Jack Wall (Kildare South, Labour)
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Question 91: To ask the Minister for Finance his views on correspondence (details supplied); the action he will take to address the concern expressed; and if he will make a statement on the matter. [23755/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The correspondence provided by the Deputy in the main reproduces the material supplied by the Irish League of Credit Unions (ILCU) to its member credit unions as part of its current campaign 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. I understand that the intention of the campaign is that all members of the House are to be lobbied on these issues. The ILCU campaign material makes a number of points which I will address in the following paragraphs.

I believe the current proposals as provided for in the Section 35 amendments in the Bill will benefit both individual members and the credit union sector overall. The credit union sector is not immune to the economic downturn. It needs to be safeguarded to ensure that it can continue to provide assistance to its members in the current difficult economic climate while at the same time lending only within its capacity to do so. The Government's intention is to facilitate relaxation of the lending limits in conjunction with appropriate regulation of the sector to achieve this objective.

The proposals contained in the section 35 amendments meet my intentions in this area. In my address to the ILCU Conference in April 2009, I expressed my wish to help members who are experiencing difficulty in meeting loan repayments due to unfavourable changes in their financial circumstances in the current economic environment. I stated that any solution would be subject to the over-arching consideration that the financial position of a credit union is not undermined, the security of members' savings is maintained and accurate reporting of the financial status of a credit union is not jeopardised. Re-scheduling of repayments to a level which is affordable to members should be possible in carefully monitored and controlled circumstances. Of course, each credit union must fully and properly recognise arrears situations where they exist. Where members are in difficulty the process of facilitating them must be transparent to board members and regulators so that a credit union is never in doubt as to its own position. This continues to be my view and I believe that the proposed amendment to Section 35 will achieve the desired result.

The credit union sector has been seeking relaxation of the Section 35 lending limits in an effort to facilitate borrowers who have run into difficulties in repaying their loans and need to have them rescheduled to allow for repayment over a longer period of time. The lending limits are set in primary legislation. Together with the measures to balance the increased flexibility in relation to rescheduling, they must apply to all credit unions in a uniform way. Having said this, the scope for any additional flexibility is being examined by my Department in conjunction with the Registrar of Credit Unions and I have agreed to meet the credit union bodies again in this regard over the next week or so.

Also, as I indicated to the House during the second stage debate on the Bill, the Registrar of Credit Unions will take a balanced and proportionate approach to the implementation of the new Section 35 requirements and he 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 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. Overall, the Registrar will take account of individual circumstances in credit unions in exercising the powers being given to him in the Bill. I want to assure the Deputy that there is no question of a "one size fits all" approach as is being suggested by the League.

The powers which are proposed to be given to the Registrar of Credit Unions are needed as soon as possible. It is not correct to say that the Registrar has the necessary powers under existing legislation. He does not have the power to impose conditions across the sector and it would not be prudent to await the outcome of the strategic review. While the review itself is planned to be completed by March 2011, any primary legislation arising would require some considerable further time to implement. As I have indicated already, the credit union sector needs to be safeguarded further now to ensure that it can continue to provide assistance to its members in the current difficult economic climate while at the same time lending only within its capacity to do so.

As indicated by the Registrar during his appearance last week before the Joint Committee on Economic Regulatory Affairs, a Regulatory Impact Assessment within the meaning of the term as set out in the Better Regulation Guidelines prepared by the Department of the Taoiseach was not carried out. However, as he also indicated, an internal analysis was carried out. This examined the level of provisions which are held against rescheduled loans. The Registrar indicated that he will make this analysis available to the Joint Committee. I will ask the Registrar to furnish the Deputy with a copy of any material which he provides to the Joint Committee in this regard.

Contrary to suggestions now being made, there was extensive and detailed consultation on the measures now being brought forward. Following general discussions in early 2009, the detailed views of credit union representative groups on the Section 35 issue were sought and obtained in the summer of 2009. The provisions to be included in the requirements to be made by the Registrar have already undergone considerable adjustment following discussions between the Registrar of Credit Unions and both credit union representative bodies.

Concerns have been raised in relation to the need for the Registrar of Credit Unions to consult with the representative bodies before introducing requirements. As a matter of general practice, the Registrar consults with the credit union representative bodies before introducing regulations or requirements in relation to any aspect of credit union regulation and I understand that he intends to continue with this approach. However, the independent position of the Registrar of Credit Unions in carrying out the duty of financial regulation is not open to question and the Registrar has the statutory powers and responsibility to introduce, if necessary without consultation, regulatory requirements in the interests of the well-being and stability of the sector. For this good reason, a requirement for the Registrar to consult with the sector is not included in the legislation. Neither is it appropriate to provide for an appeals mechanism. Such a device would render the provisions ineffective and inoperable as decisions of the Registrar would become subject to constant review.

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 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 both credit union representative bodies were informed of my decision by e-mail on that date.