Paul Connaughton Snr (Galway East, Fine Gael)
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Question 129: To ask the Minister for Finance if he will amend section 35 of the Credit Union Act 1997 as it relates to existing lending restrictions on credit unions; if his attention has been drawn to the fact that many credit union customers are experiencing difficulty in meeting loan repayments due to redundancies and reduced hours of work, that many of those members are requesting a reduction in their loan repayments and that should the credit union accede to these requests the consequences would be that the percentage of loans in excess of five years would increase; and if he will make a statement on the matter. [7844/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Section 35 of the Credit Union Act, 1997, as amended, sets out the limits that credit unions must comply with in respect of the total amount of loans advanced for periods exceeding 5 years and 10 years. These limits were increased by Statutory Instrument in 2007, following consultation with credit union stakeholders. Section 35 was also amended in 2007 by way of Section 17 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007. This amendment changed the basis of calculation of the total amount of loans outstanding for the purposes of applying the limits.

These relatively recent amendments of the Credit Union Act were in line with the recommendations contained in the Report of the Review Group on Longer-term Lending Limits. This Group, chaired by the Department of Finance, included representatives from the Irish League of Credit Unions, the Credit Union Development Association and the Registrar of Credit Unions. It recommended that Section 35 lending limits should be increased for loans over five years from 20% to 40% and over ten years from 10% to 15%, for those credit unions approved by the Registrar as having the necessary controls and safeguards in place and satisfying financial criteria in relation to arrears and reserves. The Group agreed that the core objective of the legislative and regulatory framework is to ensure the safety and soundness of credit unions, which requires both prudent lending and protection of members' savings. This amendment struck an appropriate balance between the development needs of credit unions and the protection of members' savings from undue risk.

I fully appreciate that some credit union customers are experiencing difficulty in meeting loan repayments due to unfavourable changes in their financial circumstances on account of the deterioration in the overall economic climate and consequently are requesting a reduction in their loan repayments. I understand that the Registrar of Credit Unions has recommended to Credit Unions that where rescheduling needs to happen revised repayment instalments should be agreed with the borrower as is necessary but that the term of the loan should not be changed from the original agreement. This approach would satisfy the borrower's need to reduce repayments but would also ensure a transparent arrears position. The calculation of the provision for bad and doubtful debts would also be calculated in a realistic fashion. The Registrar has highlighted the need to ensure that rescheduling of loan repayments should be carried out in a fashion which is fully consistent with accurate reporting of the arrears and provisioning situation of credit unions.

In addition, my Department has been in contact with the Consumer Directorate in the Financial Regulator to request consideration of a guidance note for credit unions providing advice on dealing with members experiencing difficulties with loan repayments and building on general guidance on this issue already published on the Financial Regulator's website.