This is the first legislation specifically devoted to credit unions for over 30 years. The purpose of the Bill is to provide a statutory framework for the development and growth of the credit union movement and to enable credit unions to provide an enhanced range of services to their members.
I acknowledge the general welcome given to the Bill by the Irish League of Credit Unions. The league is the representative body which has guided and overseen the development of the credit union movement since its foundation, a role it has carried out and continues to fulfil with diligence and integrity. The achievement of the league in presiding over and guiding the extraordinary growth of the credit union movement is truly remarkable.
In its journal, the league has described the Bill's highlights as including "provision for more flexibility on withdrawing shares and deposits, for allowing people under 16 years to join credit unions, for loans to be made for periods longer than five years, for a credit union to participate in a savings protection scheme, for statutory fraud, dishonesty insurance and to allow credit unions provide `additional services"'. I will return later to some of those matters, as I will to addressing important concerns also articulated by the league.
I am pleased to present this important Bill to the House. The need for the new Credit Union Bill is due entirely to the tremendous success which credit unions continue to enjoy in meeting the financial needs of their members. Credit unions are now such an integral part of Irish society that it is hard to believe that they were unknown in Ireland 40 years ago.
In 1958 the first credit union was formed here and by the following year there were three credit unions comprising 200 members with a modest sum of £415 in members' shareholdings. As financial co-operatives, the initial credit unions were formed under the Industrial and Provident Societies Acts, 1893 to 1913, but such was their success and growth in the succeeding years that it quickly became apparent that they needed a separate statutory base.
This led to the enactment of the Credit Union Act, 1966, which remains the principal legislation governing credit unions to this day. The 1966 Act deals with the basics of credit union establishment, organisation, operations and supervision. It outlines the conditions for the registration of a credit union by the Registrar of Friendly Societies and sets out the qualifications for membership of a credit union. It provides for the rules of a credit union to be approved by and registered with the registrar and establishes the general provisions relating to a member's shares and deposits in the credit union. The Act allows the credit union to borrow money and to make loans available to its members, subject to certain conditions.
It deals with the powers, functions, duties and constitution of the credit union's board of directors and its supervisory committee and establishes the manner in which they report to the credit union's membership and are subject to the members in general meeting. The Act also provides for the keeping of books of account by credit unions and for their audit, and it established the Credit Union Advisory Committee, which has been a source of independent advice on credit union affairs to successive Governments for some time. It will be clear from this outline of the 1966 Act that many of its general features are being retained in its successor. With the support of the statutory recognition afforded by the 1966 Act, the number of credit unions grew from the existing three in 1959 to 336 by 1969. The number of credit union members reached 169,000 in that year and shareholdings exceeded £7 million for the first time. In a little more than ten years, credit unions had become firmly established in Ireland.
The next legislative landmark was the Industrial and Provident Societies Act, 1978, Part III of which dealt exclusively with credit unions and specifically with providing updated powers of supervision for the Registrar of Friendly Societies. This became necessary because of the continuing success of the credit union movement in expanding the number of credit unions, its overall membership and the savings base. Part III of the 1978 Act was a response to the fact that the 1966 Act provided the registrar with little or no powers to exercise any meaningful role in supervising a credit union once it had been established. For the first time, the 1978 Act gave the registrar the power to inspect and investigate a credit union's affairs and, where necessary, to direct a credit union to suspend the acceptance of shares, deposits, loans and payments in certain specified circumstances. It also enabled the registrar to call a special general meeting of a credit union and to appoint a person as one of its directors. Many of these provisions are replicated in the Credit Union Bill before the House.
Throughout this period credit unions continued to grow and prosper, and by the end of the 1980s there were more than 500 credit unions throughout Ireland. In addition, credit union membership passed the one million mark, and the value of shareholdings amounted to £650 million. It was at this time that a general consensus began to emerge within the credit union movement itself that a new and wide ranging Credit Union Bill was required. This led to the establishment of a working party comprising representatives from my Department, the Registrar of Friendly Societies, the Credit Union Advisory Committee and the Irish League of Credit Unions to identify the parameters for this new legislation. The Bill before the House is consistent with heads agreed on the basis of the working party's conclusions.
