Credit Union Bill 2012: Second Stage

I move: "That the Bill be now read a Second Time."

The Credit Union Bill 2012 is an important step towards placing the Irish credit union movement on a sustainable path for the longer term. From the outset, I want to set out clearly that the Bill implements the Commission on Credit Unions report, which was agreed and co-authored by key stakeholders, including credit union representatives. The commission worked intensively over a nine month period to address and deliver on ambitious terms of reference. The process was a participative one, with wide representation from the credit union movement. The commission was reconvened to examine the general scheme of the Bill and ensure its fidelity to the commission report. The agreed commission report sets out the blueprint for the viability of credit unions in Ireland into the future. Its constituent elements are interrelated and mutually reinforcing. It is a package, not a menu.

The report is tailored to the Irish credit union system and does not apply so-called banking thinking, nor does it slavishly import models from other international credit union movements. Implementing the agreed reforms will require steadfastness, commitment and leadership from all concerned: the Government, the Central Bank and, importantly, the credit union movement itself. The Irish taxpayer has committed to €500 million for credit unions at a time when the country's resources are stretched. This significant financial commitment during a period of austerity must bring about a stable, well-governed credit union movement that can sustain itself into the future.

It is important we acknowledge the difficulties in the sector in a transparent way while at the same time explaining how we will address them. The commission highlights a number of vulnerabilities in the sector. Concerns remain in terms of the high level of arrears and the need to ensure loan losses are recognised and provided for. The low dividend rates across the sector are not sustainable in the longer term. The cost-to-income ratio for credit unions has increased considerably in recent years, going from about 50% in 2006 to almost 90% in 2011. The loan-to-asset ratio was at only 40% at the end of 2011, an historic low.

The Bill is an important part of the Government's response to these challenges and implements more than 60 of the commission's recommendations. It provides the platform for restructuring, improved systems, the provision of additional services and governance structures that are sound and forward-looking.

The first element deals with the prudential requirements that apply to credit unions across a range of areas, including reserves, liquidity, investments, lending and borrowing. In general, the Bill sets out the policies and principles, with provision for Central Bank regulations setting out standards and procedures. This will facilitate the development of a prudential rule book which will provide clarity to credit unions on the requirements that apply across their business.

The second main element relates to governance. The core focus of this part of the Bill is to bring clarity to, and distinguish between, the role of the board on the one hand and the role of the executive on the other. Boards will be the key decision-making organ of credit unions, focused on strategy and policy, with the management team handling the day-to-day operation of the credit union, subject to board oversight. Importantly, the Bill preserves and respects the volunteer ethos of credit unions and provides better opportunities for training and development of credit union volunteers.

The next element is the restructuring of credit unions on a voluntary, incentivised and time-bound basis, overseen by the credit union restructuring board, or "ReBo". The ReBo has been established on an administrative basis ahead of the legislation, with Mr. Bobby McVeigh as chairman, a hugely experienced and respected figure in the international credit union movement. The ReBo is working to the timetable in the commission report, which envisages the process being completed by the end of 2015.

The Bill also provides for statutory stabilisation of credit unions, which is to be fully funded by the credit union movement itself via a levy, as recommended by the commission report. Stabilisation will operate on a more limited basis during the restructuring period.

Part 1 includes the preliminary and general provisions, including the Short Title, interpretation and the commencement provisions. An issue has been raised about the application of the Central Bank Acts or other financial services legislation to credit unions. The Bill does not break significant new ground in this area beyond the extent that such legislation already applies to credit unions or must apply to deliver the commission report. The perception is that there is a bulging corpus of banking law which the Bill unlocks and applies to credit unions. This is not so. The provisions of the Bill in several places refer - correctly so - to the fact that credit unions are subject to requirements beyond the Credit Union Acts and therefore have broader obligations, for example, in the areas of insurance mediation, payment services and the deposit guarantee scheme.

Part 2 deals with two main areas: regulatory requirements and governance. In terms of regulatory requirements, regulations must be effective and proportionate having regard to the nature, scale and complexity of the credit unions to which they apply. This will facilitate the development of a tiered regulatory approach as recommended by the commission. Section 29 provides that before introducing regulations, the Central Bank will be required to consult the Minister for Finance, the credit union advisory committee and other credit union bodies. Although not specifically required in legislation, this consultation is to be done in accordance with a consultation protocol being developed by the Central Bank in consultation with credit union stakeholders. Regulations will also be subject to regulatory impact analysis requirements.

Section 7 amends section 6 of the Credit Union Act 1997 to provide that the Central Bank may impose conditions on the registration of a credit union. These are appealable to the Irish Financial Services Appeals Tribunal.

Section 11 amends section 35 of the Credit Union Act 1997 regarding lending. It provides that the ability of the loan applicant to repay shall be the primary consideration in the underwriting process. There is also provision for Central Bank regulations on classes of lending in which a credit union may engage, large exposures and concentration limits.

Section 12 amends section 43 of the Credit Union Act 1997 on the investments that credit unions can undertake. Detailed matters on classes and quality of investments, maturities and limits are to be provided for in Central Bank regulations.

