Credit Union Bill 2012: Second Stage

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

Minister of State at the Department of Finance (Deputy Brian Hayes)

As is well known, the Credit Union Bill 2012 is very important legislation, coming at an important time for credit unions. It is a key step towards placing the credit union movement on a sustainable path for the longer term. It implements over 60 recommendations made in the report of the Commission on Credit Unions which was agreed to by key stakeholders, including credit union representatives. The commission was specifically reconvened to examine the general scheme of the Bill and ensure its fidelity to the commission's report. The agreed report sets out a roadmap for the viability of credit unions into the future and its constituent elements are interlinked and mutually reinforced. The report is focused on what is needed for the credit union system. It does not apply banking thinking; nor does it slavishly import models from other international credit union movements. The taxpayer has committed to providing funding of €500 million for credit unions at a time when resources are very scarce. This significant financial commitment on behalf of taxpayers during a period of austerity must bring about a stable, well governed credit union movement that can sustain itself into the future.

The commission's report makes it clear that the adverse economic conditions in Ireland have resulted in a decline in credit union performance. While the financial challenges faced by credit unions are evident, they are not insurmountable. However, they reinforce the clear need to reform how credit unions are structured, governed and regulated. The commission highlights a number of vulnerabilities in the sector. Concern remains about the high level of arrears and the need to ensure loan losses are recognised and provided for. The low dividend rates across the sector are not sustainable in the longer term.

The cost to income ratio of credit unions has increased considerably in recent years, going from approximately 50% in 2006 to almost 90% in 2011. The loan to asset ratio was at only 40% at the end of 2011, an historical low. The Bill is an important part of the Government's response to these challenges. It also provides the platform for restructuring, improving systems, the provision of additional services and governance structures that are sound and forward-looking.

The Bill covers four broad areas. The first element deals with the prudential requirements that apply to credit unions across a range of areas, including reserves, liquidity, investments, lending and borrowing. In general, the Bill sets out the policies and principles, with provision for Central Bank regulations setting out standards and procedures. This will facilitate the development of a prudential rule book which will provide clarity for credit unions on the requirements that apply to them. The second main element relates to governance. The core function and focus of this part of the Bill is on bringing clarity to and distinguishing between the role of the board, on the one hand, and the role of the executive, on the other. Boards will be the key decision-making organ of credit unions, focused on strategy and policy, with the management team handling the day-to-day operations of the credit union, subject to board oversight. Importantly, the Bill preserves and respects the volunteer ethos of credit unions and provides better opportunities for training and development of credit union volunteers.

The next element is the restructuring of credit unions on a voluntary, incentivised and time-bound basis, overseen by the credit union restructuring board, or ReBo. The ReBo has been established on an administrative basis ahead of the legislation, with Mr. Bobby McVeigh as chairman - a hugely experienced and respected figure in the international credit union movement. The ReBo is working to the timetable in the commission's report which envisages the process being completed by the end of 2015. The Bill also provides for statutory stabilisation of credit unions which is to be fully funded by the credit union movement itself, via a levy, as recommended in the commission's report. Stabilisation will operate on a more limited basis during the restructuring period.

I would like to highlight some of the main provisions of the Bill. Part 1 includes the preliminary and general provisions, including the Short Title, interpretation and the commencement provisions. Part 2 deals with two main areas, regulatory requirements and governance. In terms of regulatory requirements, regulations must be effective and proportionate, having regard to the nature, scale and complexity of the credit unions to which they apply. This will facilitate the development of a tiered regulatory approach as recommended by the commission.

Section 29 provides that before introducing regulations, the Central Bank will be required to consult the Minister for Finance, the credit union advisory committee and other credit union bodies. Though not specifically required in legislation, this consultation is to be done in accordance with a consultation protocol which has been published by the Central Bank following consultation with stakeholders. Regulations will also be subject to regulatory impact analysis requirements.

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

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

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

Section 13 amends section 45 of the Credit Union Act 1997 on the regulatory reserve requirement and operational risk reserves, with a further role for Central Bank regulations in setting out the minimum levels to apply. Section 30 sets out the liquidity requirements that apply, with provision for Central Bank regulations on minimum liquidity requirements, including maturity mismatches and stress testing.

