Seanad debates

Tuesday, 6 December 2022

Credit Union (Amendment) Bill 2022: Second Stage

 

Question proposed: "That the Bill be now read a Second Time."

11:00 am

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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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.

Photo of Pat CaseyPat Casey (Fianna Fail)
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I welcome the Minister of State to the House. He referred to the credit union movement as an integral part of the community, and that is what it is. Whenever we speak of the movement in this House or the Lower House, we all speak of it in a positive manner because it is an integral part of the community. If it retains those values, the Bill will add to that service it provides. The pillar banks have resiled from face-to-face meetings with people and devalued in-person contact with people, which is a retrograde step. I hope credit unions will not go in that direction but rather will keep the value of that community sprit they have instilled. Interestingly, credit unions and An Post are the two brands to which the Irish people are most loyal, and that must be maintained.

We all know from our history dealing with banks that years ago, there was one-to-one contact with managers. The bank knew the person it was dealing with and understood the business he or she was doing, but that is all gone now. Our banking has gone online, we fill out forms on apps and the personal contact has been removed. That will be an advantage to credit unions, once the Bill progresses through the Houses, if they can maintain that face-to-face contact with the people they serve.

The Bill represents more than two years of work, led by my party colleague the Minister of State, to fulfil the programme for Government commitment to reviewing the policy framework within which credit unions operate. It represents the commitment in the programme for Government to growing credit union lending through the expansion of services and encouraging further community development. It is the first substantive item of credit union legislation since 2012, which related to the Commission on Credit Unions. The review of the policy framework focuses on five key areas, namely, recognition of the role of credit unions, supporting investment and collaboration, supporting enhanced governance, improving members' services, and transparency and regulatory engagement.

Since his appointment, the Minister of State has held more than 50 stakeholder engagement sessions and met representatives of more than 60 credit unions, either individually or in groups, and many more at events. In total, more than 100 proposals, including all those submitted by sector representatives, for legislative and regulatory change were carefully considered. On 10 March 2022, the Minister of State held a consultative roundtable discussion regarding the Government's proposal with the Irish League of Credit Union, the Credit Union Development Association, the Credit Union Managers Association and the National Supervisors Forum. The proposal received the support of all the bodies represented at the meeting.

The Minister of State has outlined the provisions of the Bill, so there is not much point in me going through them again. I thank him for his engagement with credit unions. I know, from dealing with him on a personal basis, that he too values the credit union movement in the community. To help credit unions seize this opportunity, it is a priority to have the Bill passed by the Houses of the Oireachtas as soon as possible. On that note, I will say no more.

Photo of Maria ByrneMaria Byrne (Fine Gael)
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I thank the Minister of State for attending to discuss this important issue. Senator Casey covered much of what I had intended to say. As a member of a credit union, I know credit unions are at the heart of our communities. When I joined my local credit union, it was the confraternity credit union. Applicants had to be members of the confraternity to be admitted and it was restricted to certain streets. If you lived to the left of one street, you could not join, and nor could you if you lived across the road from the credit union because it was in a different jurisdiction. We have come an awfully long way in respect of credit unions. I compliment the Minister of State and his staff and officials on their engagement and the work they have done to bring the Bill before the House. Having spoken to the manager of a credit union locally and met others elsewhere in the country, I know they are delighted with the level of engagement that has come, which has been led by the Minister of State and his team.

As Senator Casey eloquently outlined, with the banking sector reduced in size to only three pillar banks, more and more people are turning to credit unions for matters such as small loans, whether for a car or event, and investments. Many people also use credit or debit cards from credit unions as well, whereas 20 or 30 years ago, credit unions did not have those kinds of facilities. Indeed, some credit unions can even offer mortgages. That the sector is being expanded whereby companies too can join is very important. Some companies might run a Christmas club for their staff or whatever the case may be, and they now have the facility to use the credit union. Moreover, staff still work behind the counter in credit unions and that is very welcome, especially for older people, many of whom cannot get used to the fact banks have reduced their staff numbers and, in many cases, there are mostly just machines.If you want to deal with a staff member, you have to queue up for quite a while to get that personal touch. I believe that credit unions bring that personal touch. The credit union movement has grown from strength to strength, not just in the towns and villages, but in cities. The key element of this is to recognise the credit union services organisations under the Credit Union Act as authorised investors and to provide for the establishment of corporate credit unions as entities through which credit unions can further collaborate. Credit unions can collaborate with one another and this is a healthy way to go because they will be able to work together on projects. There is also the fact that the Minister of State is there as their representative or point of contact. If they have suggestions, they can speak to the Minister of State and his team. This is important because the people in the credit unions have been working for so long with members of the public.