If it was felt that legislative change was required in the late 1980s, it is even more urgent in the second half of the 1990s. Many credit unions are now offering services to their members that were never envisaged in the original legislation, and there is clearly a need to provide a proper statutory basis for current credit union operations as well as establishing a framework for the future development of the credit union movement in the years ahead.
With a sum of £2 billion currently invested in the more than 430 credit unions based in the State and notwithstanding the record of credit unions and the league in protecting members' savings, there is also a need to update the supervisory powers of the Registrar of Friendly Societies since the last legislative change in 1978. The purpose of this Credit Union Bill, therefore, is to consolidate all existing credit union legislation and to provide an updated framework for the development and regulation of the credit union movement in the future. Unlike the 1966 Act, which continued to rely on provisions in the Industrial and Provident Societies Acts as far back as 1893, this Bill for the first time constitutes a stand alone measure for credit unions. It repeals the 1966 Credit Union Act as well as those parts of the Industrial and Provident Societies Acts which formerly dealt with credit unions.
There are many positive features to the Bill, and it important at the outset to outline what these are. First, the Bill supports and protects the essential ethos of the credit union movement. Credit unions are non profit-making financial cooperatives; they exist only to serve their members and their members' community. They provide a mechanism for redeploying the savings of credit union members to benefit and support the financial needs of other members of their community. This has been achieved down the years through a largely volunteer and part-time workforce in the best traditions of community self help. All members of the movement, regardless of whether they are actively working in their credit union, arehelping their community by investing their savings in that community.
A second positive feature of the Bill is that it provides a framework for the development by credit unions of additional services beyond the traditional ones of savings and loans. For example, a number of credit unions are now selling insurance products and providing foreign exchange, and there is an increasing desire on their part to exploit the opportunities afforded by technology for the development of an ATM network, for example. The provision of this framework in the Bill addresses a long-standing demand of credit unions which are anxious to provide both improvements in service and a greater range of services for their members. Many credit unions have shown commendable initiative in starting to provide additional services on a pilot basis, but credit unions in general are conscious that a lot of work lies ahead in bringing their services up-to-date.
Thirdly, the Bill adopts new limits for loans and savings, whether they are held in the form of shares or deposits. Under existing legislative provisions there are distinct limits for shares and deposits. In the Bill before the House a combined savings limit per credit union member is set at £50,000 or 1 per cent of the credit union's total assets, whichever is the greater, provided that no more than £20,000 is in the form of deposits. A positive change in the area of loans is the removal of the maximum loan period of five years contained in the 1966 Act. The new Bill enables up to 20 per cent of credit union loan funds to extend beyond five years and up to 10 per cent of loan funds to cover periods exceeding ten years. The limit on individual loans under the Bill is £30,000 or 1.5 per cent of the total assets of the credit union, whichever is the greater.
Senators will be aware that the financial limits for savings and loans have attracted a lot of attention since the Bill was published. However, the limits in the Bill have been changed since publication in response to various representations I received from the credit union movement. At the same time, the new limits remain faithful to the fundamental principles I am anxious to protect.
The strength of the credit union movement lies in catering for the personal financial needs of its members. Credit unions are not banks or building societies, and they should not become such. It is my view and that of the Government that credit unions should continue to meet the needs of their members and should not seek to diversify their activity into corporate or other commercial business. The most effective means of achieving this is to cap the amount of savings and loans which apply to individual members of a credit union, just as limits were a feature of the Credit Union Act, 1966, and its associated regulations. Based on figures supplied to my Department by the Registrar of Friendly Societies and the Irish League of Credit Unions, I believe these new savings and loan limits meet the current needs of credit union members while providing generous scope for future growth. In round figures, the average shareholding of a credit union member in 1995 was in the region of £1,000. The average amount such a member had on deposit was about £100. The average loan to each member borrowing from a credit union was some £2,000. When these are considered by reference to the minimum ceilings of £50,000 and £30,000 per member included in the Bill for savings and loans respectively, it is clear substantial scope is given for the future growth of the savings base and loan book of credit unions generally.