Section 14 sets out the provisions which may be appealed to the Irish Financial Services Appeals Tribunal, including regulatory directions. The Minister has asked his Department to look at any consequential changes needed to the Central Bank (Supervision and Enforcement) Bill 2011 to ensure the principal avenue of appeal for regulatory directions issued to credit unions under that legislation is the Irish Financial Services Appeals Tribunal rather than the High Court.

The other broad question dealt with in the Bill is governance. Obviously, the Bill provides clarity on the roles and responsibilities of the chair, board and management of credit unions. In accordance with the agreed recommendations of the Commission on Credit Unions, section 15 provides that the number of board members is to be between seven and 11 and also provides for term limits. The Minister has decided that the term limits provided for under the Bill should be extended to 12 years, in aggregate, in any given 15-year period. Exclusions from board membership are provided for in accordance with the commission's recommendations. The Minister has indicated his intention to amend the Bill in respect of certain exclusions. This section is also developmental in the sense that it makes specific provisions for the training of volunteer directors.

Section 17 amends section 55 of the Credit Union Act 1997. It specifies that the functions of the board include setting the direction of the credit union, operating a comprehensive decision-making process and ensuring an effective management team is in place. The board is also responsible for approving, reviewing and updating all plans, policies and procedures of a credit union. The Minister has agreed to an amendment to provide for a member of the board to present the accounts at the AGM. This role was previously performed by the treasurer. The governance provisions in sections 18 to 26 of the Bill deal with matters such as: the role of the chair of the board; committees, including the nomination committee; conflicts of interest; risk management, including the risk management officers; compliance officers; business continuity planning; information systems; outsourcing; and the role of the manager. Section 26 also provides that the internal audit functions within a credit union will provide for independent internal oversight and evaluate and improve the effectiveness of the credit union's risk management, internal controls and governance processes.

Section 27 provides for the board oversight committees, which will form a crucial pillar in the new governance assessment of the board's performance. The board oversight committee is the next evolution of the supervisory committees which have been operating in credit unions for many years. As the role of the board changes towards a more strategic focus, it is important that the role of the supervisory committee changes with it. The Bill sets out a number of important provisions regarding the board oversight committee. It will have access at all times to the books and documents of a credit union, including drafts. Its members will have the right to attend board meetings. It may notify the Central Bank of any issues or concerns about non-compliance by the board with applicable requirements. It will report to the members at the AGM or SGM on whether the board has complied with its requirements. The Minister has agreed that the changes on term limits and membership regarding the board should be mirrored with respect to the board oversight committee.

Part 3 of the Bill deals with restructuring, which will be carried out on a voluntary, time-bound and incentivised basis and will be overseen by the credit union restructuring board, to be known as ReBo. Restructuring will involve a process of amalgamations or transfers of engagement under Part 9 of the Credit Union Act 1997. The guiding aims of restructuring are the protection of credit union members' savings, the stability and viability of credit unions and the sector at large and the preservation of the credit union identity and unique ethos. This Part provides for the establishment of ReBo on a time-bound basis. It will comprise a chair and board, supported by an operational side.

The board of ReBo was established on an administrative basis on 31 August this year and has already met three times to lay the groundwork for restructuring. ReBo's role is as follows: to engage with credit unions on the ground to facilitate agreement on restructuring proposals; to assist credit unions in the preparation of restructuring plans; and to consider restructuring plans submitted to it, including any funding requirements, and approve or reject those plans. ReBo will also oversee the implementation of restructuring plans, including the provision of post-restructuring support. ReBo may also make a recommendation to the bank that an individual credit union should be considered for stabilisation.

ReBo will be funded up front and a levy on the sector by ReBo will recover 50% of its operational costs. The Bill establishes a credit union fund to fund restructuring and stabilisation. Once the Bill is enacted, it is intended that €250 million will be contributed to the credit union fund from the Exchequer to cover restructuring costs. The costs of stabilisation will be met entirely by a levy on the credit union sector itself, as agreed by the Commission on Credit Unions. Restructuring and stabilisation funding is recoupable from the benefiting credit unions, with provision for any shortfall in the recoupment of restructuring costs to be met by a levy on the sector.

Part 4 of the Bill deals with the very important question of the stabilising of credit unions on a stand-alone basis where they are viable and hold reserves above 7.5%. The Central Bank must have regard to a number of key factors before approving the provision of stabilisation, including the extent of the credit union's compliance with regulatory requirements and its ability to maintain reserves and fund the business for up to three years after the support has been provided. To avoid any disconnect during the period of restructuring, a credit union will need a ReBo recommendation before it can be considered by the Central Bank for stabilisation during the restructuring period. This requirement will no longer apply once ReBo has been dissolved. Part 4 also provides for the establishment of a stabilisation committee to examine the implementation by the Central Bank of its own requirements and procedures under stabilisation.

