Charlie O'Connor (Dublin South West, Fianna Fail)
Link to this: Individually | In context

Question 95: To ask the Minister for Finance if he will give an update on his dealings with the credit union movement in respect of concerns being expressed regarding proposals for section 35A and 35B of the Central Bank Reform Bill 2010; and if he will make a statement on the matter. [26024/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I assume the Deputy seeks an update on events since his similar PQ Ref No 22257/10 answered on 26 May 2010.

I met with the credit union representative bodies on 26 May 2010 and again on 8 June 2010. I have informed them that I am listening to the views of credit unions and of elected representatives on the Section 35 issue and that I will reflect on what I have heard. I will make a statement at Committee Stage of the Central Bank Reform Bill to the effect that I am considering some changes to the proposed Section 35A that will link more closely the powers conferred by the new Section 35A to the framework required for implementing the new rescheduling arrangements. If I decide to introduce amendments, this will be done at Report Stage.

I understand that all members of the House are being lobbied by the Irish League of Credit Unions (ILCU) on this issue. The ILCU campaign material makes a number of points on which I would wish to comment. When the Central Bank Reform Bill 2010 was published on 30 March this year, ILCU welcomed the new initiative in its press release that day stating "This new arrangement is good for our members and good for credit unions". ILCU has since formed a different view. That is, of course, its right. 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.

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 the proposed amendment to Section 35 seeks to 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. However, as I have indicated above, my Department and the Registrar are exploring ways of meeting the key concerns of the representative bodies.

Also, as I indicated to the Dáil during the second stage debate on the Central Bank Reform Bill, the Registrar of Credit Unions will take a balanced and proportionate approach to the implementation of any 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 also wrote to all credit unions on 24 May 2010 indicating that the transitional arrangements will include 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. This should help to ease the position for credit unions in the current financial year and the next financial year ending in September 2011 and allow time for credit unions to adjust to the new regime. I may suggest to the Registrar that he consider refining the provisioning requirement so that it is reduced to 10% from the date of commencement to 30 September 2010. Overall, the Registrar will take account of individual circumstances in credit unions in exercising the powers being given to him in the Bill. There is no question of a "one size fits all" approach as is being suggested by the League.

As indicated by the Registrar during his appearance on 27 May 2010 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.

Suggestions have also been made that there was insufficient consultation on this matter. There was, however, 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.