Credit Union Bill 2012 (Resumed): Second Stage (Resumed)

Question again proposed: "That the Bill be now read a Second Time."

Deputy Michael Colreavy

Last night, I described the difficulties associated with trying to establish a credit union in a rural area with a low population. While I welcomed the broad thrust of the proposed legislation that is before the House, I set out five concerns that Sinn Féin has with regard to it. I would like to mention a sixth concern, which is very important. In areas of low population, the setting of strict term limits on directors and the prohibition on being a member of the board while being a member of the board's oversight committee will present difficult if not insurmountable challenges for credit unions. As I said last night, if such a high level of voluntary commitment did not exist, there would be no need for regulation because there would be no credit unions.

I would like to make three suggestions that would improve the functioning and performance of the credit union sector immediately. The Bill should support the sharing of services among credit unions to permit access to a wider range of services by members throughout the country. The Bill should allow credit unions to offer electronic payment accounts, as this would support the Government's efforts to maximise social inclusion. The Bill should enable credit unions to provide funding to Government-backed or Government-guaranteed schemes and projects, where those schemes and projects would have a social benefit.

If we were to make nine amendments to this legislation to cater for the six concerns and three proposals I have outlined, we would ensure it does not damage the worthy institutions - the credit unions - it sets out to protect. I hope the Minister can accept my suggestions and incorporate them in the Bill.

Deputy Arthur Spring

I would like to share time with Deputies Dowds, Nolan and Maloney.

An Ceann Comhairle

Is that agreed? Agreed.

Deputy Arthur Spring

Over the last day or so, I have listened to Deputies speaking about this legislation as if it will cause the demise of this country's credit unions, which have 3.1 million members. On the contrary, we are trying to provide for lending and deposit institutions that are stronger, more regulated and more prudent. Like 3.1 million people throughout the country, I am a member of a credit union.

We have been contacted by the Irish League of Credit Unions and the Credit Union Managers Association. The Irish League of Credit Unions has suggested amendments to the Credit Union Bill 2012. I understand that its submission has been sent to the Department and that the Minister has had time to peruse it. The Minister set out his thoughts on the Bill in a comprehensive reply to Question No. 57 of 24 October last.

I am highly aware of the capacity of credit unions in rural areas to attract appropriate people of the calibre set out in the Central Bank Acts, as mentioned by the previous speaker. Under the new legislation, they will have to undertake the onerous task of having to replace directors on a recurring basis and the onerous task of the new treasurer. This requirement could ultimately lead to the demise of credit unions in small peripheral areas.

We cannot underestimate the credit union movement. It has fulfilled a role in society that has not been fulfilled by banks, loan sharks and other people we will not mention in the House, who have sought to benefit from the circumstances of people who are not well off. It looks after people when it comes to First Holy Communion, people going to college for the first time and people seeking their first car loans. It is the place where we realise how vital it is to save money in order to be able to purchase a house and do necessary things in society.

I wish to comment on some of the suggestions that have been made by the Irish League of Credit Unions. I think we are going to head towards electronically enabled payments accounts. I welcome the proposal regarding social finance. It is something that should be examined with regard to pensions as well. It would be preferable for the money that is put on deposit to be ultimately spent in the local area rather than throughout the country as part of public private partnership agreements. A real benefit could accrue from local people putting money into an institution locally, having an investment stake in it and ultimately reaping a dividend from it.

It is obvious that the term limits will present a problem. A "hub and spoke" resolution to this problem will have to be considered. One cannot tell people in rural areas that they cannot have a credit union because it is not possible to find the appropriate directors. We have discussed the prohibitions at length. Many of the Deputies who spoke last night recognised that onerous tasks are being bestowed on credit unions.

The memorandum of understanding for a credit union is significantly different from that of a normal registered company. The Minister referred to the need to be regulated under the Central Bank Acts in response to Question No. 57 of 24 October last:

It is not the case that the Central Bank Acts are banking legislation. The principal domestic Act dealing with the establishment of banks is the Central Bank Act 1971. The references in that Act to credit unions are specifically required to ensure that credit unions are not subject to a banking regime.

It is imperative that this remains the case at all times. The two types of institution are not the same. I encourage people not to adopt a multifaceted banking approach. Credit unions need to continue to be vanilla banking institutions that take in deposits and provide smaller loans. They need to proceed on a socioeconomic path, rather than on a balance sheet path.

Overall, I do not believe this will diminish the role of the credit union but there are issues that are obviously necessary to consider. The Minister has looked at the issues and the Irish League of Credit Unions has some concerns, although CUMA does not have any real concerns at present. Nonetheless, I believe consultation rather than confrontation is the best way to proceed. I would like to see consideration of the proposed amendments being trashed through and I look forward to seeing this in the finance committee in the not-too-distant future.

It is also worth noting, as a Parliament, that the credit unions did not provide money for apartment blocks in Ballsbridge, for contracts for difference or for foreign investment properties in Bulgaria. On the complete contrary, what they did was get involved in lending towards the knitting together of community, bringing people together and helping each other out to the betterment of society overall. This is very different to an ordinary banking institution and it is for the betterment of the people. We should respect that and we should acknowledge the volunteerism. We need to keep them separate from the normal banking institutions and give them the regard they deserve.

Deputy Robert Dowds

Cuirim fáilte roimh an mBille. From listening to some of the debate, it is clear the credit union movement has been very good at arm-twisting Deputies of all parties. I am no exception to that, so many of the issues I raise I have been asked to raise, and I would appreciate it if the Minister responded to them as positively as he can.

The credit union movement broadly welcomes this Bill and realises its necessity in terms of strengthening the movement. However, there are a number of issues it has asked us to raise. When he concludes the debate, perhaps the Minister can explain whether and why Central Bank legislation should be applied to credit unions given that this issue was not considered by the Commission on Credit Unions, as I understand it.

In terms of sharing services, I ask that the Minister allow for a more flexible approach. For example, could it be arranged that a member of one credit union could borrow money from or access his or her account in another credit union? In a situation where so many of the pillar bank branches are closing, this flexibility would be useful for a person who might, for example, be shopping in a neighbouring town. On the question of basic payment accounts, it would be logical to allow such accounts be attached to credit unions as well as to the two pillar banks.

Will credit unions be permitted to invest in Government schemes? This is especially important where credit unions are lending a relatively small proportion of their finances, and it might be a better use of their money than simply having it on deposit.

To turn to the issue of term limits and those who serve in credit unions, no such term limits are set for bankers, for credit unions in other jurisdictions or, indeed, for Members of this House. In particular, I have been requested to ask the Minister to remove the subsections at section 15(10)(a) and (n). Some of the volunteers in credit unions may have excellent local knowledge which would be a real asset to a board. Why should they, of necessity, be excluded from membership, although it is reasonable to insist that those people should have appropriate financial training before they take such service?

I am trying to get across the point that the exclusion of volunteers who serve on credit union boards should be removed. Such terms and restrictions on volunteers will be very hard on smaller credit unions. The role of such credit unions, whether they be in fringe areas of urban settings or in rural areas, is made even more important given so many pillar bank branches are closing. Everything should be done to try to ensure that each area is able to hang onto core institutions, and finance institutions are such institutions because if anyone is going out to shop, the first stop will be to get some money. It is a very important aspect of this whole issue.

Some other aspects might be considered in terms of amendments. The first is the removal of the post of treasurer from a credit union and its replacement by a manager. There is a definite worry among the credit union movement that the manager in that situation may become too powerful. It is important there is a balance between the manager, the board and the members. Retaining the position of treasurer would help in that regard.

The commission recommended that audit firms should rotate after six years and that a cooling-off period of four years should apply before they could be re-engaged. This was included in the draft heads of the Bill as section 32 but it has been removed from what we have before the House. There is a need to explain why this is the case. It seems strange that a recommendation regarding the rotation of auditors was removed yet the recommendation that directors must rotate remains in place. I ask for some explanation in this regard.