The Schedule to the Bill deals with a range of miscellaneous amendments recommended by the Commission on Credit Unions and those which arise as a consequence of amendments made in other parts of the Bill.

A number of very important issues were raised in the context of the debate that ensued on all Stages in Dáil Éireann. Where possible, the Minister has tried to show some flexibility without compromising on the core principles of the Bill. As the Minister has explained, the intention is to bring forward a number of substantive amendments on Committee Stage of proceedings in this House. This will, of course, require that the Bill is referred back to the Dáil in due course for consideration. I was responsible for taking some of Report Stage in the other House. Quite a number of very sensible ideas were put forward in the select committee and on Report Stage by Deputies on all sides. The Minister for Finance gave an assurance to the House that, for the purposes of Committee Stage in this House, the Government will be proposing quite a number of substantive amendments to reflect those ideas that emerged on Committee Stage and Report Stage, and also to reflect a new consensus that has emerged on all sides in terms of making this Bill more effective when it is up and running.

Senator David Norris

Will the Minister of State explain some of the general areas they will cover?

Deputy Brian Hayes

We can do that in the course of the debate.

Senator Thomas Byrne

When does the Minister of State expect that-----

Deputy Brian Hayes

I might just conclude first.

Senator David Norris

It would be immensely helpful if the Minister of State could provide that information.

Deputy Brian Hayes

I will certainly do that in my summation on Second Stage - I give my word on that.

With regard to some of the issues that may arise, the definition of financial services legislation has been misunderstood. However, it should be possible to nuance the definition to clarify that we are talking about the range of requirements that apply to credit unions rather than a wider application of financial services legislation generally. On term limits, which is another issue raised in the Dáil, it is important that the core principle of board rotation is retained - in other words, that people would move on.

However, the move to 12 years in 15 should strike a balance between continuity on the one hand and renewal on the other during the period of regeneration that lies ahead. The Minister has also agreed in principle to some changes regarding the exclusions from board membership where he has been satisfied that to do so would not give rise to undue concern about conflicts of interest, which is another issue that was raised. However, it is important to emphasise that volunteers may progress to a position on the board provided that they do not hold both positions at the same time.

A number of people have raised the importance of shared services. The Minister has reiterated the Government's position in support of this, which is in line with what is proposed in the commission report. He has also requested a report from the Credit Union Advisory Committee on shared branching which will allow for a further analysis of this concept and a recommendation on how best to proceed.

I take the opportunity to inform Senators that I expect to bring forward amendments on Committee Stage which are unrelated to credit unions. These amendments are required to permit the Central Bank to sign the International Organisation of Securities Commissions' multilateral memorandum of understanding, MMOU, by the end of the year. In light of the pressing end of year timeline for signing the MMOU, it is necessary to make these amendments to the Bill. The amendments do not relate to the credit union sector. The purpose of the MMOU is to allow the Central Bank to co-operate and share information with other regulators, including other securities commissions around the world, in accordance with international best practise. The provisions concerned are currently part of the Central Bank (Supervision and Enforcement) Bill 2011, Committee Stage of which is due to be taken in January. The changes envisaged include, enacting section 53 of the Central Bank (Supervision and Enforcement) Bill in order that the Central Bank may use its powers on behalf of overseas regulators, enhanced and consolidated authorised officers and related provisions regarding the Central Bank confidentiality regime. Given that these amendments are not related to credit unions, it will be necessary to amend the short and the long Titles to this Bill to accommodate them.

I emphasise that the process of reform will require leadership at all levels of the credit union movement. The focus must remain on what is best for credit union members and the safety of their savings. It is important that credit unions embrace the changes ahead. I know that there is strong support for the credit union movement on all sides of the House. The debate on the Bill so far has enabled a positive and constructive discussion on the future of the credit union movement. I look forward to hearing Senators' views in the course of the debate.

Senator Thomas Byrne

Ba mhaith liom an tAire Stáit a fháiltiú go dtí an Seanad arís inniu. I thank the Minister of State for coming to the Seanad to debate this important Bill and for setting out the Government's position on the substantial amendments to be made to the Bill on Committee Stage. I look forward to debating them. When the Minister of State mentioned the amendments I had anticipated that discussion on the Bill would be dragged out a little. However, in light of what he said subsequently about the unrelated Central Bank matters, I suspect that will not happen.

