Finian McGrath (Dublin North Central, Independent)
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Question 137: To ask the Minister for Finance if he will support the Irish League of Credit Unions in 2010. [22796/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The details supplied by the Deputy relate to current campaign by the Irish League of Credit Unions (ILCU) in relation to amendments to Section 35 of the Credit Union Act 1997 contained in the Central Bank Reform Bill 2010 and to the transposition by Ireland of the Consumer Credit Directive. Section 35 of the Credit Union Act 1997 imposes limits on credit unions in relation to longer-term lending. The restrictions contained in Section 35 are an important asset and liability instrument which has protected the financial stability of the credit union movement over many years. The matter was considered by my Department following extensive consultation with the two credit union representative bodies - the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA) - and with the Registrar of Credit Unions. I have decided that, in addition to extending from 20% to 30% the proportion of a credit union loan book that may apply to loans over five years, it is necessary now to give the Registrar of Credit Unions powers to require credit unions to have appropriate liquidity, provisioning and accounting requirements in place.

The Registrar of Credit Unions will take a balanced and proportionate approach to the implementation of the new Section 35 requirements and has set out for the credit union representative groups transitional arrangements and clarifications on the implementation approach. The Registrar has already indicated that these include transitional arrangements for a 15% provisioning requirement up to 30 September 2011, trial periods, exceptions with regard to top-up loans and relaxation of the 100% provisioning requirement in respect of rescheduled loans which have missed two or more payments. The transitional arrangements as proposed by the Registrar will help to ease the position for credit unions in the current financial year and the next financial year ending in September 2011. They will also allow time for credit unions to adjust to the new regime. While I continue to believe that while the principle of the approach we are taking in the Bill must be adhered to, the Registrar and I are prepared to look at the scope for any further flexibility in relation to the transitional arrangements.

As I have indicated previously, there is a balance to be struck between meeting members' needs to reschedule loans and ensuring the stability of the credit union sector overall. We are not seeking to have a credit union sector which is over-regulated. However, we must act now in a prudent and preventative manner. It is in the interests of every credit union in the country that the stability of the sector is safeguarded. The proposals being brought forward in connection with the Bill will achieve this fundamental aim. The effect of the new provisions on credit unions will be closely monitored.

The Consumer Credit Directive establishes a harmonised legal framework in the European Union for the provision of consumer credit ranging from €200 up to €75,000. (It does not apply to mortgages). It replaces a 1987 Directive (87/102/EEC), which laid down minimum rules for consumer credit arrangements within the EU. In consultation with the Office of the Attorney General, my Department is currently preparing the draft Statutory Instrument, which will transpose the Directive into Irish Law. It is intended that the legislation will be finalised by 11 June, 2010. The Directive will take effect from that day. I believe that the Directive enhances the strong regulatory regime underpinning consumer protection, and as such, I have decided that credit unions should be subject to its full application.

However, following consultation with representatives of the Credit Union movement, I am aware that the credit unions will require some time to upgrade their systems and train staff, so that they can effect compliance with all the requirements of the Directive. Consequently, I have adopted the discretion allowed for under Article 2.5 applying limited provisions of the Directive to them until 11 December 2011, after which date, the full Directive will take effect. Notification of my decision to adopt this discretion was published on my Department's website on 21 May 2010 and the both credit union representative bodies were informed of my decision by e-mail on that date.