Section 13 amends section 45 of the Credit Union Act 1997 on the regulatory reserve requirement and operational risk reserves, with a further role for Central Bank regulations in setting out the minimum levels to apply. Section 30 sets out the liquidity requirements that apply, with provision for Central Bank regulations on minimum liquidity requirements, including maturity mismatches and stress testing. Section 14 of the Bill sets out the provisions which may be appealed to the Irish Financial Services Appeals Tribunal, including regulatory directions. I have asked my Department to consider any consequential changes needed to the Central Bank (Supervision and Enforcement) Bill to ensure that the principle avenue of appeal for regulatory directions issued to credit unions under that Bill is to IFSAT rather than the High Court.

The Governance provisions in the Bill clarify the roles and responsibilities of the chair, board and management of credit unions. In accordance with the agreed recommendations of the commission on credit unions, section 15 provides that the number of board members is to be between seven and 11, and term limits allow a director to serve nine years on a credit union board in any 15-year period. Exclusions from board membership are provided for in accordance with the commission's recommendations, including employees, voluntary assistants, directors of other credit unions and professional advisers. The section is also developmental in that it makes specific provision for the training of volunteer directors.

Section 17 amends section 55 of the Credit Union Act 1997 and sets out the functions of the board including setting the strategy of the credit union, operating a comprehensive decision-making process and ensuring that there is an effective management team in place. The board is also responsible for approving, reviewing and updating all plans, policies and procedures of a credit union.

The governance provisions in sections 18 to 26 also deal with matters such as the role of the chair of the board; committees, including the nomination committee; conflicts of interest; risk management, including the risk management officers; compliance officers; business continuity planning; information systems; outsourcing; and the role of the manager. Section 26 also includes provision for the internal audit functions within a credit union to provide for independent internal oversight and to evaluate and improve the effectiveness of the credit union's risk management, internal controls and governance procedures.

Section 27 of the Bill provides for the board oversight committees, which are a crucial pillar of the new governance arrangements in that they provide members with an independent assessment of the board's performance. The board oversight committee is the next evolution of the supervisory committees which have been operating in credit unions for many years. As the role of the board changes towards a more strategic focus, it is important that the role of the supervisory committee changes with it. The Bill sets out a number of important provisions regarding the board oversight committee: it shall have access at all times to the books and documents of a credit union; its members have the right to attend board meetings; it may notify the Central Bank of any issues or concerns about non-compliance by the board with applicable requirements; and it shall report to the members at the AGM or SGM on whether the board has complied with its requirements.

Part 3 of the Bill deals with restructuring, which will be carried out on a voluntary, time-bound and incentivised basis and which will be overseen by the credit union restructuring board, ReBo. Restructuring will involve a process of amalgamations or transfers of engagement under Part 9 of the Credit Union Act 1997. The guiding aims of restructuring are the protection of credit union members' savings; the stability and viability of credit unions and the sector at large; and the preservation of the credit union identity and ethos. This Part provides for the establishment of ReBo on a time-bound basis. ReBo comprises a chair and board, supported by a CEO and an operational side. The board of ReBo was established on an administrative basis on 31 August 2012 and has already met twice to make progress on laying the groundwork for restructuring.

ReBo's role is to engage with credit unions on the ground to facilitate agreement on restructuring proposals; to assist credit unions in the preparation of restructuring plans, and to consider restructuring plans submitted to it, including any funding requirements, and approve or reject those plans. ReBo will also oversee the implementation of restructuring plans, including the provision of post-restructuring support. ReBo may also make a recommendation to the bank that an individual credit union should be considered for stabilisation. ReBo will be funded upfront and a levy on the sector by ReBo will recover 50% of its operational costs.

The Bill establishes a credit union fund to fund restructuring and stabilisation. Once the Bill is enacted, it is intended that €250 million would be contributed to the credit union fund from the Exchequer to cover restructuring costs. The costs of stabilisation will be met entirely by a levy on the credit union sector itself, as agreed by the commission on credit unions. Restructuring and stabilisation funding is recoupable from the benefiting credit unions, with provision for any shortfall in the recoupment of restructuring costs to be met by a levy on the sector.

Part 4 of the Bill provides for the possibility of stabilising of credit unions on a stand-alone basis where they are viable and hold reserves above 7.5%. The Central Bank must have regard to a number of key factors before approving the provision of stabilisation, including the extent of the credit union's compliance with regulatory requirements, and its ability to maintain reserves and fund the business for up to three years after the support has been provided.

To avoid any disconnect during the period of restructuring, a credit union will need a ReBo recommendation before it can be considered by the Central Bank for stabilisation during the restructuring period. This requirement will no longer apply once ReBo has been dissolved. This Part also provides for the establishment of a stabilisation committee to examine the implementation by the Central Bank of its own requirements and procedures under stabilisation.

The Schedule to the Bill deals with a range of miscellaneous amendments recommended by the commission on credit unions and those which arise as a consequence of amendments made in other parts of this Bill.

Before I conclude I would like to address some of the points raised by the Irish League of Credit Unions as part of its campaign on the Bill. The provisions of the Bill on term limits, exclusions from board membership and on treasurers reflect very specific recommendations in the commission report, which were agreed with credit union stakeholders.