Fianna Fáil recognises and supports the role of credit unions in terms of their fulfilling a hugely valuable function throughout this country, having more than €15 billion in customer deposits. Unlike many other financial institutions, credit unions are open for business and are still providing loans for members, including small businesses. This should be fully acknowledged in the debate on the future of the sector. What should also be fully acknowledged is that unlike when a bank goes bust, when a credit union goes bust there is no threat to the viability of the State. If something goes wrong it might possibly have reputational consequences but the magnitude of the damage will be so much less than that caused by the banks to this State, yet their role is, in many ways, far more important with banks throughout Ireland closing their branch networks, in particular the Government owned bank, AIB. Credit unions operate in literally every parish in this country. They are run by volunteers in the community for the community.

In this day and age, when the economic climate is so tough, increasing numbers of communities are getting together to work at various initiatives in their areas. Often the credit union is at the centre of these initiatives, whether through sponsorship or by providing expertise or even an office for people to do their work. In Senator Quinn's Local Heroes initiative around the country it is evident credit unions have played a particularly important role in the way this movement has panned out in different communities throughout Ireland.

In spite of the difficulties that we acknowledge have occurred in the credit union sector, they have shown a determination to retain their character, identity and voluntary, not for profit and community ethos. As this legislation goes through the House that must be at the heart of all our debate and thinking. That is not to forget the mistakes and, in some cases, wrong actions taken by a very small number of credit unions, such as advancing loans that supported what may have been unsustainable property development. However, that cannot detract from the good of the credit union movement. I believe we can so describe it. The actual sector is in excellent shape. Some credit unions are in need of stabilisation and there have been some injections of State money. However, this has been nothing like the scale of what happened in the banking sector, and is only a small fraction of the money involved. As a State, we should be proud to be able to provide that amount to the credit union movement when a small number of its members get into trouble.

The voluntarism of the movement must be preserved by this legislation. The Irish League of Credit Unions and my colleagues in the Dáil reflected their concerns about what the Bill might do to voluntarism. As I understand it, the Minister has accepted those concerns and we look forward with interest to the amendments he will put before us on Committee Stage. This Bill has been ongoing for some time. There was a commission report and there were hearings at the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. We have taken a lot of time with it. If the Minister needs to push this Bill through before Christmas it might well be done in a rush. All Governments do this before terms wind down. I would be concerned that Members in either this House, or the Dáil, to which these amendments must return, or members of the credit union sector would not have time to digest the amendments, look at what is stated, debate them thoroughly and, in our case, vote for or against them as they deserve, according to our opinions.

I am concerned that we may not have enough time to do this if there is a need to rush the other part of the Bill. I wonder if that part could be put through as a single item Bill in order to allow us a little more reflection, without creating undue delay to the credit union matters. If that could be done as a single item, one page Bill on the Central Bank issue, my party would be willing to work to that. It does not seem to be necessary to rush through before Christmas what looks like a major amendment to the Credit Union Bill. People will want to study and examine it to see what are the implications. It is important that there is some engagement between Government and the credit union sector in advance of these amendments coming before the Seanad. I hope that will take place because we will not have much time to talk about them in this House.

We want to see Irish credit unions being in the first division of the international credit union movement, with the Government and its agencies as supportive partners. We want to see credit unions providing funding for Government-backed or guaranteed schemes or projects that have a social benefit, and we want to see the State avoiding the placement of significant regulatory costs on credit unions. Of course, the State needs to balance the interests of savers and borrowers. There is a delicate balancing act involved but we always need to be conscious of the volunteer effort without which, in some cases, our communities would not even exist. I thank the people throughout Ireland who serve as directors, staff and volunteers in credit unions. They are doing a marvellous job and I am delighted that the Minister has taken on board some of their genuine concerns. I reiterate I would not like to see the legislation rushed in the coming weeks which may be unnecessary. We want to see the volunteer aspect of the credit union movement preserved in legislation. We look forward to Committee Stage and will be constructive if the Minister takes on board many of the concerns we have expressed on behalf of the movement. Many of his colleagues have also done so. We genuinely support the Bill but will wait to see what is contained in the particular amendments.