The issue of the tiering of credit unions needs to be reconsidered. Given the size of credit unions varies greatly in terms of assets, is there not more need to have a closer examination of credit unions that have larger assets?

With over 3 million members, credit unions play a vital role in the economy and in the community. In terms of how we move forward, it is very important to think both of the economic role and of the community role credit unions play. It is important that people have institutions close to them with which they can interact and relate, which makes for a good, productive and positive society.

Deputy Derek Nolan

I wish to share time with Deputy Maloney.

An Ceann Comhairle

Is that agreed? Agreed.

Deputy Derek Nolan

I am delighted to speak on this important Bill. The first point is that the credit union movement is in need of regulation. While it is an extremely positive movement with much positive to be said about it, we have to remember that people's savings are kept there, money is at risk and we have to make sure these financial institutions are on a sound footing. There is a need for regulation, therefore, although the first principle should be that regulation should do no harm to the positive attributes of the credit union movement.

The first of these positive attributes is that it is a voluntary organisation. I meet members of credit unions in Galway all of the time and the immense amount of work they do for absolutely no pay or remuneration of any kind is to be commended. We need to maintain that ethos.

A credit union is not a bank. It has been there, historically, to help people who cannot get credit from a bank. When we are talking about credit, risk ratings, credit portfolios and so on, we have to realise the credit union served its primary purpose when people could not go to the banks and were sent away. We have to maintain that flexibility within the credit union movement to facilitate those people who do not have access to credit on a normal basis.

St. Columba's Credit Union in Galway city operates as a large, well run credit union but it also has a subsidiary arm called St. Columba's Credit Union Limited Enterprises, or SCCUL Enterprises.

The company uses it resources and the money of the credit union in an innovative way. It has been involved in various projects. It has invested in community neighbourhood projects in the Ballybane area of the city where a library was put in place. A habitat centre in the area that was funded by the credit union won an award. The credit union also invested in an enterprise centre in Ballybane which provides incubation units for businesses. Great plans were formulated for a community centre and HSE facility in the Ballinfoyle area of Galway city but, unfortunately, it did not go ahead for reasons that were outside the control of the credit union. That is an example of social finance where the credit union uses its resources to help better the community. The legislation must promote the function and idea of credit unions linking in with Government as an alternative source of investment which is so badly needed in the economy. The example of St. Columba’s credit union in Galway city is a model of how the credit union movement can be involved with community organisations, fund projects and serve members at the same time.

Deputy Eamonn Maloney

I share the views expressed by other speakers on the proud history of the credit union movement in this country. Many working families could not have stepped inside any of the conventional banks as they did not have sufficient money to save and because they were on low incomes they could not borrow from conventional banks. Credit unions are not banks in the understood sense. Part of my reservation, which I share with others, is that the legislation wrongly attempts to force 70 years of legislation pertaining to banks onto a voluntary movement. Any rational person would consider that to be wrong. I disagree with it.

Credit unions have a different history and a very different ethos, the principal issue being the fact that they are voluntary. That is a good thing. Given what we have experienced during the booming Celtic tiger years of greed, we should encourage people to volunteer, not the opposite. As legislators we should be careful in what we do. It is wrong to try to convert credit unions into another banking system. We should not allow it to happen. I support the points that have been made. I will not repeat them. I refer, for example, to the arguments made by the credit union movement on the sharing of services. The banks are opposed to that. One does not have to be a genius to work out the reason. I support the credit unions. If one is a member of a credit union in Tallaght, one should be allowed to withdraw money in Cork, for example. That is not possible at present.

As legislators, we should not obstruct the right of credit union members to volunteer. We should not encroach on people’s rights to be volunteers in the credit union movement. If the Bill is enacted we would restrict people’s right to volunteer whether as directors or others. We should not do that because it is wrong. It goes against the original thrust of the credit union movement. Deputy Nolan spoke about the voluntary nature of the movement and people giving without getting anything in return. That is a good thing which we should promote.

I hope those points are taken on board on Committee Stage. I am a person who both saved with and borrowed from a credit union. I am proud of that and of the work they have done. It is ironic to consider that last week we discussed the fact that we could not do anything about the super pensions of bankers and former Ministers and yet if the Bill we are discussing is enacted we will restrict the right of people who want to volunteer in the credit union movement. We should not find ourselves in that situation. We should be on the side of people who want to volunteer with an important organisation such as the credit union movement. We should bear that in mind. Credit unions are banks for working families. We should be on their side and not place restrictions on them.

Deputy Robert Troy

I wish to share time with Deputy Sean Fleming.

Ceann Comhairle

Deputy Troy will have seven minutes and Deputy Fleming will have 13 minutes. Is that agreed? Agreed.

Deputy Robert Troy

I welcome the opportunity to contribute to the debate. The Bill before the House has great importance for the effective operation and functioning of credit unions. It is important that we get the legislation right because it will have a long-lasting effect on the future viability of credit unions the length and breadth of this country.

Credit unions are the cornerstone of the communities in which they operate. The statistics show that this country has more credit union members per head of population than anywhere in the world. That is an indication of the confidence people have in their local credit union. I welcome the fact that the Government has rescinded its decision to guillotine the Bill and that it has extended the timeframe for debate to ensure each Member will have an opportunity to contribute because of the critical importance of the Bill.

The Irish League of Credit Union has contacted all Members to voice its numerous concerns on the Bill as proposed. In the short time available to me I wish to focus on those concerns. I acknowledge the positive elements in the Bill but it is important to focus on where it can be improved. We will submit amendments in that regard. It is important that credit unions are allowed to maintain their ethos. They are not banks. They are a voluntary movement. They continue to support people who would not otherwise have access to loans. As we approach Christmas the number of families who depend on their local credit union is evident. The manager of the local credit union knows its customers. They might not have a strong credit history according to the Irish Credit Bureau, ICB, but the local credit union manager knows them and is in a position to take a risk and help out a family.

Last night we debated the ongoing debacle of tens of thousands of students who cannot get access to their third level grants. I and other Members on all sides of the House have seen umpteen examples of where the local credit union has come up trumps and has worked with families who will get the grant, albeit sometime in the future, to ensure that students can register and actively participate in their third level education. The credit unions are helping out those affected by the problem with accessing third level grants on which the Government has failed. I acknowledge that last night the Minister for Education and Skills put up his hands and apologised for his role in that regard. That is a practical example of the importance of credit unions.

Not alone do credit unions help families but they are also the only financial institutions that re-invest in the community. My local credit union gives approximately €100,000 per year in grants to vibrant and worthwhile community groups in the Mullingar area. I am sure the same is true for credit unions in other areas of the country.

The grants range from €500 to several thousand euro. That is of enormous benefit to the local community.

I wish to put on record my admiration for the credit union movement and the men and women who work to ensure we have that strong movement. They do so in a voluntary capacity and it is very important that we acknowledge that.

The credit unions believe that if the proposal they have made is not implemented there will be a detrimental and inappropriate effect on credit unions. As it stands, the legislation will serve only to reduce their ability to provide services to their members. It will undermine the principle of local democracy that gives voluntary control to the credit unions and will impose ever-increasing costs that in many cases will threaten the viability of these bodies. That belief has been expressed by the credit unions; those are their words, not mine. It is very important that we take this on board.

Many elements of the proposed governance structure, such as terms imposed on directors, prohibitions on members joining the boards and the removal of the office of treasurer are unnecessary and undemocratic. There is no imposition on Members' terms in this House. I look at the Acting Chairman, a man who has had a long and distinguished career in the House. He goes for re-election at each general election without any prohibition telling him he has had two terms, which is enough, and that he should go out to grass.