I look forward to a constructive debate on the Bill. The Bill delivers on the agreed commission on credit unions report and provides the platform for credit unions to build a sustainable future for themselves and their communities. I am always happy to engage in a healthy debate on a Bill and if there are good ideas they should be listened to and supported. However, the agreed commission report represents a once-in-a-generation opportunity to place the movement on a sounder footing. Those arguing for a dilution of the commission package need to reflect on the risks of undermining its coherence and the hard-won consensus behind it. I commend the Bill to the House.

I am pleased to have an opportunity to contribute to the Second Stage debate on the Credit Union Bill, which we all agree is important legislation. There is broad acceptance within the credit union movement of the need for change in the area and of the need for the regulatory regime to be improved, and that should be the starting point of our debate on the Bill.

We have been advised by the Whips that there is some time pressure in respect of the passage of the Bill, which is regrettable. The reason given is that the budget for 2012 provides for a contribution of €250 million to the credit union fund and that needs to be established on a statutory basis in order for that contribution to proceed. However, I hope the debate will not be curtailed. It is important that all Members of the House are given an opportunity to contribute on Second Stage on the broad principles of the Bill. We should also give adequate time to Committee and Report Stages, when we will get down to the nitty gritty of the detail of the Bill and deal with the amendments that need to be considered.

Credit unions, like all other financial institutions in this State, have been affected by the recession and downturn in our economy since 2008. It must acknowledged, however, that the scale of the problems in credit unions, while significant, is in no way comparable to those which have emerged in our banking system. The Minister has provided for €500 million in support for the credit union sector, all of which may or may not be required. More funding may be required but we will not know that until after all the detailed analysis of individual credit unions has been completed.

It is important during this debate that we put into perspective the level of regulation required for credit unions. Credit unions in this country are, by and large, well run. They operate on a model of volunteerism and have a community-based ethos. The last thing any of us want is for that model which has been so successful in Ireland for many years to be in any way undermined. Having met management of credit unions, the League of Credit Unions and other interested parties, I am aware that they accept the broad thrust of this Bill and that regulation will change. However, they want that regulation to be appropriate. The Minister stated in his speech that the perception is that there is a bulging corpus of banking law which the Bill unlocks and applies to credit unions. That is the perception of credit unions. They are concerned that they could be over-regulated.

While we need a response to the failure of the regulatory regime to deal in recent years with financial services, that response needs to be appropriate. That is the benchmark which I use in assessing all of this. The credit union movement has concerns in relation to this Bill which, it is hoped, we will have an opportunity to debate in more detail during the Committee Stage debate.

We recognise that credit unions fulfil a valuable function in Ireland. They have more than €15 billion in customer deposits and remain open for business. It is important this message is conveyed. It is important also to convey the message that deposits of individual credit union customers are secure in that the €100,000 deposit guarantee scheme applies also to credit unions. People need to be reassured that, despite some of the media coverage of difficulties in the sector, their savings are protected. Despite their difficulties, credit unions have shown a determination to retain the character and identity of the sector, taking account of its unique not-for-profit volunteer ethos. This must be preserved in the legislation.

There is no doubt that mistakes were made by some credit unions, in particular in terms of the advancement of loans which ultimately supported property development. What we have witnessed is the pervasive contamination of many parts of the economy as a result of an over-reliance on property and its impact when the market collapsed a number of years ago. The credit union sector is in pretty good shape. There are issues to be addressed in regard to a number of credit unions, some of which are in need of stabilisation, restructuring or amalgamation. It must be acknowledged that the merger of some credit unions is inevitable. I do not detect a fear of that type of change in the sector. Credit unions are of the view that if it is in the long-term interests of the movement and its customers that some of them be amalgamated or restructured, then that should be done. I believe there is a general acceptance in this regard. The credit union movement should not fear this change.

We believe the Central Bank should develop a protocol around what constitutes a viable credit union and should apply this in a manner that respects the community-based nature of the credit union movement. Professor Donal McKillop, chairman of the commission to which the Minister referred, has acknowledged this, saying that there is always a place for a credit union lending institution based on a co-operative ideal. It should be acknowledged that the credit union movement has and continues to meet the financial needs of many people with whom the banks will not deal. That is the reality. Virtually every family in this country has at some point relied on the services of their local credit union. People are grateful for the services provided by their local credit unions. The real success of the credit union model has been that it is community-based and its volunteers and staff know their customers personally, which allows them make judgment calls based on their knowledge of the local community and their customers. I want to see this protected.

Some 51 credit unions have reserves of less than the required 10%, and 25 are classified as being seriously under-capitalised. The Central Bank projects a further deterioration in credit union solvency. There are a number of reasons underpinning these financial problems. Many credit unions invested assets in bonds and financial products which are now deeply under water. The economic climate has directly contributed to the level of impairment of which the credit union movement must now take account. Key financial indicators for the sector suggest far more challenging conditions in the future than in 2008. This is borne out in figures for loan arrears, which have increased from a little lower than 10% in 2009 to more than 15% in 2010 and 19% at the end of 2011. Provisions against bad debts increased from €204 million in 2006 to €738 million in 2011. The movement has been trying to get its financial house in order for some time. This Bill will broadly support the process in which credit unions are engaged.