Senator Michael D'Arcy

I welcome the Minister of State back to the House. He seems to be spending a great deal of time in the Seanad lately. In fact, he is spending as much time here as he did when he was a Member.

Deputy Brian Hayes

Perhaps I might be forced back here. God help Ireland.

Senator John Gilroy

It is more productive here.

Senator Michael D'Arcy

I welcome the Bill which is a necessary measure. It is also welcome that the Minister for Finance, Deputy Michael Noonan, is prepared to take on board a large number of amendments to it.

The credit union movement is perhaps one of the best examples of the work done within the voluntary sector in Ireland. It is organised and almost like a terrorist organisation in that it operates on the basis of a cell structure. Each cell is independent but overseen by others. The work done by credit unions is superb and I am satisfied that we are going to need a lively, strong and vibrant credit union sector.

I wish to outline my experience of the credit union movement in the 1980s when I was a teenager. I recall that those who were members of credit unions at that stage were not those for whom the latter were originally established. Every person involved in business throughout the country was then a member of a credit union because, as is the case now, the banks were not lending. Those to whom I refer needed money to keep their businesses going and they obtained it from their credit unions. At present, the banks are not extending credit to businesses and people are again seeking money from their credit unions. It is often forgotten but the only way out of the economic morass in which we find ourselves is through the creation of jobs. Credit unions are providing the vital lifelines - in the form of cashflow - which people need and the banks are not making available.

I made the point last week that the reduction in the amount of the banks' liabilities covered under the ELG from €375 billion to €78 billion in four years was probably too great. The reduction in exceptional liquidity assistance from the ECB and the Central Bank from €186 billion to less than €100 billion is probably also too great. It is too much to expect the banks to lend when reductions of this order have been made. The expectation was that the two pillar banks were to lend €3.5 billion each, but when one considers this matter in the context of the reductions relating to the ELG and the ELA to which I refer, one can see who is losing out. The credit union sector is picking up the slack in this regard.

It is welcome that changes are going to be made on Committee Stage. I look forward to discovering what these changes will be and have no doubt that they will be the subject of much discussion.

The Minister of State has indicated that section 11 amends section 35 of the Credit Union Act 1997 regarding lending and that "It provides that the ability of the loan applicant to repay shall be the primary consideration in the underwriting process". That is my major concern about the Bill. The one thing the credit union sector has retained is knowledge of its customers. This is not the case with the banks which have excluded the knowledge to which I refer. It does not matter what information a branch manager sends to the underwriters employed in a bank's headquarters. They do not care because they operate on the basis of criteria and mathematical formulae. If such criteria and formulae are not satisfied, the bank will not lend. I am not referring to reckless lending in this regard; rather, I am concerned about the exclusion of knowledge. Such knowledge is local in nature and indicates that a person or his or her sons and daughters have always paid their debts. The local authorities, of which the Minister of State and I were once members, also possess such knowledge. This knowledge allows credit unions and local authorities to identify the families which always pay. If the position is tightened to such a degree that we remove the local knowledge and experience possessed by credit unions, I am concerned that they will go the way of the banks and no longer be able to loan people money.

It is a concern which I hope officials will note and respond to on Committee Stage.

I attended the opening of the credit union in Gorey, which was a lovely occasion. The facility was opened by the Nobel Peace Prize winner, Mr. John Hume, and it was one of those days when one saw the community at is best.

The credit union sector must be given the opportunity to advance into the digital age in order that branches do not exclusively operate under the cell network. While they can continue to operate within the cell network, with oversight, provision must be made for linkages between branches, so as to strengthen the sector and make it more flexible. If a member has a credit union card, he or she should be able to withdraw cash from any branch in a network, be it in Westport, Letterkenny, Rosslare or Castlehaven. We need more flexibility and to allow the credit unions to embrace the digital age.

The restructuring of the boards can only be a good thing but I am concerned about how the restructuring will be advanced and facilitated. I would not be in favour of restructuring on the basis that one branch does not want to merge with another. Credit unions must be reasonable about such matters and simply not wanting to merge with another branch is not a good enough excuse. However, if one branch is steadfastly against merging with another, provision must be made to give it a hearing. I welcome the Bill overall and look forward to examining it in more detail.

Senator David Norris

I welcome the Bill. I have always been envious of friends and colleagues who are members of credit unions because they seem to be an efficient and socially welcome method of obtaining credit. There has always been a feeling of community about credit unions which is admirable. The same was true in the early days of building societies, when they were mutual societies, prior to being de-mutualised and privatised.