Deputy Fergus O'Dowd

He would not go anyway.

Deputy Robert Troy

I use the example of Deputy Durkan only because he is the longest serving Deputy present in the Chamber. Why should a term be imposed on people who wish to serve voluntarily on boards of directors in their local communities? Perhaps that could be examined.

Electronic payments were mentioned. The Bill fails to enable credit unions to offer electronic payment accounts, something that must be addressed. There is the issue of social finance. The Bill should be amended to allow credit unions provide finance to Government-backed or guaranteed schemes, and projects with social benefits.

I welcome that there is an extension of time. We have until tomorrow morning to submit amendments, and my party will do so. Given the wide range of support for the credit union movement among all political parties, I hope the Government will not act in the usual political partisan manner in regard to this Bill and will take on board the amendments that will be proposed, both from its own backbenchers and from Opposition Deputies, to ensure that we protect and sustain the future viability of the great credit union movement of Ireland.

Deputy Sean Fleming

I welcome the opportunity to speak on the Credit Union Bill. I agree with much of what has been said thus far and will reiterate, briefly, some of those points during my Second Stage contribution. First, I wish to deal with a specific issue, a fundamental part of the Bill, namely, the issue of the credit institutions resolution fund levy regulation 2012. Already a Central Bank and Credit Institutions Resolution Act 2011 has been enacted by the Oireachtas, whereupon statutory instruments issued in regard to the resolution fund. These apply to cases of credit unions in financial difficulty. Another fund is also referred to in the legislation, a fund of the order of €250 million, similar to the resolution fund levy. These funds are to be provided separately and are to be repaid to the Department of Finance if an advance is acquired by the institutions concerned.

I refer to a principal issue, of which many people may not be aware. I was genuinely shocked to see the statutory instrument the Minister for Finance, Deputy Noonan, has produced. The Minister does not know the difference between €1 million and €1 billion. The Minister of State, Deputy McGinley, is rightly surprised. I will tell him what happened.

Deputy Dinny McGinley

I was in college with the Minister who was always excellent at mathematics.

Deputy Sean Fleming

Great.

Deputy Dinny McGinley

He was an A1 student. I always looked up to him.

Deputy Sean Fleming

Fine. I understand that. Obviously something happened to him after he went to the Department of Finance. I will explain. This will be news to the Minister of State as I uncovered it only this morning.

On 28 September 2012 the Minister signed his name, "Michael Noonan", as a personal signature to statutory instrument No. 381, which was laid before the Dáil at that time. The opening paragraph states: "I, Michael Noonan, having consulted with the Central Bank of Ireland and the credit union advisory committee, hereby make the following regulation." There follows two and a half pages that deal with the levies to be paid to the compensation fund in question. In the schedule attached there are nine references to the banks and building societies, with the credit unions dealt with separately in the last paragraph. According to the schedule, the banks and building societies are to make a contribution of €1,515 per €1 billion of their loans. There is a breakdown of three elements, including pillar 1 capital requirements and pillar 1 capital requirements relating to the authorised credit institution concerned. The officials will know to what I refer. On nine occasions the document states that the three elements of the levy will apply to those institutions for every €1 billion of their loanbook. The last paragraph refers to credit unions which are to be levied at €51,000 per €1 million.

The Minister of State might find that interesting. However, yesterday I picked up a new statutory instrument, No. 443 of 2012, laid by the Minister yesterday, and to be published in Iris Oifigiúil by the end of this week. This states: "I, the Minister for Finance, having consulted with Central Bank of Ireland and the credit union advisory committee, hereby make the following regulation." The Minister has changed the references made in the three columns he signed more than a month ago, beginning thus: "I substitute €1 million for €1 billion in paragraph (a)." In paragraph (b) in column 3 he substitutes €1 million for €1 billion, and similarly in paragraph (c) in column 3. His first statutory instrument was 1,000% off the mark. He confused €1 billion for €1 million.

Deputy Dinny McGinley

It was a typographical error.

Deputy Sean Fleming

We are here to deal with credit unions. If the Department of Finance, the Central Bank of Ireland and the credit union advisory committee can get the levies that will be introduced in this legislation so wrong, I question their handling of it in the first place. The Minister made nine references to this in the first document and has made nine corrections to it today. I supplied the statutory instrument references in question, Nos. 443, laid in the library yesterday, and No. 381, signed by the Minister on 28 September.

What is interesting about the latter is that the levies referred to in respect of those organisations were payable from 1 October 2012, a date which has passed, although the organisations have until the end of February to make the payment. The new statutory instrument of yesterday, which is not yet in Iris Oifigiúil, will probably not have legal effect until 21 Dáil sitting days have elapsed, if I am correct, although perhaps the period is 21 calendar days. The former would bring the date of completion to well into January. The Minister has produced a statutory instrument that is incorrect by a factor of 1,000.

That is a shoddy way to conduct business.

I formally ask the Minister to supply the relevant documentation which indicates who was responsible for preparing the statutory instrument to which I refer. Was it the Central Bank, the Credit Union Advisory Committee or the Department of Finance? Were all three involved? How was this mistake allowed to happen? Who within the three entities to which I refer signed off on a statutory instrument which contained incorrect information? I accept that the Minister is good at maths, but the person who placed the statutory instrument in question in front of him is not so good at them. It is not fair that he is being obliged to return to the House only one month after the original statutory instrument was signed in order to have the relevant references changed from "billions" to "millions".

On the legislation before the House, like most Members, I agree that the credit union movement is non-profit and community-based in nature. Like many sports and other organisations, it is based on democratic traditions. Credit unions in many communities have proud records. To a large extent, the movement has traditionally been staffed by volunteers, which is the reason for its success because these individuals know the people living in their communities. One of the key elements of the legislation is the limitation of the term of office of directors to nine years out of any 15. This will give rise to many new regulatory costs.

Credit unions have €15 billion in deposits and 2.9 million members. Most households are members of credit unions. Of the 403 credit unions, only approximately 25 are seriously undercapitalised. In total, 51 are undercapitalised to some extent. This means that some seven out of eight credit unions are in good and strong financial condition. Why fix something if it is not broken? The legislation is right, in principle, but it oversteps the mark in far too many instances. One out of every eight credit unions is in financial difficulty, but the other seven are not. The lazy approach being taken is that if one little problem arises, we change the rules as they apply to everyone else rather than deal with the problem to which I refer. We are placing many of the credit unions that have done good work in the past at a disadvantage.

The Bill introduces a levy of 0.2% on savings in respect of the deposit guarantee scheme being put in place. Some of the banks are actually moving away from the deposit guarantee scheme which relates to them, but we are intent on introducing such a scheme for credit unions. By and large, they did not present the same level of risk to the nation's finances as the banks over a period of years.

I wish to refer to a typical individual in my constituency who is involved with his local credit union. The individual in question is Mr. Tony Flanagan who has given me permission to use his name and who is involved with Portlaoise Credit Union. One can find people like him in every credit union throughout the country. He was involved in establishing the Army, Naval Service and Air Corps, ANSAC, Credit Union and has been involved in Portlaoise Credit Union, at every level, for 19 years. Under the Bill, his experience will be cast aside. What is being done is similar to informing a county board that its team has won an all-Ireland championship, that it has a good manager and chairman but that its time is up and all its members must depart. In the future one's term of office will be based on the calendar rather than on whether one is any good at what one does. We must reconsider the position on these time limits and, if appropriate, people should be made to step down. However, artificial time limits should not apply.

The Abbeyleix, Durrow, Mountmellick. Clonaslee, Mountrath, Portarlington, Portlaoise, Rathdowney, Mayo-Doonane and Carlow District credit unions contacted me about this matter. They are unhappy with various aspects of the legislation, which goes too far too fast. Credit unions are being informed that even though the bankers made the mistake, the solution is to be imposed on them. Evidence of this comes in the form of the introduction of a deposit guarantee scheme for credit unions when the scheme for the banks has almost passed its sell-by date.