This Bill seeks to permit public bodies to become members of the credit union and to provide for certain changes to the governance of credit unions. We all recognise how important governance is. The staff do an annual governance course and are fully trained. The Bill is to provide for the setting of the maximum interest rates by the Minister and that can be changed on loans by the credit unions. I am aware this provision came out of the Minister of State's engagement with the credit unions. The Bill also provides for the provision of services by credit unions to members of other credit unions within certain parameters and to provide for the participation by credit unions in loans to members of other credit unions. Some credit unions can give out bigger loans than others so that is important. The Bill also seeks to require credit unions to publish a digital map to provide a description of their common bond on their website or in their annual accounts for greater transparency.

From listing those out, we can see the work that has gone into bringing this Bill forward. It is a positive step in the right direction. I would love to see credit unions growing because there is huge potential there. There is also the fact that now one can do many transactions there, when one had to go to the bank for them. That is positive. I compliment the Minister of State and the Fine Gael grouping will be supporting this Bill.

Photo of Niall Ó DonnghaileNiall Ó Donnghaile (Sinn Fein)
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Cuirim fáilte roimh an Aire Stáit agus cuirim fáilte chomh mhaith roimh an reachtaíocht atá os ár gcomhair anocht. It is important to begin, as Senator Maria Byrne did, by acknowledging how important the credit union is in the fabric of Irish life and how it permeates across all parishes, communities, cities and counties. While listening to Senator Maria Byrne, I thought back to my late grandmother, my granny McVeigh, who said to me as a young fellow, “Make sure you join a credit union, son. Get into the credit union”. I am sure that is reflective of many people’s experiences. Certainly, when I got to the age of 18, when I finished school and when I wanted to go on my first foreign holiday, I was glad that I was a member of the credit union because it enabled me to go.

There are over 300 credit unions across Ireland, North and South. One in two people in Ireland have a credit union account. It is a movement that is considerate of the needs of a community, it generally places people above profits, and it seeks to benefit its members, not shareholders. Credit unions are trusted, they are visible and they understand what makes and strengthens community. Irish people really depend on their local credit union, not least at this time of the year, and they are so popular because they treat their customers and members with respect, always trying to respond to their needs and circumstances.

The Credit Union (Amendment) Bill is welcome because it comes at a time when Ulster Bank and KBC are closing their doors. Other banks are whittling down their services and providing machines instead of fully functioning branches. Commercial banks during the pandemic used the public health restrictions as an opportunity to close many branches across the country, negatively impacting customers and communities that are remote, that lack decent access to broadband or that require assistance in adapting to digital services.

Credit unions, in stark contrast, have remained accessible, responsive and adaptive. This Bill is the first substantive credit union legislation since 2012, which followed the Commission on Credit Unions. In the recognition of the importance of the role of credit unions, the Bill includes an additional object into section 6 of the principal Act, namely, "to promote and provide support to co-operative groups and voluntary associations". Currently, there is no recognition of or reference to the volunteer ethos of credit unions in the Act, so this is particularly welcome.

In terms of what the Bill does, this Bill makes it possible to support investment in collaboration, through the creation of corporate credit unions. It will also amend section 43 to clarify that credit unions can invest in ventures supporting credit unions. This enhanced collaboration is vital for the future of the credit union movement. It will allow credit unions to better serve their members by increasing the range of services offered. Corporate credit unions allow for an additional regulated structure through which credit unions could collaborate. The Bill seeks to improve members' services by allowing credit unions to refer members to other credit unions and to participate in loans of other credit unions. At the moment, whether a member can access the fullest range of services depends on what his or her local credit union does or does not provide, and members cannot just go to a different credit union to access other services. You can only be a member of the credit union in your local area. If a member's local credit union does not provide a current account or mortgage lending, he or she cannot join a credit union that does, nor can the credit union introduce the member to another credit union, though it can introduce a member to a bank or non-bank. It is therefore great to see that the amendments in this Bill aim to increase the flexibility of the common bond and to allow for practical improvements to help credit unions increase competitiveness and to deliver a greater range of services to more members. We must empower credit unions to be more competitive in an environment of aggressive competition from banks and newer actors in the market, such as Revolut, PayPal and Starling, amongst others.