Credit unions make their money from lending. In my view, they are currently not lending enough. There is scope for greater use of the sector. I believe it can make a greater contribution to economic activity in Ireland. If, through the provisions and restructuring provided for in this Bill, we get it right, the role of credit unions will be greatly enhanced, which I would welcome. The movement currently has an average loan to asset ratio of 40%. The average loan to asset ratio of most international credit unions is closer to 70%. This means they are not generating enough revenues to cover their bad debt provisions.

The Commission on Credit Unions noted that the declining fortunes of the economy have not only put an additional brake on credit union development, but have, arguably, contributed to a regression in some credit unions. The tradition of volunteerism, which has been a hallmark of the sector, needs to be preserved in any new regulatory environment. The Irish League of Credit Unions has concerns, some of which the Minister referred to in his speech, about the term limits that will apply to those who serve as directors. It is important to bear in mind that a number of small credit unions, in particular in rural areas, have only a limited pool of people from which to draw. There may not be many people in a particular area who are willing to commit to serving on a credit union board. The term limits will present a particular difficulty for such credit unions. While I welcome the general objective of trying to secure some level of turnover of people who serve at board level, account will have to be taken of the acute difficulties this provision will cause particular credit unions. I hope to tease this issue out further on Committee Stage.

While the credit union movement is long established in Ireland, it is relatively under-developed in terms of its international peers. The sector should aim to be in the premier league of international credit union movements and should proactively push that development with the Government and its agencies. The League of Credit Unions is concerned about the increasing funding burden associated with the proposed legislative changes. An issue that will need to be addressed in an upfront manner is the additional levies to be imposed on the sector, which will place a heavy financial burden on it. We need to bear in mind the impact of this on the services they are in a position to provide to their members.

The regulator argues the deposit guarantee scheme levy is good value for money, as without it there would be a flight of deposits from the sector. There will be ongoing costs for stricter internal audit and risk controls, upskilling, strategic planning and fitness and probity, which are all new requirements for credit unions under the legislation. I acknowledge there is a need for credit unions to enhance their internal governance arrangements to implement a strict internal audit regime which would greatly assist them to face up to the challenges they have. Many credit unions are stepping up to the plate themselves and putting in place new procedures. Many of them have brought in external consultants to review their affairs and make recommendations, and these recommendations are being implemented. This should be borne in mind also.

The elements of the legislation criticised by the Irish League of Credit Unions, ILCU, are not only with regard to term limits, to which I have already referred, but also to membership restrictions, and it referred to these as anti-democratic and an attack on volunteerism. The Bill places certain prohibitions on membership of a board of directors on groups including employees, voluntary staff, employees in other credit unions and professional advisors. We need to go through the entire list of those proposed to be prohibited from membership of a board to assess whether it is overly onerous on credit unions. This would be important.

The ILCU has also conveyed its concerns regarding the creation of classes, types or tiers of credit unions based on asset size alone. It believes a model based on risk and complexity of business model would be considerably more appropriate. There is some merit in this argument and it should be reflected upon during the passage of the Bill. It has also raised issues concerning the abolition of the role of treasurer in credit unions and has sought a memorandum of understanding to be put in place between the regulator and individual credit unions.

The ILCU has highlighted certain issues featured in the final report of the Commission on Credit Unions but which were not specifically mentioned in the Bill, in particular the fact that credit unions should be leaders in assisting the Government to implement its financial inclusion agenda and the need for credit unions to be in a position to share services and offer electronically enabled payment accounts. The concern expressed to me is that credit unions feel they are being lumbered with the entire regulatory regime which applies to banks but are not being put on a level playing field in that they are not being allowed share services or administer electronic payment accounts. We would like to have a situation whereby a person can avail of credit union services in one credit union although he or she is a member of a different credit union. I would like to see credit unions being given the opportunity to offer electronic payment accounts and systems for their customers. This would be a very good step forward.

We strongly support amending the Credit Union Act 1997 so credit unions can provide funding to Government backed or guaranteed schemes or projects which have a social benefit. This would be very much consistent with the role that has been played by credit unions in the economy so far. The ILCU is engaged in two major projects, an ICT strategy and a payments credit union services organisation. Significant progress has been made in implementing the ICT strategy, which aims to enhance the movement's operational efficiency and effectiveness and expand the products and services available to credit unions and their members.

I acknowledge that the Bill generally seeks to implement the recommendations of the Commission on Credit Unions and I acknowledge the work of all of the members of the commission. The report should certainly form the basis of the Bill we are considering. However other issues, which are not in the commission's report, should also be considered. Certain issues raised in the commission's report have not been brought forward in the Bill. We need to go through all of these in considerable detail to try to get the Bill in as effective a form as possible and to form the basis for the development of the credit union sector for decades to come.

The Minister outlined what the Bill provides for in terms of prudential regulation, improvements in the governance regime, the oversight committee, the role of the restructuring board and the stabilisation provisions which are set out. It is important to reassure credit unions that what will be required in terms of restructuring will be done on a voluntary basis. The Minister reaffirmed this in his opening statement on Second Stage. It is important to reassure credit unions they will not be forced by the regulator to undertake amalgamation if it is clearly not in the best interests of their members or of a credit union itself.

The first half of next year will feature widespread due diligence by the restructuring board to estimate the costs and benefits of merging credit unions operationally and geographically, with final proposals due in the second half of the year. We acknowledge the need for amalgamation and restructuring to take place. I do not believe there will be unnecessary resistance to this provided credit unions are dealt with on a partnership basis and that it is not a case of the regulator dictating what must happen to each credit union. They must be allowed have input into the development of a plan for their future.