On the time limits for directors, it must be recognised that most directors know the people who live in their communities. One must save with and have shares in one's credit union in order to have financial dealings with it. As Deputy Robert Troy stated, directors know the genuine cases. They will be aware, for example, of the families that do not have the money to pay student fees and are waiting for their grants to come through. These families will be able to obtain loans to tide them over until the spring or whenever the grants are paid because credit unions know their members. The credit unions' level of bad debts might be 7% or 8% of their total asset base, but that figure is small in comparison with those which apply to the banks.

We are intent on imposing a banking solution on the credit unions. This is because the banks want to squeeze the credit unions out of existence. The banks are reducing the numbers of their branches because they want to maintain an online banking system for most people. They do not want to be obliged to operate branches. When a person visits those branches still in existence, he or she is confronted with a machine which allows him or her to do his or her business without approaching the counter. One can make lodgements and pay one's bills without troubling any of the bank's staff. Now that they are pulling out of many locations in towns and cities, the banks do not want credit unions to be able to offer a good, strong local financial service. They have used their muscle - through the Central Bank and the head of financial services regulation - to ensure their concerns will be met. I accept that a few bad apples were identified - I refer to Newbridge and other credit unions - but that is no reason to put structures in place to penalise the seven out of eight credit unions that are operating well.

I accept the principle behind the legislation, but the reality is that it goes far too far. On Committee Stage my party will be tabling amendments designed to allow us to row back on some of its provisions.

Deputy Jerry Buttimer

I wish to share time with Deputies Catherine Byrne, Joe Carey, Joe McHugh and Paudie Coffey. I welcome the debate and congratulate Deputy Sean Fleming on his conversion to perestroika. It is a pity that when he sat on this side of the House for 14 years, he did not display the same level of vigilance and failed to communicate the message on the importance of protecting people's money.

The Bill is extremely important. There are over 400 credit unions and the legislation will give effect to the recommendations contained in the final report of the Commission on Credit Unions. These recommendations were supported by the Irish League of Credit Unions, the Credit Union Development Association and the Credit Union Managers Association. There are four clear headings under which the Bill can be considered, namely, prudential regulation, governance, restructuring and stabilisation. It is in the context of these headings that I wish to address a number of points.

I spent a number of years on the supervisory committee of Bishopstown Credit Union. I attended meetings of the board and dealt and engaged with its members, other staff and members. As someone who saved with and borrowed from a credit union, I am aware that the importance of the movement throughout the country is not to be underestimated. In preparing for this debate I spoke to a number of people involved with credit unions in Cork city.

More than half of the credit unions, 211, have assets of €20 million or less, while three quarters, 285, have assets of less than €40 million. Let us place this matter in context. Credit unions are often small community organisations which meet the needs of their members. They often offer a more personal and direct service than that offered by the banks. They allow people to borrow money to buy cars, finance holidays, carry out home improvements, etc. It is the not-for-profit and community involvement which distinguishes the credit union from the bank. I stress that it is a movement. Therefore, we must ensure, in the context of changes we might make, that this distinction will remain in place and that the authenticity of the movement will continue. It is extremely important that we ensure that, even though they will be operating within a new regulatory regime, credit unions will be in a position to continue to cater for the economic and social needs of their members. We must not allow a situation to develop - either through the enactment of this Bill or otherwise - where loan sharks and those who illegally lend money can continue to flourish and prosper from their activities and prey on people and communities.

Having worked as a volunteer supervisor with Bishopstown Credit Union, I am aware that credit unions work with people in restructuring loans etc. There are ten community-based credit unions in my constituency.

Community-based credit unions offer great service to members, be they in Ballinlough, Ballyphehane, Bishopstown, Chríost Rí, Crosshaven, Douglas, Passage West, Monkstown, St. Finbarr's, St. Michael's or The Lough. Each one of those ten credit unions is in place to serve its members and work with them. That voluntary ethos must never be lost. We must promote the credit union movement, as credit unions are not banks. I agree with Deputy Eamonn Maloney that if a credit union member in Bishopstown, The Lough, Malin Head, Glenties or anywhere else north, south, east or west wants money, he or she should be able to get it from any credit union office in any part of the country.

Concerns about the Bill have been expressed to me by members of credit unions. One concerns the imposition of a time limit on the term a director can serve and the prohibition of membership of boards and oversight committees. The term limit will pose a difficulty for some smaller credit unions. It is not a big issue, however, for credit unions such as those in The Lough or Bishopstown which have wide catchment areas. The Bill provides that the offices of risk management officer and compliance officer should be held by separate officeholders. I refer to the need for an explicit regulation on the use of shared services. This would enable the credit unions which do not have sufficient volume of work for two full-time positions to share the services of a competent professional. The Irish League of Credit Unions has asked that this provision be included in the Bill. We must ensure credit unions are accessible, that technology is provided for the benefit of members and staff. I encourage people to continue to use their credit union and ask the Minister to listen to some of the concerns expressed in the debate. The credit union movement is different from the banks; we cannot expect credit unions to be the same as banks.

Deputy Joe McHugh

I record my appreciation of the credit union movement. The programme for Government contains a social economy element. The credit union movement encapsulates all that is good in a community. The 1997 legislation provided for a figure of 0.5% for reinvestment in community projects which is decided by the board of directors of a credit union. We should not, therefore, take our eye off the ball. We must ensure there is a civic and community gain through the participation of credit unions in local communities. In my county there are 14 credit unions which certainly did not cause the financial crisis or the break-up of the banking model. Prior to the arrival of the Celtic tiger and during that period, the credit union movement continued to do the business in looking after people in communities by lending money or providing for share options through investments. Today communities and the good citizens of the country are completely livid and vitriolic in their attitude to some of the payments and pensions enjoyed by bankers. This reaction of the public must be taken into account very carefully in this House. I share the opinion of citizens of the unregulated banking sector which led to the demise of our financial sovereignty.

Previous speakers have referred to the provision in respect of a nine year term limitation for members of boards of directors of credit unions. This is a ridiculous and crazy provision. Directors of credit unions invest their time over a nine year period and will be told they are no longer required. The option of providing for a step-down period will result in people ceasing their involvement with the credit union movement. The provision that they can return at a later date is not good enough.

The banking model forms the main point of my contribution. One way to tackle the banking issue and the high salaries of bankers is to take the money from the banks' accounts to hurt them in their own pockets. How is it that the Department of Agriculture, Food and the Marine can make farm payments into credit union accounts, while the Department of Social Protection cannot pay pensions, make social welfare or child benefit payments into such accounts? Let us hurt the banks in their pockets. We should facilitate the movement of finance into credit unions which would be delighted with the extra financial injection. Let us facilitate them and avoid the ridiculous nonsense about the need for a sort code, for example. This is a job for the regulator, for Matthew Elderfield. That is the challenge I make. Let us begin to transfer some of the money in the commercial banks to credit unions in order that they can compete with the big banks. There are plenty of people who are hurting in their pockets because of the behaviour of some of the larger banks. Therefore, all options should be considered. We need to respond to the general discontent in society because people do not believe the banks operate fairly.

I acknowledge the important contribution of voluntary workers in the credit union movement and also Coast Guard volunteers. The Department of Transport, Tourism and Sport is investing good money in a voluntary Coast Guard movement, with high professional standards which are being improved year on year. The credit union movement should not be treated differently from the Coast Guard. The Government should consider the social economy element of the programme for Government. It should endorse the civic participation of directors of credit unions who are not remunerated. They should be rewarded and the big banks hurt in their pockets.

