Amendments Nos. 1 to 5, inclusive, 12, 14, 15, 18, 22, 30, 33, 43, 44 and 48 to 50, inclusive, are related and may be discussed together.
Credit Union Bill 2012: Report Stage
I move amendment No. 1:
In page 7, to delete lines 31 to 37.
The amendment seeks to remove the definition of "financial services" imported from the Central Bank Act 1942. This refers to the grave concerns of the membership of the credit union movement about this mighty edifice of banking legislation that the Minister is placing on the backs of the members of this local, vocational and democratic movement. I did not have an opportunity due to my current position in the House to contribute on Second Stage and I am no longer a member of the Joint Committee on Finance, Public Expenditure and Reform.
I congratulate the credit union movement on its remarkable contribution to Irish life over the past 65 years from the day Nora Herlihy and her friends began the most remarkable organisation in the history of the State to the present where it has more than 3 million members, in excess of 400 credit unions and assets of €14 billion. I acknowledge the remarkable people who played a role in the movement, including the great John Hume. I thank the Irish League of Credit Unions, ILCU, the Credit Union Development Association, CUDA, the managers' organisation and the supervisors for the briefings they have given Members and, in particular, I thank the always excellent Oireachtas Library and Research Service.
Two elements stand out in the history of the credit union movement. The first is the tremendous work done in the early decades to combat the nuisance and horror of "loansharking", which was prevalent throughout the country, and the second is the tremendous role women played from day one in creating this local, pooled, voluntary credit organisation, enabling people to begin actively to plan their lives.
This is a critical movement in Irish social and economic life. A number of colleagues who serve on the Joint Committee on Finance, Public Expenditure and Reform, especially my party colleague, Deputy Arthur Spring, raised the fundamental problem of the imposition of this gamut of Central Bank legislation on the backs of the credit union movement on Committee Stage. As Deputy Spring noted, it was not the credit unions that were utterly reckless; it was not the credit unions that gouged our people with ferocious and outrageous interest rates; it was not the credit union administrators who paid themselves hundreds of thousands of euro, if not millions of euro, per annum; it was not credit unions that brought disaster to our country, yet the Minister has sought to impose legislation that has not worked for his so-called pillar banks or the foreign banks that have exited the country. As a member of the Committee of Public Accounts along with the Minister during previous Dáileanna, I witnessed the total failure of financial regulation when people came in front of us and lied as they told us that we had a banking system that was fit for purpose when they had to have known that it was not. The Minister's own Department played a starring role in the grotesque failures that led to the infamous day in 2008.
The Minister wants to place this edifice on the backs of the credit union movement and, through my amendments, I am asking him to desist. A regulation system for credit unions, which worked well down through the years, was based in the Department of Jobs, Enterprise and Innovation. In recent years, a review was carried out by Grant Thornton, a capital assessment review under PCAR was conducted and the loan books of credit unions were reviewed. All of this was done under the 1997 Act, which was major legislation to which both the Minister and I contributed, and this has governed the sector since. Prior to that, Seán Lemass, as Minister, introduced the first system of regulation and invigilation of the credit union movement in 1960.
There is a strong feeling from the Irish League of Credit Unions in particular that the Minister for Finance is imposing a very tight straitjacket on the development of credit union structures with this legislation. Under the old banking regulation, the governance of some of the older credit companies, such as the Educational Building Society, EBS, and other building societies, which worked for ordinary people, failed. They have now been moved into banking structures. The Minister himself pulled EBS into the AIB structure. Areas where people could get cheap credit have now been denied to them.
It has been put to me very strongly that the proposal to apply historical Central Bank legislation from 1942 to 2011 was not considered by the Commission on Credit Unions. Members received a briefing document from former Senator, Joe O'Toole, on the discussions that took place at the commission. It is my information that the Minister's decision to wrap the credit unions around Central Bank legislation was an option that was not specifically discussed at and decided on at the commission. It is also felt the Minister did not consult the credit union movement on this aspect of the legislation. The key point credit union representatives make again and again is that credit unions are not banks. They do not have those characteristics banks have which allowed us to fall into this disastrous economic situation.