The Minister has allocated €250 million this year and the same amount again next year. Some estimates have put potential losses on bad loans in the credit union sector at up to €1 billion, which suggests the final figure could well be twice the initial estimates, although officials have insisted the process will be tightly run and cost efficient. There is an international precedent for rationalisation. The number of credit unions in Britain fell by 70% when new regulations were introduced. There were previously 700 credit unions in Australia but after regulation, the number fell to a little over 100. A small number in both countries failed, but the majority were successfully absorbed into larger bodies. This is the lesson we can learn. Even credit unions in difficulty now need not go out of existence. They can come under the umbrella of a stronger credit union by way of an amalgamation and in some cases this may be the best way of secure the future of a credit union. It is important this is done.

The report highlighted the benefits of the restructuring approach, including that credit unions will receive funding to strengthen their balance sheet, thereby mitigating the risks that could otherwise be presented by an amalgamation. If credit unions become part of a larger entity they will have a stronger balance sheet and will become part of a viable business model. The credit unions would benefit from an expanded common bond and economies of scope and scale. They would also be better placed to achieve the scale necessary to expand their range of services and this point is important.

The Credit Union Development Association, CUDA, has also made known its views on the Bill. It favours a clear distinction between the executive and non-executive roles and regards this as a driving force behind new changes. In association with the development of a prudential rule book to assist the separate roles by providing much needed clarity. As a whole, CUDA believes the prudential part of the Bill is comprehensive. While the requirements will unquestionably prove challenging for credit unions, CUDA maintains that in the long term it will provide a complete framework for credit unions to grow prudentially and have the capacity to manage their business in a sound manner. Its views also need to be taken on board.

The provisions of the Personal Insolvency Bill and the new insolvency service when it is up and running will have an impact not only on banks but also on credit unions. Understandably there is some concern in credit unions about the impact of the debt relief notice provision in particular, where unsecured debts of up to €20,000 can be written off at the discretion of the personal insolvency service. This could have an impact on the level of provisions required by credit unions in dealing with impaired assets. They are concerned about the impact of the Bill. We recognise the Bill must be enacted and the new service must be up and running as soon as possible and each case will be dealt with on an individual basis. It is important to put this on the record.

I welcome the Bill.

I will be engaging actively on Committee Stage and will be tabling amendments to determine whether we can improve the Bill. I would like to see as much buy-in from the movement as possible. It seems to accept the need for regulation and the principles in the Bill. While it accepts much of the detail of the Bill, it has issues with certain parts of it. We certainly do not want to have a regime that strangles the potential of credit unions. It would certainly be possible to overreact to the financial crisis by over-regulating a movement such as the credit union movement. We do not want this to happen. I want to see regulation that is proportionate, appropriate and not heavy-handed. If we enter this process in good faith, we can improve the Bill, make it fit for purpose and provide a proper basis on which the movement can develop in the coming years.

Ní shílim go nglacfaidh mé an tríocha nóiméad ar fad ach fáiltím go bhfuil an Bille seo os ár gcomhair sa Dáil inniu. Mar a dúirt an Teachta McGrath, tá glactha leis an ghá faoi choinne rialacha níos déine san earnáil seo ach tá imní ar dhaoine, go háirithe orthu siúd atá ag obair sa chomhar creidmheasa, daoine atá baint acu leis an chomhar creidmheasa agus ar dhaoine a bhunaigh an comhar creidmheasa faoi na rialacha seo. Is féidir linn an reachtaíocht atá os ár gcomhair a dhéanamh níos láidre agus níos daingne agus níos fearr do ghluaisteacht an chomhair chreidmheasa agus don tír.

A number of institutions embody the very best of what our country has to offer and they are based on values that should make every single Member of this House proud to be Irish. At a time when there is much justified public anger at institutions that have abused the people's trust, it is important to remind ourselves of the successes that endured even through the most reckless days of the boom. The Irish credit union movement is a movement of which we can be proud. It is not simply a financial institution, a lender or service provider; it is an integral part of every community in the country. It is important to remember where the credit union movement sits in society today. It is based on the values of community, volunteerism and solidarity. It was built and continues to be driven by people who are motivated by a desire to help their neighbours, communities and country. It is a grass-roots movement that is community led. It was founded by people such as Nora Herlihy, Sean Forde and Séamus MacEoin, who wanted to do something about the high unemployment, sickness, malnutrition, money-lending, hunger, poor clothing, poor housing and emigration that were so rampant in 1950s Ireland. It was a response by civic-minded people, true republicans, who were angry at the failure of the State to meet the needs of those sections of society that most needed support. The people who gave life to the credit union movement recognised that the root of many of these problems lay in the scarce availability and poor management of money. In response, they were determined to create an institution that would give people, particularly those with the least power and fewest resources, more control over their finances.

What started off as a very small initiative by people who had the national interest at heart turned into a national movement with more than 3 million members and branches in every county and parish. It is a phenomenal movement and we must recognise how important it is not only in the State, but throughout the island as a whole. The movement is motivated by an innate sense of justice and fair play that used to feature so strongly in Irish public life. This innate sense of justice is one that has been so battered and abused, particularly by senior politicians, bankers and developers in recent decades, as discussed last night.