I draw the attention of the House to the fact that the Bill includes a number of modern legislative provisions to support the credit union movement. First, updated provisions are included relating to the arbitration of disputes between a member and his or her credit union. Secondly, the Bill makes improved arrangements for amalgamations or transfers of engagements between credit unions. It also translates into credit union law the arrangements relating to winding up in companies legislation, subject to appropriate changes. The Bill also adopts the administration concept found in the Insurance Acts. Finally, the Bill allows for examinership. In this latter area, it adopts a number of the recommendations made in the Company Law Review Group Report of December 1994. Although these changes have yet to be implemented in company law, they are included in this Bill as evidence of the Government's firm commitment to a state of the art Credit Union Bill. I will elaborate on these changes later.
A final significant feature of the Bill to which I wish to draw the attention of Senators is the updating of the supervisory arrangements for credit unions. I have already indicated this work is discharged by the Registrar of Friendly Societies and his staff, who are attached to my Department. I mentioned earlier the registrar already has certain powers in this area under existing legislation and these are being maintained and updated as necessary in the Bill. In response to the desire of credit unions to expand the range of additional services which they may offer, the registrar is being given new powers to enable him to satisfy himself as to the capability of the credit union to undertake the additional services which it wishes to offer, where such services have potential consequences for the finances of a credit union or the savings of its members. In conjunction with the wider scope of this Bill relative to existing legislation in such new areas as administration and examinership, the registrar is also being given a role in such areas to facilitate the orderly regulation of credit union affairs. I add that the registrar's decisions are subject to appeal in the High Court, so as to ensure he cannot overstep the powers to be given to him in the Bill. Finally, the registrar is the State's supervisory and regulatory watchdog in this area of the financial and monetary system. He is to credit unions what the Central Bank is to banks and building societies.
Having outlined what I believe to be the significant elements of the Bill, I now turn to describe in more detail for the House the provisions contained in each of the 14 Parts of the Bill. Part I covers the first five sections of the Bill and contains a number of standard preliminary provisions. Part II, comprising the next 20 sections, outlines the conditions for and procedural provisions relating to the registration of a credit union and its rules. It also deals with amendments to a credit union's name and registered rules. It also establishes the conditions for membership of a credit union and provision is made for a member's withdrawal or expulsion. A right of appeal to the courts is provided against specified decisions of the Registrar of Friendly Societies and the credit union. In this part also, a member may nominate in writing to the credit union a person or persons to become entitled to his or her property in the credit union on death and necessary consequential and procedural provisions are stipulated. Where no nomination has been made, the board of directors has discretion, within certain limits, to distribute or make payments from a member's property in the credit union to persons whom the board judges proper to receive it in the event of the member's death or mental disorder or disability.
Part III, which deals with the operation of credit unions, covers sections 26 to 52 inclusive and sets out a number of the key parameters within which credit unions must operate. It starts by specifying that a credit union may do anything consistent with its objects, subject to the right of a member or the registrar to apply to the High Court to restrain a credit union from doing any act or thing which it has no power to do. The general provisions relating to savings in the credit union include that the amount which a member may invest may not exceed £50,000 or 1 per cent of the credit union's total assets, whichever is the greater; the dividend on shares may not exceed 10 per cent per annum; different interest rates on deposits may be set from time to time and the credit union may require minimum withdrawal periods of 60 and 21 days for shares and deposits respectively.
Subject to certain conditions, borrowing by a credit union is permitted. It may also make a loan to a member, subject to a ceiling of £30,000 or 1.5 per cent of its total assets. A maximum interest rate of 1 per cent per month shall be charged on the amount of loan outstanding. Certain limitations on the period of loan offered also apply. A credit union or a person acting under its authority may make, accept or endorse a promissory note or bill of exchange; make, vary or discharge contracts and acquire land for the sole purpose of conducting its business. A credit union may, in addition, invest its surplus funds in a specified manner and establish a special fund for social, cultural, charitable or community development purposes, subject to certain conditions. It must also meet certain requirements with respect to the establishment of a reserve, its participation in a savings protection scheme and the maintenance of insurance against fraud by its officers, etc. Subject to the agreement of its members and the registrar's approval, a credit union may provide additional services to its members. However, a credit union is prohibited from offering loans subject to a condition that a member shall avail of an additional service. A right of appeal to the High Court is provided against decisions of the registrar in this area.