The Minister, when a backbencher, asked the key question on the night of the bank guarantee as to whether it was a liquidity or a solvency crisis. Of course, the banks lied to the then Minister and the rest of us. However, Fine Gael and this Minister, Deputy Noonan, went ahead to vote for the blanket guarantee along with Fianna Fáil, the Greens, unfortunately, Sinn Féin and Independents, which has crucified our country.
Will the Deputy return to the amendment?
The amendment relates to Central Bank legislation which has not worked. While this Minister voted to bring in a blanket bank guarantee - I believe the Cabinet received its full report on the budget this morning – this day next week he will bring forward another ferocious hairshirt budget for the people. It will be another squeezing of the pips which will make it difficult for people. Various reports from Grant Thornton, the credit union loan book review, the prudential capital assessment review, PCAR, state there is a lack of demand for credit. There is no mystery as to why there is a lack of demand. It is because the Minister for Finance has taken €10 billion out of our economy and out of people's pockets. Next week, he is proposing to take another €3 billion. This comes to €13 billion, following the Fianna Fáil Government removal of €10 billion. The total removal is heading to €30 billion. People have been crucified. Is it any wonder there is a lack of demand?
I am sure the Deputy will have an opportunity to speak on the budget next week. Could we stick to the amendment today?
I am referring to Central Bank legislation which failed.
This is the Credit Union Bill.
While the Minister asked whether the banking guarantee was required because of a solvency or liquidity crisis, he knows Central Bank regulation has failed, yet he is seeking to impose it again on the backs of credit union volunteers across the country.
It is no wonder there is a lack of demand for credit. One hears of deleveraging where credit union members take their shares, put them against their loans and walk out. Is it any wonder this is happening with the macroeconomic policies this Minister and the Fine Gael Party are pursuing?
It is astonishing there is no regulatory impact analysis attached to this Bill. The Bill proposes to introduce compliance officers and a mini-banking edifice on top of credit unions but there is no regulatory impact analysis of this. The Minister did not provide on Second or on Committee Stage the exact costs of the proposed credit union restructuring board, ReBo, or the new regulatory system. This is a lacuna at the very heart of this Bill which the Minister has refused to address.
I am expressing the real concerns felt by credit union members around the country about the future management of their beloved credit unions. Even though the banks failed us so spectacularly, they still do not want credit unions to emerge as their serious rivals through shared services.
The use of Central Bank regulation in this sector should have been examined more closely by the Minister. The Government should have examined whether the existing credit union regulation system should have continued. It has to be said the record shows the 1997 Act worked very well.
I thank the Acting Chairman for his indulgence as I did not get an opportunity to speak on the Bill previously. I welcome the general supports the Minister will give to the credit union movement. However, there are deeply felt concerns, concerns put to me by the Irish League of Credit Unions, about the type of regulation and supervision the Minister is loading on the backs of the volunteers of the movement, particularly in the context of his failed economic policies and the disastrous decision he made in late 2008 to burden the people with debts they had not incurred.
I want to acknowledge what I feel was a very constructive engagement on Committee Stage last week. As was clear from that, the Minister understands the concerns of the credit union movement and Members. I look forward to seeing the progress reports the Minister will give us on his own amendments on foot of the issues we raised last week. I also look forward to seeing these amendments taken in the Seanad. It is disappointing but the Minister has explained why they could not be put forward on Report Stage here.
The Minister will be glad to hear I am not going to repeat all the issues I raised on Committee Stage as I feel they were given a good hearing and he took them on board. Instead, I have tabled additional amendments on matters on which the Minister has not given any leeway. I have done that to assist him in drafting his amendments for the Seanad hearing of the Bill.
Amendment No. 2 relates to financial services. The Minister agreed last week that he would look at a formula of words for dealing with the issue of applying banking regulation to credit unions.
Deputy Broughan noted earlier and I have said numerous times - not only in the House - that the credit union movement is altogether different from a bank. They are voluntary, not-for-profit organisations. The interpretation of the section relating to financial services could allow for someone to apply existing banking regulations to credit unions, although I understand from the Minister's comment that this is not the intention. Instead of deleting the definition of financial services, which was the drift of my original amendment on Committee Stage and which I subsequently withdrew, I have left the definition of financial services in place but I have tried to be more explicit in order that the fear within the credit union movement would be removed and that banking regulation legislation would not apply to the credit union movement. Under the amendment, only the legislation applicable to the credit union movement would continue to apply. It is important to have strong regulation but at the same time we should recognise the unique ethos of the credit union movement.