Deputy Catherine Byrne

I welcome the opportunity to speak to the Bill. I broadly welcome the measures set out in it.

We are all very familiar with credit unions and the services they provide in communities. They also provide funding for projects. I am a member of a credit union. A framed photograph of the first loan cheque written by the credit union hangs on the wall of the credit union office. The cheque for £5 was written in the 1960s and was a significant sum at the time. In those times the credit union was regarded as the poor man's bank. Now there are more than 400 in the State, with 3 million members, and each credit union is owned and run by its members. Credit unions are not-for-profit organisations and the role of volunteers in the daily operation of credit unions has always been significant. For years credit unions were the only source of borrowing for many because banks were not an option for them. They would not have been granted a loan by a bank, even if they applied.

The local credit union is not judgmental of its members. It offers them a lifeline when they are faced with unexpected bills and once-off expenses for family occasions such as weddings and holidays or for car purchase. Nowadays, many turn to the credit union to help with college fees for their children. Credit unions know their members and of their ability to repay. They have a unique understanding of the personal financial circumstances of their members. They go the extra mile to help because they have a relationship with the person seeking a loan. Many members save a little at a time without ever applying for a loan. Some may save as little as €2 a week.

Many put aside such a sum to ensure that, on their passing, there will be money to pay for their funeral arrangements. Since credit unions are local, convenient and run by locals who understand customers' concerns, they are trusted. My experience of the local credit union has always been positive. The failure of the banks should not result in the penalisation of credit unions. When banks closed branches and withdrew services in many communities, credit unions took up the challenge and are now in a strong position to fill the gap and draw in new members.

The Bill introduces wide-ranging reforms for credit unions. I am fully supportive of better regulation in all institutions in the financial sector and do not understand why credit unions should be exempt therefrom. No organisation should be exempt from scrutiny to ensure it is run properly. Events in recent years have shown the sad effects of poor governance in financial institutions and how lax regulation led to reckless lending and very misguided decisions by lenders. We, therefore, need greater transparency in all sectors to protect customers and their money. It is important that this be achieved in the legislation.

The measures contained in the Bill will give effect to over 60 recommendations made by the Commission on Credit Unions, which recommendations were made over a nine month consultation period and agreed to by the members. The Bill aims to put extra financial safeguards in place for the sector and facilitate the merger of weak and stronger credit unions. This is important because there are weaker credit unions which do need the support of larger ones. I do not envisage any problem with the merging of some credit unions.

The Bill makes provision for the credit union restructuring board, known as the ReBo, which will engage with credit unions on restructuring. However, it will not apply to all credit unions, as some will continue to operate on a stand-alone basis provided they have a viable business-friendly model that meets all of the recommendations made.

The Bill gives rise to many considerations and some concerns, which I ask the Minister to consider, especially regarding the work of volunteers. Every Member has listened to comments on the importance of volunteering in all sectors, not least credit unions which are the backbone of communities. As such, we should continue to support them and the Government has done so in many ways. It set aside €500 million to recapitalise credit unions last year as many were in serious difficulty. The Bill is one step forward in protecting credit unions from future difficulties. I commend it to the House and ask the Minister to take on board what has been said by all Deputies. Credit unions are a home-grown product and have been in existence for a very long time. Without them, many people would never have been able to buy a car, have a family wedding, go on holiday or send their children to school. I hope the Minister will consider this.

Deputy Joe Carey

People like and trust their credit union. The Irish, more than citizens of any other European country, have bought into the credit union movement. Our participation rate in the movement far exceeds that in any other European country. The Government, through its legislative programme to deal with credit unions, has to take cognisance of this fact and I am happy that, to date, this has been explicitly expressed and acknowledged by the Minister for Finance. As the Bill progresses, I hope our almost unique relationship with the credit union movement will continue to be reflected and acknowledged. I am happy that the Commission on Credit Unions was established and had a constructive input in drafting the legislation before us.

Under the terms of our current funding arrangements with the European Union, the European Central Bank and the International Monetary Fund, reform in this area is a requirement. In acknowledging everything is not rosy in the garden, one must acknowledge that the vast majority of credit unions are well run, financially robust and properly structured. The Bill largely reflects the recommendations set out in the final report of the Commission on Credit Unions, published in March this year. I understand the commission met on up to 30 occasions and was thorough and comprehensive in its work and deliberations. We cannot afford to lose the ethos of the credit union movement and also must ensure a regulatory and supervisory structure that will protect the financial interests of society as a whole. That is what the Bill is about. These points are all the more acute in the light of what we have seen take place in the banking sector, the institutions which have broken the country. There is a somewhat justified feeling that credit unions are suffering for the sins of others in the financial services sector. There is a grain of truth in this, but it must be acknowledged that while credit unions are relatively small in the greater scheme of things, there are problems in a minority of them. I do not want to see the credit union movement damaged in the longer term for want of reform on foot of our new banking and financial circumstances.

The founders of the credit union movement in the 1950s recognised a double problem, the scare availability of money and the poor management of money. Credit unions were established to empower ordinary people to gain more control over their finances. The credit union movement has been very successful and it behoves us to ensure the principle and ethos of financial services rooted in the community can continue to flourish in what will be very different times. I understand, respect and admire the voluntary aspect of credit unions. We have many fine credit unions in my constituency of Clare. My late grandfather and namesake, Mr. Joe Carey, was a founding member of my local credit union, Ss. Peter & Paul Credit Union in Clarecastle where, incidentally, I participated as a supervisor for a period.

Like all Members, I have received correspondence from the credit union movement which has concerns about the Bill, including in respect of the application of the Central Bank (Supervision and Enforcement) Bill 2011 to credit unions. The movement considers the Bill should support the sharing of services in order that members can avail of a wide range of services. It has concerns about the term limits on directors of credit unions and the prohibitions on members of boards of directors. It is asking that a memorandum of understanding be agreed between credit unions and the Central Bank and wants the position of treasurer to be retained. There is concern that the tiering of credit unions is too wide. In this regard, the movement believes a model based on the risk posed to and the complexity of business would be far more appropriate. When the Minister for Finance is concluding the debate on Second Stage, he should take on board these concerns and introduce amendments on Committee and Report Stages to address them, if necessary. The process used to get to this point and the Minister's comments in introducing the Bill indicate the Government's willingness to recognise the specific circumstances that can be accorded to the credit union movement. I look forward to changes being made to the legislation as it passes through the Houses.

Deputy Luke 'Ming' Flanagan

I am sharing time with Deputies Mick Wallace, Stephen S. Donnelly and John Halligan.

I welcome this important Bill which is being introduced at a pivotal time for the country. Ireland needs a strong and resilient credit union movement that is fit for purpose. The movement has been helping people for over 50 years. Credit unions have weathered the financial crisis much better than other financial institutions, which has not been by accident. By and large, they have acted in a prudent manner and in keeping with their ethos of existing not for profit but for service.

Credit unions set up their own savings protection scheme in the late 1980s to ensure that, when the wet day came, the movement would be protected and secure from the storm. Credit unions, unlike other financial institutions, are well catered for in bad debt provisions.

Credit unions use a standard simple calculation for bad debt provision which in general has worked out very well.

The people need options for their financial services. The credit unions have provided a safe place to save and borrow at reasonable rates. They have supported communities throughout the country via lending, sponsorship and organising events for the communities in which they work. They want to progress. They must progress for the good of the country. They want to help out more.

The country needs an alternative to the two pillar banks in the area of personal finance and financial services. The stumbling block for credit unions to filling that space is their lack of access to the Irish payment services clearing system. Credit unions must offer electronically enabled payment accounts to their members. We have talked about that for the past number of years. The commission report rightly acknowledges that requirement. That is the future. The time to deliver on this aspect is now. Increasingly, we are moving towards a cashless society with the phasing out of cheque payments by 2016, the increased usage of debit and credit cards, and electronic fund transfers. A way must be found to provide the credit union movement with access to the clearing system at an affordable price which could be set to take account of the cost of the service provision. Legislation alone will not achieve the required outcome. The goodwill of all stakeholders must come to the fore.