The Bill will also amend section 38 to allow the Minister for Finance to set a maximum interest rate, which is currently fixed at 1% per month. The Irish League Of Credit Unions, ILCU, has been calling for the introduction of a significantly reduced statutory maximum interest rate. This is important to help to prevent situations where the high cost of borrowing often results in unmanageable debts for vulnerable people and families.

The Consumer Credit (Amendment) Act is also important legislation which sets out a number of significant regulations in this regard. There are also measures to support enhanced governance of their boards to ensure it is in line with best practice in corporate governance. The Bill has the full support of the Irish League of Credit Unions. I know that they have been campaigning for legislative changes since 2016, so getting the legislation swiftly through the Oireachtas would be something I am sure they would appreciate as well. Indeed, the need for reforms in this area have been long awaited and the Government has been quite slow to react to calls for these reforms.

The final report of the credit union advisory committee implementation group was published in January 2019. I think people would have liked to see a quicker response but it is welcome that we now have some movement and the Bill before us this evening. We will look at it in more detail on Committee Stage but Sinn Féin broadly supports this Bill and we hope that it will move swiftly through the legislative process in order to give effect and to make a difference to credit unions and to communities they are a part of.

Photo of Joe O'ReillyJoe O'Reilly (Fine Gael)
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I now call on Senator Kyne and I offer him my apologies for almost missing him, as I thought he was here in a supervisory capacity.

Photo of Seán KyneSeán Kyne (Fine Gael)
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The Leas-Chathaoirleach does not need any supervision. The Minister of State is welcome. I want to briefly welcome the publication of this Bill and to compliment his own engagement with the credit union sector. He has met various credit unions, has engaged with them in stakeholder engagements and has toured the country to meet the front line in relation to credit unions. We all agree that they do tremendous work and they are a trusted brand. They cover so much of the country and are available to communities. In comparison with this, there is the matter of the poor regard that people might have for the traditional banks because of various issues of which we are all aware during the financial crash etc. The growth and the power of the credit union is reflective of the impact of the financial sector and the financial crash of that time. I welcome the level of engagement the Minister of State has had.

There has been enough talk about the assets that the credit unions have, as well as about the amount of them. There is the matter of their ability to fund other projects and to be involved in larger loans. It is important to give them the choice, as long as there is adequate regulation in that regard.That is the important thing. While I did say that the credit unions are trusted and that there were issues with the banks, there were a small number of credit unions, although not in my area, that got too large too quickly during that time and ran into problems. That happened under the original legislation. While I accept the need to look at that Act again, we have to be conscious and careful that we do not do anything that will undermine the good work credit unions have done over recent years or their trusted brand.

In the Minister of State's speech, he said the Bill will support enhanced governance by making the manager a member of the board. That makes perfect sense. The member could be an ex officiomember of the board and therefore accountable to it, as would be the case with any good board. I presume there is a rationale for reducing the minimum number of board meetings. I am not exactly sure of the purpose of the reduction in five administrative issues to be mandatorily approved at board level. The Minister's sixth point regarding the electronic transfer of accounts makes sense. With regard to the flexibility to allow for loan participation, 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 question is whether this flexibility is to be open-ended. Will it be done by regulation once the Act is amended? What does the Minister of State have in mind? Has consideration been given to the certain public sector entities that will be designated to allow lending to take place? Those are some of my main points.

Oversight is the biggest issue. While major changes could be sought or initiated by the credit union with the best of intentions, one has to question whether they are in their interests. Again, if they grow too large, could they run into problems? That is my only concern. As I have said, it is a trusted and important brand that is community-driven and community-owned. There is great potential in the sector. We just have to ensure the right balance between what the credit unions want themselves and proper regulation and oversight.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I thank all of the Senators who have contributed to the debate. It is very clear that everybody who spoke has a deep personal knowledge of and connection with the credit union movement through their own local credit unions. We accept that, in itself, this Bill will not solve all of the issues in the credit union movement, many of which are issues that will have to be sorted out by the movement itself.

The first point I will make is that this is enabling legislation. It facilitates credit unions in making changes to the way they do their business. They are not being forced to do anything. Some of these issues will be a matter for individual credit unions. The amendments are targeted at the core issues that arose during our consultation process and will provide a much wider set of products to members, allow greater investment and confidence in collaboration and support volunteer directors in a practical way. There are aspects of the Bill that will require consequential changes to Central Bank regulations, a process which will proceed after enactment and which will require consultation with the sector at that stage.