Part IV deals with the management of credit unions and extends from sections 53 to 76 inclusive. It specifies, for example, the general functions and duties of the board of directors, the supervisory committee and other officers of the credit union and it outlines a number of associated procedural requirements. Provision is made for the manner of their election, appointment, resignation, suspension and removal, for the remuneration of the treasurer and the payment or reimbursement of expenses to other officers.
In this Part of the Bill a general prohibition operates against any officer participating in a decision in which he has an interest and against any officer or voluntary assistant disclosing any information relating to the affairs of a credit union. Officers and voluntary assistants who have receipt or charge of credit union funds may be required to provide security and they shall be required to account for their actions.
A credit union is also required to maintain a register and duplicate register containing certain specified information relating to its members and officers. It must also make available for inspection by its members an abbreviated register containing certain particulars from the register. On the application of 30 members, the registrar may appoint an accountant to examine the books and documents of the credit union.
Part V of the Bill sets out in sections 77 to 83, inclusive, the arrangements for the notification, convening and conduct of the credit union's initial organisation meeting, its subsequent annual general meetings and any special general meetings. The registrar, a body administering a savings protection scheme or a qualifying group of members may require the holding of a general meeting.
The credit unions' tradition of one member one vote, irrespective of the size of the member's shareholding, is confirmed and the right of members to demand a poll on the questions before a general meeting is protected. The registrar may also attend and be heard at a general meeting. The requirements for the adoption and commencement of special resolutions are also specified.
Part VI comprises sections 84 to 106, inclusive, and contains a number of important provisions relating to the control and supervision of credit unions by the registrar. It specifies that his role is to protect members' funds and the financial stability of credit unions generally. To that end, he is given power to require credit unions to comply with certain specified ratios. He may also issue directions in relation to advertising by credit union interests. In specified circumstances, the registrar may issue regulatory directions to a credit union in relation to the conduct of its affairs, subject to a right of appeal by the credit union to the High Court. The registrar may also invite the court to confirm a regulatory direction, to prohibit a contravention of the Bill or to cease the provision of the additional services offered under Part III. While such regulatory directions are in force, winding up and other specified proceedings may not be initiated except by leave of the court.
In addition, the registrar may appoint an authorised person to inspect the books and documents of a credit union. Under specified conditions, he may appoint, on his own initiative or at the request of 30 members, an inspector to investigate its affairs or call a special general meeting. Matters relating to the conduct of such an inspection or investigation, the subsequent report and possible prosecution proceedings are also dealt with.
On foot of an inspection or investigation, the registrar may appoint a director to the board of a credit union or suspend or remove from office one or more directors or members of the supervisory committee. The registrar may also suspend or cancel the registration of a credit union. In these cases, a right of appeal to the High Court is available to the person(s) concerned.
This part of the Bill also imposes obligations on the registrar. For example, he is required to prepare and maintain a public file on each credit union and the Minister may prescribe fees for the exercise by the registrar of his functions under the Bill. Certain administrative provisions relating to the classification of information and the delivery of documents are also included. The Minister may authorise assistant registrars to perform the functions of the registrar, who is required to produce to the Minister an annual report which shall be laid before the Houses of the Oireachtas.
Part VII of the Bill covers sections 107 to 124, inclusive, and deals with the accounts and audit of a credit union. It specifies the financial year of a credit union, the accounting principles to be followed, the keeping of proper accounting records and the maintenance of adequate control systems. It establishes the duties of the directors in relation to the format, content and audit of the annual accounts and the report to members.