In general, I am very supportive of credit unions and of making them fit for purpose in these very difficult days. The days are difficult for credit unions, as was made clear with the establishment of the Commission on Credit Unions and the delivery of its report. Most of us have been lobbied by representatives of the credit union movement and I believe some of them are in the Visitors Gallery today. They are very welcome to Seanad Éireann. I cannot say I agree with all of their worries and perhaps they were a little overheated.

To follow on from what Senator Michael D'Arcy said, I was contacted some time ago by a woman who was involved with her local credit union and she expressed precisely the same concern expressed by the Senator at the end of his contribution about the prospect of forced mergers. I welcome the suggestion that there should be some discussion on any such proposition because, at the end of the day, human elements are involved. We are providing very significant sums of money, through the taxpayer, to credit unions and we are, therefore, responsible for the way in which that is discharged. There is no doubt that in implementing more than 60 recommendations of the commission, the main aim is to insulate the credit unions against the very difficult storms that are currently raging. A sum of €500 million is being provided.

In addition to the briefings I had with the credit unions I also received a very interesting document from a former colleague in this House, Joe O'Toole, which I found very useful.

He adumbrates the background history. An interim report was published, public consultation was undertaken and the commission invited and received submissions from the public and the credit unions themselves. They surveyed every credit union and nobody was denied a hearing. It was a fully democratic process at that stage. The report was agreed unanimously. It was acclaimed and welcomed by all the organisations comprising the Irish League of Credit Unions. Then it was reconvened to make suggestions about the Credit Union Bill 2012 we are debating. An implementation group was established. With this type of legislation, it is critical to have an implementation group so that it does not just remain on a shelf but that some group is charged with the implementation of the Bill.

When one considers the circumstances with which the implementation group and the Government were confronted - although the credit unions are and continue to be an excellent and vital part of our economic life - a series of problems emerge such as arrears, debt write-offs, capitalisation issues and very large sums, perhaps up to €1 billion were tied up in this. In 2011, credit union arrears were more than €1 billion and bad debt provision was more than €800,000, without taking into account capitalisation requirements. That suggests a serious and threatening situation in credit unions which the commission was set up to address, and which the Minister addresses in the Bill.

The concerns expressed in the correspondence I received have been of a significant number but at least - thanks to the Minister indicating he is accepting and tabling amendments - some are being addressed, in particular the terms of service. It is appropriate that there should be a turnover of personnel on the board, and that opens up the whole administration to new voluntarism. It is not intended to stifle voluntarism. I gather in the initial proposal one would serve on the board for nine years and after nine years, one would be precluded for a significant period from serving again on the board. The credit unions lobbied for this to be amended to 12 years and the Minister has accepted that proposal. That seems to be a reasonable and good compromise. It is appropriate that there is also a clear separation between the board and executive functions. The idea of a volunteer treasurer handling everything and being responsible for everything gives rise to a conflict of interests.

What the Government is doing in the Bill is appropriate, particularly when we take into account that very significant sums of taxpayers money are involved. There may be some confusion. One of the suggested amendments states - it does not seem to be an amendment - the League Board believes the new legislation should support credit union electronically enabled payments by all possible means. That is not an amendment, it is an exhortation. The situation, as I understand it, is that there is nothing to stop them doing it at present. They have the capacity and a number of credit unions provide these electronic facilities. It is very important, particularly with regard to small branches, that there is some degree of training and we must ensure the personnel are capable and the facility is up to standard. There is no point in having substandard provisions.

They are already supported in providing electronic services to their customers and that should continue. However, it should not continue willy-nilly. Historically, treasurers were elected to positions where they had very significant powers over very large sums of money while they may not have had any great professional skills or background in the management of such large sums of money or these complex organisations. The Bill proposes placing the executive function within the remit of the executive - the manager - with the board having powers of hiring and firing if he or she does not perform or report appropriately. I completely support that.