This morning, as the Minister well knows, our newspapers and radio programmes are filled with stories of former bankers, civil servants and Ministers, many of whom were directly responsible for the social and economic crisis that has engulfed the country since 2008 and who are living lavish lifestyles on pensions of up to €500,000 per year. Meanwhile, as we know, ordinary people are struggling to make ends meet, pay bills, repay mortgages and, in a growing number of cases, put food on the table. They are frightened that December's budget will make their lives even harder, increase their tax burden, reduce their household income and withdraw their vital services. People are falling into even greater debt while the Government is standing idly by and breaking so many of its election promises and commitments in the programme for Government. As in the 1950s, it is institutions such as the credit union movement that are ready, willing and able to pick up the pieces to fill the gap left by a Government refusing to do what is right by ordinary people.

Of course credit unions are not perfect; we understand that. Individuals can and did make mistakes and it would be naive to suggest the movement was unaffected by the boom. The credit union movement would be the first to admit that the regulatory context in which it operates is in need of real reform, as I said in my opening remarks. It is actually the credit union movement that has been the leading advocate of that reform.

This is the context in which we debate today's Bill. The Bill is the latest in a considerable process of engagement between credit unions, their members, other interested parties and the Department of Finance. The commission on credit unions convened by the last Government made its detailed recommendations in March of this year, after a very long and detailed discussion involving all the sectors. The Oireachtas finance committee and the Department of Finance have continued to engage with all stakeholders since then to ensure that the subsequent legislation would be sufficiently robust and meet aspirations set out in the commission's report. Sinn Féin broadly supports the Bill. We commend the work of both the commission and Department in translating those recommendations into the legislation. I commend the Minister on his efforts and sincerity in this regard.

Our core position is very clear: we support strong, effective and appropriate regulation for the credit union sector. We want credit unions, their members and the communities in which they are rooted to have the highest levels of protection, probity and governance. It is important that we have the best legislation to achieve that. We believe that this can be achieved in a manner that is consistent with the distinctive ethos of the sector. I refer to its community-based, volunteer-based and not-for-profit ethos.

We need to remember time and again that credit unions are not banks. They are different and, therefore, regulation deemed appropriate for one type of financial institution may not be appropriate for another. However, let us nail the myth being peddled by some in this debate that calls for regulation that fits the distinctive ethos of the credit union movement and somehow calls for lighter regulation. These calls posit a view that could not be further from the truth. Sinn Féin wants strong regulation of the movement, high standards of probity and better governance. So, too, does the credit union movement and we commend it on taking the lead in promoting this.

There is no doubt but that the vast majority of the provisions in the Bill meet the aforesaid objectives. The substantive detail of the legislation, dealing with probity, restructuring and stabilisation, has my party's support. These provisions represent sensible compromises as between the different views expressed around the table at the Commission on Credit Unions. The relevant sections represent the substance of the legislation and, in Sinn Féin's view, the officials in the Department of Finance have got them right. We have significant concerns, however, regarding other aspects of the Bill which are not consistent with the spirit or even the letter of the commission's report and which will, therefore, require amendment. I hope the Minister will deal with these matters in an open and fair way. In addition, there are issues of crucial importance to the future development of credit unions which will be determined by the regulations arising from the Bill. These matters must also be examined during the course of this debate.

Our first key concern relates to the proposal to apply historic Central Bank legislation from 1942 to 2011 to credit unions. This was not considered by the Commission on Credit Unions and could have far-reaching consequences for the sector. Part 2 of the Bill, which includes the definition of financial services contained in section 6, gives rise to real concerns. In our briefings with the Department of Finance, the officials stressed that only those portions of this considerable body of legislation and accompanying statutory instruments which already apply to credit unions will come into effect from this new definition. However, this is not made explicit in the Bill.

We are also concerned at the impact of the application of the Central Bank (Supervision and Enforcement) Bill 2011 to credit unions. There was no discussion of this at the commission and no recommendations in this regard were made. The implications for credit unions are far reaching and must be considered separately from the legislation we are discussing today. There is also the important issue of shared services, one of the central recommendations of the commission's report and an issue that is of vital importance to the future development of credit unions. It is also an important element of the full implementation of the Government's own financial inclusion strategy. Again, in our discussions with departmental officials on this matter, they insisted that there is no need for additional provision on this matter, as existing legislation does not preclude credit unions from sharing back-end services such as administration. That misses the point. The key shared services the sector is seeking are those at the level of the member, particularly those relating to electronic payment accounts. If credit unions are to continue to grow and service their members and communities, they must be able to offer a wider range of services, including the facility for members to undertake transactions and access services from branches other than their own. If the Government has an objection in this regard, it should be put on the record. Otherwise, the Bill should be amended to allow for the development of these types of member-level shared services.