Provision is also made in this part for the election, appointment, resignation and removal of the auditor of a credit union and for the notification, convening and conduct of general meetings relating to the auditor. His rights to obtain access to information and his duties to report to members on the state of affairs of a credit union are also included. The registrar may also require the auditor to report to him on specified matters. Officers and voluntary assistants of a credit union are required to give the auditor every assistance in the preparation of his report. In addition, the credit union is required to make available a copy of its annual report and accounts to the registrar and to its members.
Part VIII, comprising sections 125 to 127, inclusive, deals with the resolution of disputes and complaints relating to credit unions. It provides that disputes between a member or former member and a credit union shall be settled in accordance with its rules, which decision shall be binding on all parties. In certain circumstances a member may apply to the District Court to settle the matter. Provision is made for the application of the Arbitration Acts to the settlement of disputes and for the making of ministerial regulations relating to the establishment of a credit union complaints investigation scheme.
Part IX of the Bill, from sections 128 to 132, inclusive, provides for the amalgamation of two or more credit unions and establishes the necessary procedures for the approval of the terms of the amalgamation by special resolution of the members and for registering the rules of the successor credit union. The procedures include the preparation of an information statement by the credit union for its members, the application to the registrar for confirmation of the proposed amalgamation, the publication of the necessary notice and the subsequent distribution of any funds to members. Similar provisions are included in this part where a credit union proposes to transfer its engagements to another credit union.
Part X sets out in sections 133 to 136, inclusive, the arrangements for the winding up of a credit union. It provides that the registrar may in certain circumstances apply to the High Court for an order to wind up a credit union. It also provides that a credit union may be dissolved in accordance with the Companies Acts by members or creditors. An instrument of dissolution is required to contain specified information and shall be sent to the registrar for registration. The credit union shall be dissolved from the date of advertisement of the dissolution, subject to a right of application to the High Court by a member or other person having a claim on the credit union's funds. The registration of such a credit union may only be cancelled after the fulfilment of specified conditions.
Part XI, covering sections 137 to 141, inclusive, applies to credit unions the concept of administration which is found in the Insurance Acts. The intention is that a credit union administrator would be appointed where a credit union was being mismanaged rather than necessarily having serious financial difficulties. Provision is made for the appointment by the High Court, on the application of the registrar, of an administrator, or provisional administrator, to carry on the affairs of a credit union as a going concern. The effect of an administration order on a credit union is stipulated and various procedural matters, including the termination of administration in certain circumstances, are dealt with.
Part XII proposes to apply the option of examinership to credit unions and extends from sections 142 to 170, inclusive. Senators will recall that the first 1990 Companies Act introduced the concept into Irish law and it has since been frequently used to save companies which have found themselves to be in serious trading difficulties. The Company Law Review Group in its first report in 1994 made a number of recommendations to improve the examinership process. The principal recommendations made by the group which are now incorporated into this Bill are: that the petition to the court for the appointment of an examiner must be accompanied by the report of an independent accountant on the credit union's affairs; the court must satisfy itself that there is a reasonable prospect of the survival of the credit union as a going concern before it decides to appoint an examiner and the general time period for examinership should be reduced from three months to 70 days.
The examinership part of this Bill provides for the appointment by the High Court, or in certain circumstances by the Circuit Court, of an examiner to a credit union if it appears that there is a reasonable prospect of survival. A petition to the court may be made by specified persons and must be accompanied, inter alia, by the report of an independent accountant containing certain information.
In exceptional circumstances the court may allow the petitioner a period of no more than ten days for the submission of the report to the court before the petition is heard. A credit union shall be deemed to be under the protection of the court from the date of presentation of the petition. The effect of such protection on the status of a credit union is described and the court may make such orders as it thinks fit where a receiver or provisional liquidator already stands appointed to the credit union.
The powers of an examiner are defined in this part, and specified persons are required to cooperate with him in his work. In consultation with members and creditors, the examiner shall prepare for consideration by the court a report containing proposals for a compromise or scheme of arrangement.
The court may also hold a hearing where evidence exists of a substantial disappearance of credit union assets. Various procedural provisions are included related to the appointment of an examiner and the court's adjudication of his proposals for a compromise or scheme of arrangement.
