Written answers

Thursday, 18 May 2017

Department of Finance

Credit Union Services

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source

75. To ask the Minister for Finance the progress his Department has made with the Central Bank on the request by a number of credit unions to expand their debit card and mortgage services; and if he will make a statement on the matter. [23607/17]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As previously referred to in Parliamentary Question number 197 on 4 April 2017, the Credit Union Act, 1997 (1997 Act) sets out the services that a credit union may provide to its members. In addition, the Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 (2016 Regulations) provides for services exempt from additional services requirements. Where a credit union wishes to provide services to its members, other than those services that are provided for under the 1997 Act or the list of services exempt from the additional services requirements set out in the 2016 Regulations, an application may be made to the Central Bank for approval to provide such additional services in accordance with the provisions in sections 48-52 of the 1997 Act.

Debit card provision (and the necessary underlying payment account service) is an additional service and as such requires Central Bank approval. The Member Personal Current Account Services (MPCAS) which provides for a current account and a range of services including payment instruments such as debit cards, has been available to eligible credit unions since October 2016. A number of credit unions have already been approved for this service which is granted under additional services provisions (sections 48 to 52) within the Credit Union Act 1997 (as amended).

There has been significant interest in this service from eligible credit unions and the Central Bank is currently processing a substantial number of additional applications. The service approval provides for a shared services support, to bridge necessary technical expertise and scale considerations. It is expected that once MPCAS is fully established and embedded, it is likely to be available to smaller credit unions with necessary risk understanding. Details of MPCAS and the approval process, along with the application requirements and related guidance are on the Central Bank's website. The Central Bank has also indicated it is open to applications for alternative debit card proposals and recommends the MPCAS framework as a template for such alternative proposals.

Currently credit unions can and some do provide mortgages to members.  These type of loans are subject to certain maturity limits contained in the 2016 Regulations. Those Regulations set out the percentage of a credit union's loan book that can be outstanding for periods exceeding both five years and ten years, as well as limits on the maximum outstanding liability to an individual member. Under the 2016 Regulations credit unions continue to be allowed to lend up to 30% of their loan book over five years and up to 10% of their loan book over 10 years, subject to a maximum maturity of 25 years. In addition, credit unions can apply to the Central Bank for an extension to their longer term lending limits (up to 40% of their loan book over 5 years and up to 15% of their loan book over 10 years).  Approval is subject to conditions set by the Central Bank. 12 credit unions are currently approved to avail of increased longer term lending limits.

The Central Bank informs me that the December 2016 Prudential Return indicates that for the sector overall, total gross loans over 10 years amount to c. 2.7% of total loans in the credit union sector compared to the limit of 10% (and in some cases 15%). 

The Central Bank has indicated that while it can see longer term lending, including mortgages, as part of a balanced portfolio of total lending, in their analyses, credit unions need to consider the impact of longer term lending on interest margins, return on assets and on balance sheet structure – the issue of funding longer term lending with short term funding is a challenge for the credit union business model.  The Central Bank further informs me that consumer mortgage lending is an activity that has its own unique risk profile, and proposals to become involved in mortgage lending in a significant way must be supported by an evidence based business case.

The Registry of Credit unions is currently developing a paper on key risk considerations for credit unions intending to engage in longer term lending/mortgages, to support their understanding of the nature of risks involved and provide a degree of clarity on minimum expectations.

The Credit Union Advisory Committee's (CUAC) recent report provides a number of recommendations, one of which is to conduct a full review of lending limits. I have established an Implementation Group which has met on four occasions and is currently assessing each of CUAC's recommendations with a view to implementing as appropriate.  Central to its work is ensuring a full examination of lending limits and concentration limits is carried out as recommended.  I look forward to regular progress reports from the Implementation Group as these recommendations are developed and implemented.

Comments

No comments

Log in or join to post a public comment.