As I listened to the apology from the Minister, Deputy Ruairí Quinn, for the delay in processing student grants I wondered where all those students will go, what we will do for them and if they would have to drop out. Many of them probably sought finance from the credit unions. The Minister can help in that regard. He can arrange the grant payments to be mandated to the credit unions.

Regarding social finance, this is a great opportunity to allow credit unions lend out some of their excess funds through a carefully structured, safe and secure process, that is, funds made available to the National Treasury Management Agency, local authorities and housing projects. I fully support allowing credit unions lend to State guaranteed projects which have a social benefit. That has the potential to allow up to €6 billion of capital projects to progress. That would provide a huge number of jobs and a boost to the economy. That is something the Minister must seriously consider.

I do not agree that the term limits will undermine volunteerism in the credit union movement. This might not be popular with some people but I have got information from a variety of different organisations. I was elected here to make up my own mind and that is what I have done. An example is that a member can be a director for nine years, spend three years mentoring new directors thereby ensuring the future of volunteering, spend three years on any of the crucial committees, that is, credit control or nominations and then revert to the board if they so wish. That rotation of positions will be very positive for the movement. Term limits are good governance. Governance is vital for the future. It relates to the separation of responsibilities and internal controls. The separation of policy and operations is a basic fundamental of governance. The introduction of the internal audit function, risk management and compliance will further improve the governance of the movement.

I reiterate that Ireland needs a strong, resilient and fit for purpose credit union movement. We must ensure that this legislation enables the movement to progress into the future.

Deputy Mick Wallace

I met representatives of the credit unions recently and they were broadly in favour of the Bill but concerned about some aspects of it the first of which was the proposal to apply historic Central Bank legislation from 1942 to 2011 to credit unions, which was not considered by the Commission on Credit Unions. They consider that to be unfair and believe it should not form part of the Bill.

We all know that credit unions are very different from banks. They have served a wonderful purpose and many people who access money through the credit unions would not have a prayer in terms of getting it through the banks. Credit unions did wonderfully well to come out of the crisis in the way they did. They have allowed for €900 million of bad debts but they have reserves of €1.3 billion. The Government is putting some money into them but they are not getting that for nothing. They will give it back through a levy. They are not being bailed out, unlike their bigger friends in the banks.

I am in favour of legislation for all forms of activities in the State but this legislation is somewhat heavy-handed for what are volunteer run, not for profit organisations. That must be taken into consideration in the Bill.

Another area the credit unions were keen to get was the sharing of services. The ability to take money from a credit union in Donegal even though one might be from Wexford is very important. That would be a wonderful facility for the credit unions to have and I do not understand how the Government could see that in negative terms. I understand the reason the banks would not like it very much, and I believe they have done some lobbying on that matter, which is somewhat worrying, but the notion that the credit unions could become even stronger and provide an even greater alternative to the banking system should be seen by the State as a positive rather than a negative development, especially given that this Government promised us a strategic investment bank that would be open for lending to small and medium size business. That did not materialise on the basis that our pillar banks would do all that for us but as we are aware, that has not happened. Unfortunately, the pillar banks have remained closed to most small and medium sized business.

The other issue the credit unions mentioned was the term limits. As Deputy Flanagan stated, the notion of limits on lengths of service in principle is a good idea but I would have started with the banks rather than the credit unions. It must be remembered that the banks, not the credit unions, caused most of the problems and it might be somewhat challenging for small credit unions in rural areas to replace personnel who were there previously. Perhaps the Minister should insert a provision to the effect that allowance should be made for small credit unions in rural areas and different limits imposed on them. I suggest that he consider limits to the large financial institutions that have cost the taxpayer a fortune. I will not talk about the crazy amount of money they are getting despite the fact that those who need it most are being denied it.

I understand the credit unions have approximately €5 billion available for lending and that the legislation must be adapted to allow the Government take money from the credit unions. The credit unions would be keen to lend money to them at a standard rate, especially for social projects. Obviously, they will not give it for projects they do not agree with but there are many projects of a social nature that are in need of infrastructural investment with a view to creating jobs. This is a "no brainer". Members on the opposite side of the House frequently ask us where will we get the money but the credit unions have €5 billion to invest in projects of a social nature that could create huge employment. Unemployment must be one of the major curses on this State and on the world in general. There are 28 million people unemployed in the European Union and until the unemployment problem is addressed we will not get out of this crisis.

Deputy Stephen S. Donnelly

I listened carefully to the contributions from all sides of the House and it appears there are three commonalities in that regard. The first is a real appreciation of the role played by the credit union movement in Ireland, the second is an acceptance that some form of regulation is required and the third is agreement that the Bill as it stands must be changed to ensure that the credit union movement is not damaged by inappropriate regulation.

The rampant rabid capitalism of the banks went unmuzzled in this country during the boom and therefore we are naturally inclined towards further regulation. However, the credit unions are not banks. I had the privilege of working with the World Council of Credit Unions in Washington looking at how to provide savings and loans products to some of the most vulnerable communities on earth. As we are aware, credit unions do not maximise profit.

They reinvest profit according to their members' wishes. They are non-profit organisations providing an invaluable service in communities in Ireland and across the world. Much play has been made of the fact that a small number of branches got themselves into financial difficulty. We know some of them invested in property in ways that did not work out well and got themselves into financial difficulty. To suggest, however, that this means the credit union movement in Ireland traded recklessly is incorrect. We are aware the credit union movement has received no State aid whatsoever and its financial position is very different from that of the banks. Recently, I met with one of the management team of a credit union in Wicklow to go through its numbers. Its financial position is so healthy that it could pay out all of its members’ savings using just its cash reserves while not even touching its investments. It would be impossible to have a run on this credit union, which indicates an extraordinary level of financial health. If we are not careful, this Bill will impede the ability of healthy and sensible credit unions to do the most good they can, particularly when the joke that is the banking system is sucking all of the money out of our economy and refusing to lend it back.

Do we need regulation in this sector? Yes, we do. Does the Bill get that regulation right? No, it does not. I, along with many other Deputies, have spoken to representatives of the credit union movement. It is interesting to note the serious and substantive problems they have with the Bill as it stands, which have been raised by many Members during this debate. I wish to raise three of these concerns. First, the governance rule whereby a member of a credit union board can have no family member working as a volunteer does not make sense. This is a volunteer-led movement and, particularly in the smaller unions, branch workers are saying that if this is imposed it will radically alter their ability to serve the public. Second, section 35 automatically prevents a credit union member who has rescheduled a loan for whatever reason from getting another loan. These are not people defaulting on large loans and looking to borrow even more but parents looking to borrow money for Christmas presents or school uniforms. To prevent someone who has restructured a loan - not defaulted on it - from taking out another loan is not sensible. Third, I would urge that the Government consider allowing a softening of the bar on credit unions under certain conditions. This is the geographical rule that Deputy Wallace spoke about earlier.

I look forward to further discussions on the Bill on Committee Stage. Its passage will be quick; this morning the Taoiseach said it would be passed before Christmas. I will be submitting amendments reflecting the issues I have raised. I urge the Minister for Finance to be open to this debate. There is clear support for the legislation on all sides of the House. My experience of legislation in this House is that once it is agreed on Second Stage, no substantive changes are made, contrary to what our Constitution encourages. Ireland has the deepest penetration of credit unions in the world. They are a credit to their workers, their volunteers and their members. The credit union approach is superior to that of small-scale community savings and loan banks and, in many aspects, to the banking system. We need regulation, but it needs to be appropriate. According to the well-thought-out criticism of the credit union movement, this Bill is not yet right. I hope that on Committee Stage the Minister will be open to accepting amendments to ensure we get this legislation right.