The amendment deletes part of section 6 and substitutes it with references to the following: Part VIIA of the Central Bank Act 1942; Part VIIB of the Central Bank Act 1942; Part IIC of the Central Bank Act 1942; Part 3 of the Central Bank Reform Act 2010; and the Central Bank and Credit Institutions (Resolution) Act 2011. These are the existing blocks of Central Bank legislation that apply to the credit union movement. We are not looking for any regulations to be removed. The argument is to ensure that banking regulations, of which there are a great deal including the Central Bank Acts and statutory instruments, should not be allowed to be imposed on credit unions further down the road since that was never the intention. The list may not be complete but it is a genuine effort to try to shape the type of amendment that the Minister will bring forward. I believe it will meet the needs of the credit union movement, not only the leaders of the credit union movement but the people who use the credit union. I presume the majority of people here are members of the credit union. We all have a stake in ensuring that there is a vibrant movement in the years ahead. If the Minister could indicate that this is the type of amendment he is planning to bring forward in the Seanad then I have no problem withdrawing the amendment. However, it is important that this catch-all section 6, which deals with all of the existing banking legislation, is refined or removed. There should be an explicit statement of the legislation in place and the Bill should allow the Minister to add to that when new legislation is brought forward applicable to the credit union movement.
My remarks will be in a similar vein to Deputy Pearse Doherty's. I acknowledge that we had a constructive engagement on Committee Stage with regard to the amendments that we tabled largely on behalf of the Irish League of Credit Unions. Generally speaking, the Minister indicated a willingness to deal with the concerns raised by the credit union movement and to bring forward his own amendments in the Seanad which would address those concerns. To a certain extent we are in a difficult position because we have a responsibility to do the best we can on behalf of the credit unions and their members. Report Stage is the last opportunity we will get to make any intervention on the Bill. We must take the Minister at his word but I believe he responded fairly honestly on Committee Stage and showed genuine concern and acknowledgement for the issues raised by the credit union movement. I was not entirely satisfied with some of the Minister's responses and I will refer to these during the course of the various amendments, but the Minister was honest enough. I am keen to hear from the Minister about what has happened since Committee Stage when it comes to dealing with these issues. Can the Minister tell us any more about how he intends to dealt with these concerns, starting with these amendments?
Like Deputy Doherty, the submission of my amendments for this stage was rather rushed and they were provided at the last minute because we had little time between Committee Stage and the deadline for Report Stage. Anyway, the amendments are an attempt to raise the issues again and to get a response on how we are progressing to ensure that the credit unions are not caught up in the backlash against the banks, a backlash that resulted from the activities of the banks. As Deputy Broughan and all of us stated on Committee Stage - the Minister would probably agree - while the credit unions are not perfect and naturally require regulation, they are not the culprits of the dire situation we are now in; the culprits are the banks.
It would be a deep irony if the credit union movement suffered as a result of the backlash against banks. It would be a supreme irony if this were the case when the banks are still being protected. I realise they are being regulated and we will see how effective the new regulation is, but from most people's point of view the banks are being cosseted and protected and it is all about ensuring the welfare of the banks. It would be most ironic and unjust if the credit unions, which are not perfect but do not bear responsibility for the deep mess we were in, were to suffer as a result of the need for greater regulation in the banking sector. This is the assurance which we and the credit unions seek. We have no wish for an onerous regulatory regime to be imposed on the credit unions such that their ability to function is effectively undermined or damaged in any way as a result of the implementation of regulation. I realise my amendments are imperfect in this regard. They are not as specific as those of Deputy Doherty. They simply suggest that only the regulation appropriate to credit unions in the legislation since 1942 should be applied to the credit unions. I understand that the amendments need to be more refined but we are keen to hear and, more important, the millions of credit union members are keen to hear that the amendments the Minister will bring forward with deal with this concern. We would all appreciate if the Minister could provide a progress report with regard to what these amendments will look like and an assurance that the credit unions will not be caught up in the backwash of the necessary regulation that must be imposed on the banking sector.
