union sector is currently being restructured on a voluntary, incentivised and time-bound basis. The Central Bank is taking a proactive approach to facilitating restructuring and is working closely with the Credit Union Restructuring Board, ReBo, and individual credit unions on restructuring proposals. The Central Bank supports restructuring proposals that are financially sound, supported by proper risk and control frameworks and have clear leadership and vision for the future direction of the merged credit union. The important objective is to ensure that restructuring achieves better outcomes for current and prospective members, enhances the financial soundness of credit unions and acts as an enabler for future growth and development, setting the sector up for a viable and successful future. The Central Bank is currently carrying out a lending restriction review programme and has invited credit unions with lending restrictions to apply to have those restrictions reduced or lifted. The closing date for receipt of applications is today, 30 September 2015. The Minister has been informed that, of the credit unions that applied for a review of their lending restrictions, 45% have had them lifted. A number of applications received are still in the review process. Credit unions will be able to apply to the Central Bank for an extension of longer term lending limits. Approval will be subject to conditions set out by the Central Bank. The Minister for Finance has been consulted on the regulation, as was the Credit Union Advisory Committee, as required under section 84A of the Credit Union Act 1997. It is the Minister's intention to commence the remaining section of the 2012 Act by the end of 2015 in line with the introduction of the regulation. This will provide time for credit unions to ensure clarity in terms of what is required and to make any changes that are necessary.
The Government recognises the important role of credit unions as a volunteer co-operative movement in this country. While the Minister and the Central Bank have distinct roles in the credit union sector, they are both working to protect members' savings and maintain the financial stability and well-being of the credit union. As I have stated, the credit unions are working with the officials. I do not think the meeting should be held until much of the background work has been done, but I think the Minister, Deputy Noonan, will meet representatives of the credit union movement, because it is, as the Senator has stated, a huge part of what the country is, and it is important in protecting families in particular.
I thank the Minister of State for his response. I think he understands the significance and importance of the credit union movement. Is it possible to facilitate a meeting with the Minister for Finance? A meeting should take place. I know there are many other matters to be dealt with by the Minister, but the meeting needs to take place before the order is signed at the end of the year.
We have to ensure that the Minister and those who have been elected, who have a very clear understanding of the significance of credit unions, are very much in the driving seat of this legislation. I do not know what the Central Bank's agenda is on the long-term development of the credit unions, but we need to state that we want to see credit unions maintained, expanded and developed and working with their communities into the future. A meeting with the Minister is urgent and it needs to happen before the end of the year, because once this commencement order is signed the world will change for credit unions.