Michael McGrath (Cork South Central, Fianna Fail)
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157. To ask the Minister for Finance if he has the power to increase the 1% per month interest limit for the credit union sector; if this power is vested in the Central Bank; his plans to increase the limit to 2% to better enable credit unions to provide smaller short-term loans to members; and if he will make a statement on the matter. [50659/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 38 1(a) of the Credit Union Act 1997 prescribes that the interest on a Credit Union loan shall not at any time exceed 1% per month. I can confirm that the power to increase this cap has not been vested in the Central Bank and therefore whether the 1% per month interest limit for the credit union sector should be increased is a matter for the Minister for Finance, Government and the Oireachtas.

As the Deputy may be aware the interest rate ceiling on Credit Union loans has been subject to recent discussion in a number of fora.

Firstly, the Credit Union Advisory Committee (CUAC) - the statutory committee whose function is to advise the Minister for Finance in relation to matters relating to credit unions - published a policy paper on this issue in December 2017 following a survey of credit unions. In its policy paper on the loan interest rate cap the CUAC recommended that credit unions should be permitted to charge an interest rate on loans greater than the present ceiling of 1% per month, and proposed that the cap be raised to 2% per month. This change would provide credit unions with greater flexibility to risk price loan products and in so doing may create an opportunity for new product offerings. It is important to note that CUAC's recommendation to increase the loan interest rate ceiling would not mean that credit unions are required to raise their loan interest rates, rather they could apply their own interest rates within the parameters allowed. The policy paper is available on my Department's website.

Secondly, the CUAC Report Implementation Group - a group established to oversee and monitor the implementation of recommendations from the CUAC report - has also considered the issue of the increasing the interest rate cap as recommended in the CUAC policy paper. This group is chaired by my Department and is made up of one member from each of the credit union representative bodies - the Irish League of Credit Unions, the Credit Union Development Association, the Credit Union Managers’ Association and the National Supervisors Forum - and a member from the Central Bank. The Implementation Group is currently in the process of finalising its Final Report which will be published shortly. Following publication of the Final Report, I will review the Implementation Group's recommendation on the loan interest cap, along with the CUAC recommendation already received, and consider if any legislative changes are required.

Finally, I should also note that the CUAC recommendation on the interest rate cap is aligned with a similar recommendation that has been put forward recently in the "Interest Rate Restrictions on Credit for Low-income Borrowers" report, compiled by the Centre for Co-operative Studies University College Cork on behalf of the Social Finance Foundation.