Part XIII deals with offences and civil proceedings in sections 171 to 179 inclusive. It outlines the general provisions relating to offences which may be committed by credit unions, their officers and other persons for contravening the provisions of the Bill.
The final part of the Bill, Part XIV, provides in sections 180 to 189 for the maintenance of the statutory Credit Union Advisory Committee, for the making of ministerial regulations under the Bill and for various matters relating to records, documents and notices. This part of the Bill also includes for the first time statutory recognition of the Irish League of Credit Unions as the major representative grouping of credit unions in the country by providing that the Minister and the registrar are required to consult with the league on various matters relating to the implementation of this Bill.
It is clear from this extensive summary that the Bill before the House is a lengthy measure. That is putting it mildly. I said at the outset of my remarks today that the Bill's overall structure and content is attributable to the extensive consultation process which took place between Government and the credit union movement itself over a number of years. It is unique in my experience that any economic sector should have been given the freedom to develop the legislative blueprint for its own future. The movement has therefore had a major formative influence on the Bill before us today.
Since the publication of the Bill late last year, I have received extensive submissions from the Irish League of Credit Unions and the statutory Credit Union Advisory Committee, as well as a host of credit unions, individuals and other interested parties. Many valuable comments have been made, and I endeavoured in our debate on the Bill in Dáil Éireann to take on board as many of the suggestions as possible. The four month period since publication of the Credit Union Bill has therefore proved to be very beneficial in helping me to improve a number of the Bill's provisions and in particular to address the concerns of the credit union movement about some of its details.
Aside from the issues of savings and loan limits and the statutory recognition of the Irish League of Credit Unions which I have already spoken about, there were concerns that the Bill involved a measure of "intrusive regulation" of credit union affairs. The first point I would make in response is that any financial institution which looks after other people's money must be subject to effective regulation. The increased powers being given to the Registrar of Friendly Societies are designed to ensure that appropriate and speedy action can be taken in a problem case.
Having said that, I have amended the Bill since its publication to extend the right of appeal to the courts from his decisions, to shorten or impose new time periods within which he must act and to remove altogether from the Bill unnecessary references to his involvement in credit union affairs. I believe that these represent a serious response on my part to these credit union concerns.
In a similar vein, I should also add that a number of credit union interest expressed concerns with the offences and penalty provisions of the Bill. I have since amended the Bill to effect a significant reduction in the terms of imprisonment applicable to offences committed under the Bill.
A series of other more technical amendments have also been incorporated in the Bill before the House taking into account many more detailed comments made to me in recent months, both inside and outside the Oireachtas. I said on its publication that the Bill was in good shape, primarily because of the expert contributions which the Registrar of Friendly Societies and the credit union movement had made in its preparation. I believe that the Bill is now in much better shape arising from the extensive consultations which I and my Department have had with various parties in recent months.
I have not been able to meet all of the points made to me, in some cases because the suggestions made involved a measure of contradiction. It is not surprising that in a movement of over 1.5 million members there should be some measure of disagreement as to the best way forward. In other cases I have not been able to respond for sound legal reasons following consultation with the offices of the parliamentary draftsman and the Attorney General. In certain instances, I have taken a particular policy position which ruled out some of the more uninhibited ideas for future credit union development.
In particular, I want this Bill to maintain the fundamental ethos of credit unions as community self-help institutions. In addition, I want to see them remaining as important providers of personal finance to their members, which banks and building societies have tended to neglect. I particularly do not wish to see credit unions chase corporate business, whose commitment to credit unions would generally extend no further than the bottom line. This of necessity implies that some differentiation between credit unions and other financial institutions must be maintained in this Bill, and this has been done.
I remain anxious that the registrar, should have appropriate supervisory controls over credit unions as they develop and expand their range of services, and I have secured Government approval to additional resources to help him in his expanded role. Credit unions have an excellent track record of security for their members' savings, and I want to see this continue. The registrar must be accordingly able to act where necessary to resolve any emerging difficulties arising in any individual credit union and thereby to preserve their excellent reputation as sound community based financial institutions. I commend the Bill to the House.