On the Central Bank legislation, the Minister of State has cleared up some misunderstandings. It is not a question of taking some large antiquated block of legislation and dumping it on the heads of the credit unions. As the regulator for the credit unions, for example, who is centrally important, is established under Central Bank legislation, the Central Bank has to be involved. There is some resistance to regulation, some suggestion that regulation might be stifling. The difficulty in the financial sector has been light regulation or none at all. This very valuable area of our commercial life must be regulated properly. I hope there will be a fair amount of accord in this regard. The credit unions believed they were being insulted, that some of the regulations were burdensome and intolerable. This language suggests a degree of difficulty which is surprising, considering they were involved in the process at the beginning, that it was unanimously recommended that it be open at all stages and that the process on which the Minister embarked is perfectly rational in implementing the main recommendations - if not all - of the body consulted. We have a responsibility to the taxpayer.

Acting Chairman (Senator Terry Leyden)

The Senator's time is expired. I am sure he has plenty more to say but he will have an opportunity on another occasion to say it.

Senator John Gilroy

I welcome the Minister of State to the House. Senator Michael D'Arcy has commented on the frequency of his visits to the House. This is probably the most important Bill that has come before the House this year or at the very least it ranks high in importance. The credit union sector has proved to be the only part of the financial sector to come out well from the recent self-inflicted disasters which have befallen the financial services and the country. There is a lesson to be learned from this. The credit union sector is firmly rooted in the community. Its role is of vital importance to members of the public who are members of credit unions.

Senator David Norris

They still have to be propped up by €500 million.

Senator John Gilroy

Members of credit unions have a sense of ownership of the organisation. Senator Michael D'Arcy referred to the corporate memory that has been lost in the banking system. Members of credit unions are well known to the risk management committees who make the lending decisions. This is commendable and is in stark contrast to the crowd of idiots who were running the other financial institutions. I call them "eejits" because they are financial idiots. During the years of the credit boom, these men - they were primarily men - decided that the basic laws of finance no longer applied to them. They decided that they had found a formula which freed them from taking into account even the most basic rules of prudential risk management. As Senator Norris will know, the ancient Greeks had a word for this - hubris - meaning that mortals were wiser than the gods. The difference is that the revenge of the Olympian gods fell on the heroes whereas the revenge of the financial gods does not seem to have affected our financial heroes but instead every member of the public is affected and the country has been more or less destroyed. Our Irish heroes were swanning around the country receiving the acclamation of other Irish heroes such as the politicians and commentators. On 5 February 2007 in a glowing hagiography, one lad said, "Seán Quinn, we salute you." Someone else, not too far from this Chamber, said-----

Senator David Norris

Who was that I wonder?

Acting Chairman (Senator Terry Leyden)

Senator Gilroy to continue, without interruption, please.

Senator John Gilroy

Other commentators hailed Mr. McCreevy as the best Minister for Finance in the history of the State and perhaps in the history of the world.

I even recall someone calling for Mr. Sean FitzPatrick to be appointed chairman of the Central Bank, incredible as it seems. When these bankers were living it up, the managers of local credit unions were going about their business, quietly working away to meet the modest needs of modest people and no Act could ever endanger this. We must be cognisant of this.

In welcoming the Bill we need to take into consideration the nature of credit unions and in our attempts to improve their operation we need to take care that our actions will not have unintended consequences. As we amend the regulatory framework for the setting of requirements, we must not make changes to force the credit union movement to be something other than it is and move it away from its core role as a provider of credit locally. The Minister has consulted widely on the legislation and the deliberations of the Commission on Credit Unions have resulted in the main provisions of the legislation, while the Irish League of Credit Unions has campaigned for this regulatory framework.

A number of sections provide that credit unions must comply with requirements under financial legislation, but the nature of this is not clear. Perhaps the Minister of State might outline his thoughts on this issue. This is a substantial Bill, comprising 96 sections, and it should take us a great deal of time on Committee Stage to fully reflect on and tease out its implications for this important sector in the financial services industry.

The role of credit unions in other countries is filled by local banks and most of the smaller banks have survived the financial chaos. I urge caution and careful consideration, while bringing the Bill through the Oireachtas.

Section 8 permits credit unions to raise funds by issuing shares. Is there a risk that this could lead to the demutualisation of the movement, as happened with building societies, which led to significant damage?

Section 10 provides that where a person who lends money to a credit union or accepts security on that loan where he or she knows the credit union is breaching its requirements, the debt and security are unenforceable. I have reservations about this, as it provides for two undesirable courses of action. In the first instance, it might permit credit unions to act outside their remit by specifically mentioning section 10 and, second, if the section stands, it might place an onerous burden on credit unions to demonstrate that they are acting within their remit.