Another omission from the Bill relates to the enormous current and future potential of credit unions to invest in socially valuable schemes and projects. This is an important issue, which the credit union representatives addressed at the finance committee. Given the level of unemployment and emigration and the continued lack of private sector investment in the local economy, credit union funds, appropriately backed by Government guarantees, could and should be invested in sensible schemes and projects to create employment, develop local infrastructure and services and assist in local social and economic development. An explicit reference in this regard in the Bill would be of enormous assistance in the unlocking of what could be a significant source of investment, particularly in communities experiencing high levels of social and economic disadvantage. The credit union sector is to be commended on this initiative, which is perfectly in keeping with the ethos under which the movement was founded. We must always bear in mind that credit unions are not simply financial institutions but have a broader social remit.

An issue that has especially exercised credit unions at local level in both rural and urban communities is the proposed governance changes, particularly in regard to term limits on directors of credit unions and the prohibitions on membership of boards. Sinn Féin strongly shares the view of the credit union sector that portions of these sections of the Bill are unnecessary, anti-democratic and could, in some cases, undermine the volunteerism on which individual credit unions are based. As I said, Sinn Féin broadly supports the Bill, but this is one of the areas that requires adjustment. These proposals show a lack of understanding of the volunteerism that exists within the credit union movement, the democratic nature of the sector and its particular ethos. Small urban and rural credit unions, which operate from a very small pool of potential volunteers, may not be able to meet the very strict exclusions set down in the Bill. I do not mean to cast aspersions on any departmental official in terms of the drafting of the Bill, but anybody who lives in a small community, such as my own home town of Gweedore, understands the difficulties in this regard. The responsibilities and roles set down in the Bill are very strict, and this move towards stronger regulation is welcome. However, the constraints under which small credit unions are operating mean that these provisions could undermine them in a significant way. The sector has presented very coherent arguments in support of the amendment of the relevant sections of the Bill, to which we hope the Government will respond positively. I appeal to the Minister to have an open mind to the amendments we intend to bring forward on Committee Stage, in the absence of amendments from the Minister himself. We must recognise the unique role and structure of the sector.

Credit unions are also concerned at the proposed removal of the office of treasurer as outlined in the Bill. We accept the argument underlying this section, namely, that the current role of treasurer requires reform. We are in agreement with the sector, however, that the position could be retained for the purpose of ensuring the presentation of timely accounts and other matters to members at annual general meetings.

Two other issues I wish to highlight do not require amendments but do require discussion so that when the Bill is enacted, these specific aspects of its implementation are done in the right way. There is clearly a need from a regulatory point of view to group credit unions into bands or tiers for the purposes of applying different levels of regulation. Everybody is agreed on that principle. However, Sinn Féin shares the view of the sector that the scheme as suggested by the Commission on Credit Unions could be improved upon. We were heartened in our discussions with departmental officials to see an apparent recognition of this. I hope that when the Minister comes to deal with this issue, he will outline a scheme that is not based on size alone, but which also incorporates the level of risk and complexity involved concerning credit unions. If there is any lesson to be learned from the collapse of the banking sector and the trouble the bankers have got us into, it is not just about the size of the institution but also about the risk involved. It is about the type of investments or products that are being offered.

In addition, there is the thorny issue of the relationship between credit unions and the register of credit unions. The Minister will be well aware that I have raised this issue in the House before now. We have spoken many times in the Chamber about the negative impact of ongoing lending restrictions imposed by the register on individual credit unions, their members and communities generally. Our party has also articulated the strong feeling among many credit unions that the Central Bank and the Financial Regulator are not on the same page when it comes to the future development of credit unions. It is crucial that while we will deal with legislation strengthening areas within the credit union sector, we must also have a vision for the credit union movement in future. We must have an idea of where the credit union sector can go, how it can develop and what role it will play.

The request by the movement for a formal, written memorandum of understanding between the regulatory authorities and credit unions could, if got right, go some way to repairing what can be described as a strained relationship. We can all agree that it is a very strained relationship. The details of such a memorandum could be developed at a later stage by the Central Bank in consultation with the implementation group. Clearly, however, the legislation should not deal with the detail of this matter. A commitment from the Minister during the passage of this Bill that a memorandum of understanding should be developed would be a welcome development. That is the key point. I invite the Minster to signal such a commitment in his contribution. It would go some way to help repair that strained relationship to which I referred to.

These are the key points that Sinn Féin wanted to raise during this debate. This is a good Bill, but with amendments to a small number of sections it could be a very good Bill. I hope, and am sure, the Minister will engage with the Opposition on Committee Stage to strengthen the legislation in order that all parties in this House believe it is the best legislation. It is not only timely but also necessary.

Some weeks ago, I was genuinely disappointed when I read in the newspapers about former Members of the Oireachtas deliberately misrepresenting legitimate concerns of the credit union movement on specific aspects of this Bill. I shared time with some of them in the previous Seanad. That misrepresentation in the media was regrettable to say the least. The suggestion that those of us who want to improve this Bill are somehow opponents of reform or, worse still, opponents of strong regulation is simply false. It is untrue and does not help the debate and the democratic process in which we are involved.

Like the credit union movement, Sinn Féin wants strong, effective and appropriate regulation. It is necessary for credit unions, their members and communities at large. There is much in this Bill to commend to the House, but let us ensure the final Act is fit for purpose. We must make the necessary improvements on Committee Stage to ensure that when enacted, the Bill has the approval of every single Deputy.

