Seanad debates

Tuesday, 15 December 2020

Nithe i dtosach suíonna - Commencement Matters

Credit Unions

10:30 am

Photo of Jerry ButtimerJerry Buttimer (Fine Gael)
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I wish to share time with Senator Ahearn. I propose that he takes one minute of my time.

Mark Wall (Labour)
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Is that agreed? Agreed. I welcome the Minister of State to the House.

Photo of Jerry ButtimerJerry Buttimer (Fine Gael)
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The Minister of State and I have had a good discussion about this matter and, as he will be aware, credit unions are the bedrock of many local communities. Members save, members borrow and credit unions are the peoples' bank in many cases. I am a former supervisor of my own credit union in Bishopstown. At this time of the year a lot of credit unions hold their annual general meeting, AGM, and we have passed legislation to provide for virtual AGMs, which we all welcome.

Many people rely on the dividend payment. I know in some cases it is a small amount. The number of outcomes in terms of dividends is significant. Each share equals a dividend and the Central Bank, I am led to believe from ongoing representations I have received from people, has called for a prudent approach to be taken. The payment of the dividend and the members' rebate has been put into abeyance because of a letter from the Central Bank in September. It wrote to credit unions outlining the uncertainties relating to Brexit and Covid and mentioned that it did not want to see any distribution by way of dividend or loan interest rebate in credit unions' 2020 final accounts.

The AGMs have not been allowed; they are now virtual. The payment of dividends is important. They are small amounts such as €100, €200 or €300, and in many cases, they are used at this time of year. It prevents people from having to go to moneylenders and we know the consequences of that. I ask that the Minister, the Central Bank and the Irish League of Credit Unions, ILCU, work to ensure that members can receive dividends.

Garret Ahearn (Fine Gael)
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It is very upsetting that the Central Bank sent out a letter to credit unions not to pay out their dividends. I encourage the Minister of State to support the credit unions to make dividend payments to their customers. The credit union in Clonmel had a fantastic year. It has a surplus of had €3.6 million with a dividend of €1.7 million to be shared by members, equating to approximately €200 or €300 each. That money is spent locally. Credit unions only exist because of the support of their members and the community. It is really important and sacrosanct that the dividend be paid to members, especially this year more than most. I urge the Minister of State to support that.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I thank both Senators for raising this issue. The Government recognises the important role credit unions play in society as a volunteer co-operative in the area of financial institutions. In the current environment, credit unions are appropriately focusing on the health and well-being of their volunteers and staff, and on continuing to serve the needs of their members. Credit unions are important at local and national level given the community presences they have across the country.

In accordance with the Credit Union Act 1997, credit unions need the approval of their members at an AGM to pay dividends. In the rules set by members at local level, most credit unions cannot pay a loan interest rebate without having first paid a dividend. I stress these are rules brought in by members in individual credit unions. There is no Government rule to say that this should be the case, but some credit unions have instituted such a rule at local level.

Due to the Covid-19 pandemic, credit unions have not been able to hold physical AGMs as is normal while virtual AGMs were not permitted under the Credit Union Act 1997. It is for this reason that the Government progressed priority legislation, the Finance (Miscellaneous Provisions) Bill 2020, to allow for virtual AGMs, among other matters. When I say virtual AGMs, it all depends on the Covid restrictions. When AGMs come to be held early in the new year there could be a physical meeting combined with a virtual meeting. It could be a blended meeting. It might be somebody on an iPhone or a laptop, or it might be somebody phoning in depending on the mechanisms the individual credit union puts in place. It does not have to be virtually held; it can be partly held by virtual means and partly held by physical means, depending on the Covid restrictions.

The Bill completed all Stages in the Seanad on 30 November 2020 and completed all stages in the Dáil last Friday. The Bill is currently with the President for signing. Once signed by the President and enacted, the legislation will take immediate effect and credit unions will be able to convene an AGM to seek whatever approval may be required from members in respect of paying dividends and a loan interest rebate. In addition to the removal of the legislative barrier to holding an AGM credit union boards will have to determine whether their financial situation warrants a distribution. The Senators will be aware of the financial challenges facing the sector in recent years, which have been exacerbated by the pandemic.

On 4 September, credit unions received a letter from the Central Bank outlining that it expects credit unions to take a prudent approach to their reserve management, given the risk and uncertainty regarding the economic outlook. It expects priority to be given to the maintenance of building up reserves over the payment of any distribution to members. The Central Bank is independent of the Department of Finance, the Minister for Finance and the Government. They are independent regulators and, therefore, I am not in a position to say to the Central Bank precisely what it should do on that matter.

The Central Bank stated that it did not expect that proposed distributions, dividends or loan interest rebate, would feature for the 2020 financial year, which was the end of September. Where a credit union may be considering the potential for a proposed distribution, however, they are expected to contact the Central Bank at an early stage to clearly outline the rationale for proposing this course of action.

Senator Ahearn mentioned the surplus of €3.6 million in Clonmel credit union last year.Not all credit unions actually made a surplus last year. Some credit unions might have made a small surplus but relative to their assets would not be considered substantial. The Clonmel credit union is proposing a dividend of €1.7 million. The Central Bank has issued the letter across the board to all credit unions. If a credit union wants to consider that, it will have to take it up on a case-by-case basis directly with the Central Bank.

Photo of Jerry ButtimerJerry Buttimer (Fine Gael)
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I thank the Minister of State for his reply. I hope the credit union movement, which is supportive of and immersed in local communities, continues to sponsor local organisations. There is a hardship welfare fund available. I also hope the credit union movement will not move away from that ethos and neither will it be allowed to move away by the Government and the Central Bank. It is about accessibility and community. I take the Minister of State's final point about surpluses.

Garret Ahearn (Fine Gael)
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I thank the Minister of State for his reply. Obviously there is a separation of power, rightly so, between himself and the Central Bank. It is important the Government supports credit unions and that they continue to support their local communities. That is the bedrock on which credit unions are founded.

I thank the Minister of State for his reply.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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As I already said, the Central Bank is independent in its role but I hope it is aware of this debate and takes it into consideration. It will not change its view on the matter but, at least, it will hear what is being said about it.

The various credit unions should contact the Central Bank where they feel they need to make these payments. They can propose a mixture of a small dividend, large interest rebate, or 50:50 or whatever the local arrangements historically have been. If the credit union is satisfied that the Central Bank will allow that happen, notwithstanding the fact an AGM might not happen for several weeks, at least people will know the amount of a payment to expect in due course. Perhaps on an individual, member-by-member basis, if the case arises, arrangements can be made with the credit union in the full knowledge that if a payment is approved, how much it will be and when it will be received. Perhaps some local measures can come into play to assist the cash flow position of individual members if the need arises between now and Christmas.