In speaking to the first group of amendments I wish to set out my party's approach on Report Stage. We had a constructive session last week, a five-hour meeting of the Select Sub-Committee on Finance, to deal with this Bill. During the course of those discussions the Minister engaged in a positive way and all Members have acknowledged that. As a result all Opposition amendments tabled at that stage were removed. The Minister explained to the committee that it would not be possible to bring forward his amendments on Report Stage because of the issue of getting approval from Cabinet but that he would bring them forward on Committee Stage in the Seanad. The approach I will take on Report Stage is to listen to what the Minister has to say with regard to the progress that has been made since then. The Fianna Fáil Members in the Seanad will be fully briefed and will be engaging on Committee Stage. Any amendments made there will have to come back to the Dáil.
I fully acknowledge the right of every Member to table amendments. Some have moved the amendments on from where we were last week. Some of the amendments are simply repeats. Anyway, I took in good faith what the Minister said on Committee Stage and I look forward to hearing what he has to say.
The broad thrust of the discussion last week on the first group of amendments was that a form of wording would be agreed which would make it clear that any of the old Central Bank legislation, which was never intended to relate to credit unions, would not apply to them now because of some unintended consequence. We agreed that there would be a form of working in this regard. I await the Minister's amendments but, naturally, I will engage in the debate on Report Stage.
I thank the Deputies who have contributed. Amendments Nos. 1 to 5, inclusive, 12, 14, 15, 28 to 30, inclusive, 33, 43, 44 and 48 to 50, inclusive, which have been grouped together for the purposes of discussion, relate to the definition of financial services legislation. They are scattered throughout the Bill as they also relate to consequential amendments regarding the definition.
Before addressing the specific amendment, which is amendment No. 1, I would like to outline my intention regarding my amendments to the Bill. As I explained in my concluding remarks on Committee Stage, I am currently considering a number of amendments to the Bill. Some of these deal with the commitments I gave on Committee Stage, including in respect of issues raised on behalf of the Irish League of Credit Unions. As these issues involve substantive changes, I will need to seek formal Government approval. As this could not be done in time for Report Stage, my intention is to move the amendments in the Seanad, with a further referral of changes to this House, in accordance with existing procedures.
I will now address the grouped amendments in regard to the definition of financial services legislation. There was detailed and constructive engagement on this issue on Committee Stage, on foot of which my Department is exploring with the Office of the Attorney General whether the definition can be nuanced to clarify that it relates to the law as it already applies to credit unions. This would avoid any misunderstanding that the definition somehow inappropriately applies a corpus of banking legislation to credit unions. I again clarify that this definition does not apply financial services provisions to credit unions anew, nor could it be used for that purpose. The perception that this definition turns a range of new legal provisions from the wider financial sector onto credit unions is mistaken. The definition of financial services legislation is a technical interpretation provision which is needed for references throughout the Bill to requirements that are already imposed on credit unions under various pieces of financial services legislation. One reason for this is that credit unions have secured authorisation outside the credit union sector and therefore fall under wider financial services legislation. Examples include the Insurance Mediation Regulations 2005, the Investment Intermediaries Act 1995 and the European Communities (Payment Services) Regulations 2009. The deposit guarantee scheme which protects members' savings also applies by virtue of wider financial services legislation, such as the Financial Services (Deposit Guarantee Scheme) Act 2009. The Central Bank Acts already apply widely to credit unions. For example, the Office of the Registrar is provided for in the Central Bank Act 1942.
I will now comment on amendment No. 1 and its consequential amendments. I do not consider that excising all references to financial services legislation or the Central Bank Acts is a workable solution if it fundamentally compromises what the Bill and the commission report try to achieve. I will explain by the use of two examples what would happen if the definition were deleted. Section 18 inserts a new section 55A into the Credit Union Act 1997, under which subsection 3(f) requires the chairman to conduct a performance evaluation of all directors regarding their compliance with obligations under the financial services legislation. Many credit unions are authorised under the European Communities (Payment Services) Regulations 2009. A director of a credit union who fraudulently misappropriates users' funds under these regulations commits an offence. However, if all references were deleted in the Bill this offence could not form part of the directors' performance evaluation. The term is also used in section 15 of the Bill, which replaces section 53 of the Credit Union Act 1997 with a new section 53. Deleting the reference in subsection (7) would mean that the Bill would allow a retiring director to be eligible for re-election, even where to do this would result in a breach of another legal provision which already applies to credit unions. For example, there are requirements on directors regarding fitness and competence under the Investment Intermediaries Act 1995, under which many credit unions hold an authorisation. The failure of a credit union director to meet these requirements could be grounds for an application to the High Court to remove the credit union's authorisation as an investment intermediary. Including the reference to an applicable requirement under financial services legislation means that credit union members can have confidence that directors coming before them for re-election are not doing so in a manner which would breach a legal requirement to which the credit union is already subject.