Senator Casey spoke about the valuable community spirit of the credit unions and mentioned the role of An Post, which has a significant role to play in communities, and the fact there is personal contact when you go into a credit union building. Senator Maria Byrne said she was a member of the credit union and precisely explained the issues of the common bond and boundaries. We have provided in legislation that credit unions will have to provide a map or electronic means of showing the extent of their common bond. I have been around the country and I know there can be issues as to what street is in what area. Amalgamations take place. In Limerick, there are particular streets covered by more than two or three credit unions. We are not interfering. We just want this information laid out so that the public and members of the credit union know. I thank the Senator for her thanks to all of the departmental staff for all of the work they have done in the past two years in getting this Bill to this stage.

Senator Niall Ó Donnghaile said that Sinn Féin supports the Bill. I am very pleased to hear that and look forward to it passing. If there are positive amendments that can be incorporated, we will have an open mind to them. This Bill has not come about as a result of some preset view in the Department but from having listened to the credit union movement. If amendments are practical, feasible and to the benefit of the credit union movement, we will have an open mind to them as we go along. The Senator also mentioned the value of the credit unions, especially in the context of the banks closing, and their voluntary ethos. He also said their collaboration is very good and praised significant aspects of the Bill. I hope it will move through the Oireachtas well and will be enacted as soon as possible.

Senator Kyne mentioned how broad-based the credit union movement is. It is now giving out larger loans than heretofore, but that implies a need for good regulation, which there is. The issue of regulation is between the Central Bank and the credit union movement and it is not for the Minister for Finance, the Department or the Oireachtas to intervene. We have to trust both sides. There is no reason that should not continue.

The issue of governance was also raised. I will explain that most of what we are doing is enabling. We are saying that, when it comes to the issue of a manager being a full member of a credit union's board, the decision is up to each credit union. Up until now, that could not happen but we are enabling and facilitating credit unions that want to do that. Those that do not, do not have to. We are removing the blockage for those credit unions that do. On the number of board meetings being reduced to six, this is the minimum number. A credit union can still have ten board meetings a year if it wants to. At the moment, they have to hold almost double that number. They also have other meetings. It becomes quite difficult for the volunteer board members to attend all the meetings of the board and its subcommittees. If we reduce the minimum number to six, it may be easier to attract people onto boards. Otherwise, they may have to attend a board meeting every second week. Again, this is at the discretion of each individual credit union. The six is a minimum. If some want to have eight, nine or ten, they are free to do so.

On the issues relating to the policies of the board, I am open to correction but I believe there are 36 different policies that have to be cleared at board level. These range from regulatory matters to HR matters, staffing matters, the general data protection regulation, GDPR, and freedom of information. I am actually not sure about the freedom of information and GDPR rules. All of these policies have to come through the board every single year. Some of them are quite repetitive and involve a lot of documentation. This will facilitate some policies only having to come to the board every three years. Obviously, the significant ones will have to be cleared every year but some of the more routine ones can be cleared less often than annually.

I thank the Members for their contributions here today. I hope that, when people have had time to study the Bill in further detail, they will see that, as has been reflected here, everything we are doing is to help and support the credit union movement in growing in the increasingly changing financial landscape in the country. We are here to support the credit union movement. As I have said already, if positive suggestions are made during this legislation's passage through the Oireachtas, we will certainly be open to taking them on board.

Question put and agreed to.

Photo of Joe O'ReillyJoe O'Reilly (Fine Gael)
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When is it proposed to take Committee Stage?

Photo of Maria ByrneMaria Byrne (Fine Gael)
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Next Tuesday.

Photo of Joe O'ReillyJoe O'Reilly (Fine Gael)
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Is that agreed? Agreed.

Committee Stage ordered for Tuesday, 13 December 2022.

Photo of Joe O'ReillyJoe O'Reilly (Fine Gael)
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I thank everyone for their co-operation and participation. Gabhaim buíochas le gach duine as ucht a gcomhoibriú agus as an díospóireacht den chéad scoth. The House stands adjourned until 10 a.m. tomorrow, Wednesday, 7 December, in accordance with the Order of the Seanad of Thursday, 1 December 2022.

Cuireadh an Seanad ar athló ar 8.09 p.m. go dtí 10 a.m., Dé Céadaoin, an 7 Nollaig 2022.

The Seanad adjourned at 8.09 p.m. until 10 a.m. on Wednesday, 7 December 2022.