Deputy John Halligan

No one denies that the credit union sector now finds itself in need of strong regulation, high standards of probity and better governance. A quarter of credit unions in the State are under close supervision by the Central Bank due to fears about rising loan arrears. Thousands of loans, totalling about €1 billion in value, are more than ten weeks in arrears, which is putting significant financial pressure on credit union balance sheets. According to statistics from the credit union movement, members are behind on their payments in one fifth of all loans given out by credit unions. Last year, more than 140 credit unions did not pay a dividend as they had recorded a loss or wanted to put more money aside to cover loans in arrears. It is also clear that struggling members have been forced to stop borrowing from their credit unions because they fear they will not be able to meet repayments. New figures show that the value of loans issued by community lenders collapsed by €500 million in the first nine months of the year. In light of these figures, it is commendable and right that the Government assist in the restructuring of the credit union sector. However, having studied the Bill and listened to the credit union representatives, I have concluded that the nuts and bolts of this legislation lose sight of the voluntary nature and ethos of the credit union movement. The sector has been doing its damnedest to get its financial house in order for some time. The Irish League of Credit Unions, which represents 3.1 million members, claims that just five member credit unions are set to record a deficit this year, compared to 81 last year. The league also says that more credit unions should be able to pay a dividend this year. Why, then, are we introducing legislation for the sector which will implement severe restrictions that are far more stringent than those imposed on the banks that bankrupted this country?

It is claimed some changes proposed in this Bill are potentially detrimental to certain smaller credit unions, in which board members often help out free of charge. As it is, many credit unions are finding it increasingly difficult to persuade people to become directors of their boards, especially with the introduction of the new fitness and probity rules for directors. Smaller credit unions, particularly in rural areas, often have limited pools of people from which to draw their boards. The proposed term limits will present a particular difficulty for such credit unions. The number of credit unions in Britain fell by approximately 70% when new regulations were introduced there, as the majority were successfully absorbed into larger bodies. With so many small rural banks and post offices closing around the country, including four in Waterford in the past two months, these small credit unions are the last financial lifeline left in many rural communities.

It is not right that mid-sized credit unions are being asked to face the tougher regulatory rules applied to larger institutions which are sometimes more at risk of failure. Will the Minister consider a scheme that incorporates the level of risk and complexity involved in credit unions? Surely we have learned our lesson and realised that the risk involved is just as critical as the size of the institution. Furthermore, I would like to voice my support for a scheme whereby credit unions could invest in socially valuable schemes and projects backed by Government guarantees. Such an initiative has the potential to create employment and assist in the development of local infrastructure and services, as well as contributing to local social and economic development at a time when we need it. Credit unions should be asked, although not compelled, to give loans to sporting and community organisations, as they sometimes already do whether above or below the radar. We should talk to them about that.

I do not have as much time as I would like.

Acting Chairman (Deputy Bernard J. Durkan)

Your time has expired.

Deputy John Halligan

There is an interesting reference in the Bill to supporting shared services. I was unaware that if I was a member of a credit union in Waterford and I happened to be on holiday in Donegal or Dublin, I could not use a credit union facility in those counties because I was not a member of it. That is not fair and it does not represent the idea of shared services. It should be the same with all financial institutions. This is a big issue with the credit unions and I call on the Minister of State to consider it.

Acting Chairman (Deputy Bernard J. Durkan)

I call Deputy John Deasy, who, I understand, is sharing time with Deputies John O'Mahony, Kieran O'Donnell and Paul Kehoe, each having five minutes. Is that agreed? Agreed.

Deputy John Deasy

I wish to make a quick point about lending in general or the lack of it. By default I am making an argument about how important credit unions are because of what is happening or not happening in the area of lending in the country. Last week, we were informed that the number of new mortgages issued by Irish lenders is at 1970s levels. At the same time Allied Irish Banks maintains that it is approving seven out of ten mortgages and that it will comfortably exceed its target of €1 billion in mortgage sanctions for 2012. This is something of a contradiction. On the one hand we are back to 1970s levels but, on the other, everyone is meeting their targets. In other words, the banks' targets are so low that they cannot but be reached. Last month, we were told by the Credit Review Office that while AIB and Bank of Ireland continue to report that more than 80% of formal loan applications are sanctioned, lending policy has tightened in 2012 for the more challenged small and medium enterprises and farms. This is what I am encountering in Waterford and this is what people working in banks in Waterford are telling me.

The Credit Review Office has said that far more could be done to assist access to credit. Since the office opened, a total of 96 of the 207 applications for credit that were refused have been overturned, a high percentage. Farmers in particular are feeling the effects of the lending drought while costs continue to rise. On the flip side, the Irish Banking Federation has stated that the granting of credit is not a frivolous activity, that banks want to know that they will get their money back and that the business in question must have a sustainable future. However, I believe in some cases banks are not lending to businesses which they know have a sustainable future. There is a problem with what is being said publicly and what is actually happening.

Ireland is second only to Greece in terms of refusing loans to small businesses. Small and medium enterprises in Ireland are twice as likely to have a loan application turned down compared to the eurozone average. The information I have received from bank employees is that systems are in place now which are unreasonable when it comes to assessing a loan application. Increasingly, the banks are using what is termed soft underwriting tactics and have removed all power from the local bank managers to sanction loans. Given the damage some of these local bank managers did by lending to developers, many would suggest that is not such a bad thing. Unfortunately, however, we have gone to the other extreme. The practices of bankers and lenders are hurting the economy in a completely different way now. An AIB employee explained the problem to me recently, suggesting the lending procedures during the past two years have made it difficult to deliver to small and medium enterprises, and that a new set of guidelines were so complex that they have had to be amended and rewritten within the first year. The levels of individual discretion at branch level has been reduced or removed which in some, but not all, cases is not sensible. Overall, the process has become remarkably cumbersome. The State must measure this process because if credit does not flow quickly from sanction to drawdown there is a basic problem with the process and, by extension, with a critical component of our economy's recovery. The State must begin to question the process of lending in the main banks rather than simply wait every year for the Credit Review Office to publish figures that spell out what we already know.

I do not believe everything bankers tell me but the people I know who work in banks, who cringe and acknowledge frankly the damage they did during the boom years, inform me that the system of lending in place in banks is not doing country or the economy any favours. The new lending practices within these banks need immediate Government oversight.

Deputy John O'Mahony

I welcome the opportunity to contribute to the debate on this Bill. The credit union movement and its branches throughout the length and breadth of the country, especially in small towns and villages, have provided a vital financial service during the past half century. Its structure, based on volunteerism and being close to its members and the community, was and is unique and the main reason for its success. The idea was that money was in circulation in the communities each union served. In other words, people saved and invested while drawing down loans at the same time.

This was a wonderful model, evidenced by the vast number of people involved; some 3 million people throughout the country are members of credit unions. They were run in a personal way based on local knowledge and all decisions were made locally. This meant there was less leakage and fewer bad loans were given out as a result of this local knowledge. All of these developments in the credit union movement took place alongside a banking system that initially provided similar services but which then grew out of all proportion and became impersonal. Decisions in the banks were not made locally and money was thrown at people in the good times. There was little or no regulation and now those same banks are downsizing and closing as a result of that mess. Now there is a greater need than ever for the services credit unions provide in their local communities. Admittedly, some of the larger credit unions got involved in similar activities but the majority did not. Everyone involved in the credit union movement and all the contacts I have had recognise that there is a need for reform and change. The Minister for Finance, Deputy Noonan, and the Government have committed €500 million to address problems in the sector as well.