Amendment No. 2 seeks to itemise the legislation that applies to credit unions. My Department has previously explored this option with the Office of the Attorney General. The assessment is that this approach would introduce unnecessary risks to the robustness of the provision and could result in more limited application of the Bill than intended. The interconnectedness of financial services legislation is such that any inadvertent omission or misapplication of a particular provision could impede or prevent key sections of the Bill from applying in their intended form. In the case of this amendment, key legislation such as the Financial Services (Deposit Guarantee Scheme) Act 2009 and the Investment Intermediaries Act 1995, which already applies to credit unions, has been omitted.
Amendments Nos. 3 to 5, inclusive, propose that the phrase "appropriate to credit unions" be inserted into the definition. I am sympathetic to the approach in these amendments and my Department is currently exploring with the Office of the Attorney General whether a suitable formula along these lines might work. Given that my Department is already in discussions with the Office of the Attorney General on addressing the concern behind these amendments, I do not propose to accept them.
The bottom line is that there is a misunderstanding about the scope of the definition section. It only applies to legislation which already applies to credit unions, and anything in this Bill is then applicable to credit unions. What is at issue is making this clear in the definitions section with the mention of financial services etc. The Department is in contact with the Office of the Attorney General to work out a form of words which is legally enforceable to achieve this objective. I will introduce an amendment in this regard in the Seanad, following which the matter will again come before the Dáil for consideration.
I welcome the clarification. As the Minister was speaking I had another look at the 1997 Act, which, as I have stated, is comprehensive legislation that has worked well and appears to cover most of the areas referred to. This Bill is effectively an amendment of large parts of that Act. I welcome also the Minister's statement that amendments made in the Seanad will come before the Dáil for consideration. Is it the intention to do this prior to Christmas, so as to give us an opportunity to have a final input into this legislation?
The Minister's strong argument with regard to section 18 and other sections addresses my amendments on Central Bank regulation. However, the concern remains that people who had nothing to do with the banking crisis will in future be the ones who carry the burden. It will be much more difficult for the credit union movement to develop as a dynamic local financial service in direct competition with the banks, on the American model, and provide that type of resource for people. It is important that the Minister consider the amendments carefully. I read the proceedings of the Committee Stage debate and accept that there was some engagement then with regard to the concerns of the Irish League of Credit Unions.
This is a key point in the history of the movement and while it is clear that the Bill is urgent, the Minister must arrive at a formula that will work. It must be asked why such a formula is not contained in the Bill and why this concern was not foreseen by his Department.
The position is that there is nothing in the Bill that does not already apply to the credit union movement. There has been a misunderstanding, arising from the definition section, that there may be an importing of additional legislation to be applied to credit unions, but this is not the case. As agreed on Committee Stage, consultation is taking place between my Department and the Office of the Attorney General with a view to amending the definition section in order that it will be absolutely clear that what is feared is not happening. I will amend the definition section in the Seanad. I must bring substantive amendments to the Cabinet but because of the short timeline, I was unable to do so before Report Stage. I assure Deputy Tommy Broughan that it will happen before Christmas. I must move expeditiously because, as everyone knows, there are impaired credit unions which will need financial assistance. I have made provision for a figure of €250 million in the 2012 figures to assist credit unions, but if I cannot get this legislation through, I will not be able to dedicate that money to the credit unions and it will fall out of the figures at the end of the year. I need to get the legislation through the Seanad and back to the Dáil before Christmas in order that I can apply the initial tranche of funding which will not be sufficient and will only be the first instalment. It is very important, therefore, that we keep to the timeline. I do not mean to be disobliging to Deputies and I am quite prepared to discuss at length any of these provisions, but it is the fallow period between the different Stages that I must shorten in order that I can get the Bill through.
