Joan Burton (Dublin West, Labour)
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Question 125: To ask the Minister for Finance his views on whether it is necessary to review and amend section 35 of the Credit Union Act 1997, in view of the prevailing economic climate, increasing loan arrears and the restrictions currently in place on credit unions with respect to the restructuring of loan repayment schedules for a duration exceeding five years; and if he will make a statement on the matter. [8680/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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A core objective of the legislative and regulatory framework for Credit Unions in Ireland is to ensure the safety and soundness of credit unions. This requires prudent lending and protection of members' savings.

The restrictions contained in Section 35 of the Credit Union Act 1997, as amended, are an important asset and liability tool that have protected the financial stability of the credit union movement over many years. The funding of credit unions is predominately provided on a short term basis in the form of on-demand savings and consequently the Section 35 limits are necessary for the protection of the financial stability of credit unions. I believe that the legislation, as it stands, strikes an appropriate balance between the development needs of credit unions and the protection of members' savings from undue risk. I am of the view that it would not be appropriate to change the current position with regard to the limits contained in Section 35, especially in the current financial and economic environment.

As the Deputy will be aware, Section 35 sets out the limits with which credit unions must comply in respect of the total amount of loans advanced for periods exceeding 5 years and 10 years. Section 35 was revised in 2007 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. Arising from the review, those credit unions that can satisfy certain financial criteria in relation to arrears and reserves and have the necessary controls in place can, subject to the approval of the Registrar, avail of increased lending limits. There was a further change to Section 35 in 2007 by way of Section 17 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 which changed the basis of calculation of the total amount of loans outstanding for the purposes of applying the limits.

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 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.

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.