The credit union movement and those who keep it alive make me proud to be Irish. They represent the very best of what it means to be Irish today. I share their values and vision. Given their commitment and contribution to society over the past 50 years, we owe it to them to pass the best possible legislation the Oireachtas can deliver to safeguard the future of the credit union movement and all those who benefit from it. I encourage the Minister to engage constructively with the issues that I and credit union members across the State have raised with him and his departmental officials in a public and personal capacity.

I wish to share time with Deputies Joan Collins, Seamus Healy and Finian McGrath.

The first point that has to be made is that credit unions are not banks. As other Deputies have said, this is something we should celebrate against the background of bankruptcy in which many of our banks' rogue practices have put the country and many of its citizens. It is a good thing we have a viable financial alternative to our banking system in the form of credit unions. The credit union movement was built from the grassroots upwards and provides access to finance and credit to many citizens who would otherwise be excluded from such services. These organisations made the difference, enabling people to avoid poverty and live with dignity.

While the banks that lent recklessly have cost this State and the taxpayer so much money, our credit unions, operated by more than 10,000 volunteers along with 5,000 staff, have succeeded in building up a financial giant. Less than 50% of their reserves are out on loan. In addition, they have a facility of billions of euro which they have offered in solidarity and are offering to this State for job creation programmes and so on. That must be our starting point.

Credit unions have a different history and ethos based on involvement and participation and are designed to serve their members rather than existing just for profit. Given some of the provisions in this Bill, one would wonder whether it is an ideological assault on them as a viable alternative to banking. To be quite honest, some of the measures do not make any sense if we want to preserve credit unions as they are.

Nobody is opposed to regulation. Many of the measures in the Bill are fine and there is no doubt it is the product of a huge body of work that went on behind the scenes with the commission and other parties involved in the process. That is to be welcomed. While accepting that, however, the Bill needs to be changed. I recognise the role of the Irish League of Credit Unions which has done a tremendous job in its input into the legislation, in addition to the job the league does daily. Credit unions interact with their members and provide much of the research data on poverty rates, income figures and citizens' economic status. Credit unions have a good role to play. In their submissions to all of us, they have articulated the reasons some aspects of the Bill need to be changed.

Former Senators had some neck to come in a slag them off in a disingenuous way. They implied that the credit unions falsely engaged with the commission, when it is quite obvious that they agree with much of the input. However, according to the feedback from credit union members, some proposals have clearly been rejected. That is healthy and shows how democratic these organisations are. That point is backed up by the level of correspondence that we, as legislators, have had from ordinary credit union members who voiced their concerns in this regard. That is progressive and something one would never see with a bank.

The credit unions have also said that some measures that were discussed have been omitted, while some new provisions are included which were never discussed. Consequently, having participated in a process, they have a legitimate right to be disappointed with some of the outcomes, while also recognising the good contained in a lot of them.

Members' starting point in this regard must be the different historic and current roles being played by credit unions. Trying to transfer banking regulation, in an effort to in some way batter credit unions into being similar to banks, will not work. Therefore, some of the measures are regrettable. Other Members have made the point about the considerable concern regarding the Central Bank legislation being foisted on credit unions, including all the statutory instruments. I am aware the Department has indicated there is nothing to worry about, as only approximately six such instruments actually apply to credit unions. If only six instruments apply to credit unions, the Department should specify them. Why should they all collectively be mushroomed into a big mass of decades of Central Bank legislation that potentially could be used later on to undermine some of the good work these organisations do or to hamstring them in some way?

The credit unions effectively made the point about how they need to share services and how perhaps this has been put forward in the Bill in a somewhat unbalanced fashion. The sharing of services is provided for in respect of activities such as employing an accountant, bidding for collective services or whatever. However, the credit unions are concerned about the lack of input at membership level. In other words, for example, I cannot go on holidays to County Donegal and use the credit union there. It is not good enough to state there is nothing in the legislation that prevents this and that it will be okay. If Members think this is a good thing, as do I, they should provide for it in the most comprehensive body of legislation yet to be envisaged in respect of credit unions. Why would Members not do this? One might almost suspect the only reason it is not provided for is the banking institutions are afraid that credit unions will become even more of an alternative to banks, as well as being a new way of looking at and dealing with things, and that credit unions pose a threat in that sense. If this is not the reason, Members should specify this in this legislation anyway.

There is a similar argument to be made in respect of the credit unions' highlighting and offer of billions of euro in moneys on which they sit that are not lent out and which, to help the Government in a gesture of solidarity, could be invested in the State in a public works programme to put people back to work and stimulate the economy. Members on this side of the House have a bit of a pain in the neck from listening to Members opposite going on about where we will get the money. Here is a citizens' organisation pointing out it has billions of euro and stating it is prepared to do business to invest in this country with its members' resources in an effective way that will benefit the entire economy. It simply is not good enough to say this could be done in any event. This should be provided for in this legislation and it would make an enormous contribution to the turnaround in economic policy. It would provide a stimulus and a beginning of a change in direction that is badly needed as an alternative to the austerity which clearly is not working and is bleeding the domestic economy dry. Members must consider this offer and should provide for it in this legislation, and it is welcome that the credit unions did provide for it. Consequently, if these issues and the points that have been highlighted on the need for democratic participation, boards of directors and so on are dealt with on Committee Stage, I believe the legislation can be progressed.

Debate adjourned.