There is recognition everywhere that change is needed. The Irish League of Credit Unions acknowledges the need for change and reform and has stated that the process should be to facilitate healthy, strong and vibrant credit unions to provide existing and new services to their members in a safe, modern and consumer-friendly manner. This is what everyone needs but the question of how to get across that line is important.

Concern has been expressed by many Deputies about the need to keep in mind the uniqueness and the personal nature of the service and that these could be lost if they are put into a straitjacket of regulations that are disproportionate in comparison with the services they offer, and which do not take into consideration the nature of the input and volunteerism. There is a marked contrast between the banks and credit unions. We do not need to impose some of these restrictions on credit unions which might result in their becoming just as impersonal as the banks.

I am a member of a credit union and I have a bank account, but I have not stood in a bank more than three times in the past ten years because they are simply impersonal. We need to preserve the uniqueness of the credit union. I do not have time to go through all the various topics or concerns but these are well known and have been articulated. They include governance issues, Central Bank legislation dating back more than 70 years and the need to preserve some sense of volunteerism in the sector. Some of these provisions should be re-examined but the uniqueness and services offered by the credit union movement should continue to be offered while ensuring they are regulated and run in a very transparent manner. We should not throw out the baby with the bath water or inadvertently bring to the credit unions some of the lesser qualities of the banks apparent at the minute.

Deputy Kieran O'Donnell

I am delighted to speak on this Bill on Second Stage. The main work will take place on Committee Stage.

I support the credit union movement for a number of reasons. I have been a lifelong member. I was in business, self-employed as a chartered accountant for many years. Only for the credit union movement, certainly in the 1990s, many of the small businesses to which the banks were not providing credit would not have survived without the credit union system. That needs to be acknowledged. Credit unions are not the same as the banks.

I am pleased the Government is putting in place enhanced and strengthened regulation in the financial and credit union sectors. It is important, however, that we do not throw out the baby with the bathwater, that we recognise the unique characteristics of the credit union movement and seek to preserve those while at the same time strengthening regulations that need to be strengthened. I welcome the work of the commission which has been comprehensive and has covered a range of areas.

The credit union movement, like the GAA, is in every parish in Ireland and is based on volunteerism The one aspect that comes across is that there is a genuineness about those involved in the credit union movement. For no personal gain, they represent their members and we should not lose sight of that. Credit unions are not banks. There is a need for a memorandum of understanding between the Central Bank and the credit union movement on how credit unions will be regulated. From my interaction with the credit unions in Limerick which do fantastic work, that is something that needs to be considered. Another matter relates to volunteerism. I specifically refer to section 15 of the Bill which deals with membership of boards of directors. A restriction is being included whereby no member can serve on a board of directors for more than nine years in any 15-year period. I suggest that should be extended by three years, making it 12 years in any one period.

On the issue of holding posts on a board of directors, it is proposed that there will be a restriction of three consecutive years. We should consider extending that to four consecutive years. Up and down the length and breadth of the country there are credit unions in which persons have been involved throughout their lives doing fantastic work. We cannot afford to lose their skill sets, but there is a need for probity. Under the Bill, if a sufficient case is put forward, the terms of those on boards and in office positions can be extended, and I welcome that.

We also need to examine the need for a shared service. This is a simple procedure. People have an attachment to their local credit union. We need to find a way to provide a shared service of a back-office function provided by a body to allow credit unions to meet their regulatory requirements and to continue as viable small credit unions. Above all else, the lifeblood of a credit union is its members. For that to continue, it must be able to pay dividends. We must get to a point with this regulation whereby all credit unions are able to pay dividends to their members.

The issue of the position of treasurer has been referred to. This is a matter of debate. He or she is a member reporting to the members' body. We need to have a mechanism whereby the role of treasurer can be retained for the members, involving the manager more in the finance area but retaining the role of treasurer as a position. We must always bear in mind that the credit union movement is about the members and the voluntary ethos. We need strengthened regulation, but we need to achieve it in a way that retains the voluntary aspect and the skill sets to which I referred, although there is a need for enhanced skill sets.

I commend everyone involved. I look forward to debating this Bill on Committee Stage, dealing with amendments and examining areas to strengthen both large and small credit unions to ensure their survival.

Acting Chairman (Deputy Bernard J. Durkan)

I call the Minister of State, Deputy Kehoe, who has five minutes.

Minister of State at the Department of the Taoiseach (Deputy Paul Kehoe)

I wish to share two minutes with Deputy O'Donovan.

Acting Chairman (Deputy Bernard J. Durkan)

Is that agreed? Agreed.

Deputy Paul Kehoe

I welcome the Bill. I am very much in favour of the legislation and I compliment the Minister and the credit union commission on its introduction.

The credit union movement has done significant work in Ireland over a long number of years and it has good ethical banking values. We all will be aware of the banking problems in recent years and the way in which banks have ruined the country with their reckless lending. I compliment the credit union movement on its prudent lending. Credit unions were mature in the way they carried out their business.

It is amazing that all credit unions were run by voluntary members who were not getting big salaries and bonuses. They were persons who, as Deputy O'Donnell stated, had a genuine interest in the credit union movement in their respective communities, and they were not driven by profit or personal gain. The good point about the credit union movement is that credit unions kept local money local and supported the community. I compliment the credit union movement in all towns and villages across the country on the facilities they have provided and on the way they have improved them.

I compliment voluntary directors in particular on getting extra training and support in order to carry out their roles. Nearly every member of society is a member of a credit union.

I ask the Minister to give careful consideration to one aspect of the Bill, namely, the length of time voluntary members may serve. It is difficult to get genuine volunteers for any organisation. In many cases voluntary members in credit unions have given 20 years or more of service. I ask the Minister to examine that aspect of the Bill and the way such voluntary members could hold their officer roles.

If we did not have credit unions, people would be driven to moneylenders. We are all aware of the manner in which moneylenders behave.

I compliment the credit union movement. Its members have spoken to me regarding this legislation and the Minister, on Committee Stage, will take on board the views of the Members of the House.

Deputy Patrick O'Donovan

I thank the Minister of State for sharing time.

I am a member of a credit union. The credit union movement in my county has been in touch with me in regard to this legislation. I am sure it also has been in touch with other Deputies and Senators. There is nothing the credit union movement seeks that cannot be facilitated in this Bill. As the previous speaker and Deputy O'Donnell stated, for many families, the credit union movement is the difference between accessing funds and not being able to do so.

The credit union is not a banking movement.

It should not be compared to a banking movement; nor is it fair to use banking terminology when referring to it. The credit union movement is about volunteerism, community, local knowledge and local communities coming together to provide a service that would not be provided otherwise. Credit unions have local knowledge and directors who commit themselves locally.

The credit union movement is trying to promote many innovative ideas, particularly in the area of social financing. One such idea is to work with local authorities, which are currently starved of cash, to carry out simple works in local authority areas. It has been suggested that credit unions could enter into strategic relationships with local authorities and perhaps also with local educational institutions. Credit unions have a social dividend to give to their communities and it is important that they are listened to in that regard.

Having listened to the Minister for Finance opening this debate, it is clear that he is willing to engage with the credit union movement in a constructive way to advance matters. It is important to bear in mind the three pillars of community, volunteerism and local knowledge as this Bill progresses through the House. When the Bill moves into Committee Stage I am sure amendments will be tabled. Many of the amendments proposed by the credit union movement itself are common-sense amendments and I hope they will receive the support of the Government.

I commend my own local voluntary credit union movement in the County Limerick area, which does sterling work. For many families, local credit unions make the difference between access to funds for essential services and the denial of same.

Debate adjourned.

Dáil Éireann debate - Wednesday, 14 Nov 2012

Credit Union Bill 2012 (Resumed): Second Stage (Resumed)

Dáil Éireann debate -
Wednesday, 14 Nov 2012