Question, "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.
Amendments Nos. 2 to 5, inclusive, fall in view of the decision on amendment No. 1.
Just for the record, in view of the Minister's comments, I was prepared to withdraw amendment No. 2.
Likewise with amendments Nos. 3 to 5, inclusive, in my name.
Amendments Nos. 2 to 5, inclusive, not moved.
Amendments Nos. 6 and 8 to 10, inclusive, are related and may be discussed together.
I move amendment No. 6:
In page 9, between lines 33 and 34, to insert the following:
“7.—The Principal Act is amended by inserting the following subsection after section 6(5):
“(6) Nothing in this Act shall prevent a credit union from lending to a State guaranteed project which is in keeping with the objects for which credit unions are formed as stated in this section.”.”.
This amendment deals with social lending. The credit union movement has stated it wants to invest money in State-guaranteed projects, something we should all be encouraging, given the not-for-profit nature of the movement and the fact that many credit unions have to invest their money in banks and other financial institutions, both here and abroad. In the context of the reason credit unions were set up in the first place, if they can invest in State-guaranteed projects, be they schools, community centres or others of social value in their local communities, they should be allowed to do so. While I take on board what the Minister said on Committee Stage that there is nothing to prohibit credit unions from doing this, my amendment explicitly details the possibility of their lending to Government-guaranteed projects. It states there would be nothing to prohibit them from engaging in such lending. It is really a point of clarification and not contentious. The amendment asserts, "Nothing in the Act shall prevent a credit union from lending to a State guaranteed project which is in keeping with the objects for which credit unions are formed as stated in this section".
The report of the Commission on Credit Unions dealt with this issue in the executive summary recommendations Nos. 3.25, 3.26 and 3.27. Recommendation No. 3.27 states:
The Commission recommends that credit unions could take a more prominent role in developing and maintaining social inclusion lending schemes. These schemes should be backed up with support mechanisms to facilitate credit unions becoming more actively involved in social lending.
Given that the Bill is not just about the regulation of credit unions as they currently operate but is also about facilitating their future operation, it is appropriate that this measure be included in it. I, therefore, ask the Minister to consider accepting it. During an earlier discussion the Minister indicated that he was considering changing the scope of the Bill and mentioned the insertion of the word "public" into a specific section. A definition such as that proposed in my amendment would bring greater clarity to the issue. Perhaps, as with the previous amendment we discussed, this relates to an unfounded fear or a false perception, but the amendment should not be problematic for the Minister. It simply strives to clarify within the Bill that credit unions are allowed to engage in such lending should there be an appropriate programme or project. Obviously, later sections of the Bill deal with the issue of the Central Bank approving lending by credit unions, but this amendment is worthwhile.
We discussed this issue on Committee Stage and while I do not want to elongate the debate unnecessarily, I feel particularly strongly about this point because it relates to the bigger macroeconomic picture. We are in dire need of a stimulus and investment. The credit union movement wishes to ensure there is no impediment to its members investing money in a way that could be beneficial to the economy and society in terms of job creation and the development of socially useful projects. We should welcome this. The Minister suggested on Committee Stage that there was no impediment to such investment by credit unions which are putting their money in the bank but would rather put it somewhere else. The Minister also said he had to safeguard the deposits of the members of credit unions and was concerned about that aspect in the context of this proposal. However, as I understand it, the credit union movement is stating any scheme in which credit unions would invest would be State-guaranteed. The idea is that they would lend money to the State for a guaranteed, modest return, thus making money available for programmes to create jobs and benefit the economy, local communities and so forth. The State would guarantee the repayment of the money, at a modest rate of interest. That seems to be a no-brainer. It is a very positive suggestion, the acceptance of which would be good for the credit union movement and the economy as a whole. The credit union movement would like the Bill to state explicitly that there will be no impediment to member unions doing this. It is obvious that it would be better if credit unions put money into such projects rather than deposit it in banks. I, therefore, ask the Minister to outline how he proposes to deal with this issue in a way which will satisfy the credit union movement and benefit the economy.
Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.