The key stakeholders have agreed to most of the 60 recommendations, but, like Job in the Bible who was terrified by the gathering of the mob, I am always terrified by the gathering of consensus. Has the Minister of State concerns about this? Consensus is always dangerous and it is strange when we agree we need to be critical. The role of the House is to fully tease out what we are doing and if two previous Seanaid had done their work properly, we might not be in the mess we are in. It is important, therefore, that we be highly critical of changes to financial services regulation. Has the Minister of State concerns about this consensus? I am glad he said the Minister was taking on board proposals made on Committee and Report Stages in the Lower House.

I look forward to a full debate on Committee Stage. We need to move with caution regarding a movement that has served the country well and continues to do so. Sometimes in this country when the pendulum swings too far in one direction, we tend to jump in and ensure it swings too far back the other way. Does the Minister of State believe the Bill is proportionate and that there is a need for these measures?

Senator Ned O'Sullivan

Senator Gilroy could not resist the temptation to take another swipe at former Fianna Fáil Ministers. It would be remiss of me not to point out that former Deputy Charlie McCreevy was generally considered to be a reforming and successful Minister for Finance. He went on to achieve further successes in Europe. I will not discuss any other ex-Ministers for Finance.

I agree with Senator Gilroy that the credit unions are a success story in Ireland. That success story is in marked contrast to the failed story of their big brother counterparts in the major so-called pillar banks. It is inevitable, but nonetheless ironic, that we are legislating for the regulation of credit unions at a time when their counterparts still appear to be skipping along their merry way and turning their noses up at the Irish people. That is the context in which I will make my contribution on this Bill. Credit unions have €15 billion in customer deposits, even in today's tough times. A total of 2.9 million people in this country have deposits with credit unions. It is the largest number in Europe, in percentage terms. Credit unions are still giving out loans, although not as many as we would like, and are still in business.

In general, we welcome the Bill. Stabilisation is badly needed for a small number of credit unions. It is a fact that 51 have reserves that are lower than the 10% standard and 25 of them are classified as being seriously under-capitalised. It is worrying that the loan-to-asset ratio of credit unions in Ireland is at 40%, as opposed to the international norm of 70%. These are the negative issues and they must be addressed. However, the concept of credit unions is based on the ethos of voluntarism and a sense of service to a community. I applaud the volunteers who are involved in credit unions and who have done such wonderful work. The Minister acknowledges that. The credit unions have always been a support to the small or low earner, the small businessman and the small farmer, who would probably be rejected everywhere else. Their contribution to society, particularly in small towns in rural areas, is exemplary.

There was a controversy regarding a credit union in my home town of Listowel some years ago. As with every controversy, there were two sides to the argument and it culminated in an extraordinary general meeting, EGM. The meeting had to be moved from the Listowel Arms Hotel, which has catered for large conferences, race meetings, writers' weeks and the like, because so many people came to the meeting. The manager had to cancel it on health and safety grounds. It had to move to the gymnasium, which holds up to 1,000 people. That sense of engagement on the part of ordinary people on an issue relating to their credit union demonstrates the sense of ownership people have towards their credit union. The credit union in Listowel was and is strong and is getting stronger all the time.

Some of the governance issues in the Bill are a puzzle for me. I welcome the amendment from 15 years to 12 years in respect of people stepping aside. It is a pity that was not the case in the major banks previously. There might have been a quicker turnover of bank managers at the top level and we would be much better off today. However, is it ageist to say that a person has been in place for too long and must step aside? As there is much wisdom and experience with age, I hope that, under the rules, the expertise of the people who have given service and are then obliged to step aside will still be availed of and that they will still be able to have an input and, in due course, I hope, return to management or senior positions.

The legislation should not be anti-voluntarism. There are certain exclusions from board membership but I understand from what the Minister has said that he is softening on that somewhat. I welcome this. There is also a financial consideration for credit unions under the Bill in that it requires that 0.2% be paid into the deposit guarantee scheme. That will obviously make credit unions less competitive than heretofore. They will also be required to dig deep to finance the costs that will be incurred in implementing the new audit and regulatory regime, which will cost money.

Senator Deirdre Clune

I am pleased to have an opportunity to speak on the Bill. I always avail of the opportunity to contribute on the operations of credit unions because, as other speakers have said, their importance is reflected in the community. I am an admirer of the credit unions in my constituency and the role they play, being rooted in the community and coming from a volunteer co-operative movement, a system of one member one vote where the board of directors is elected by the members. They play a very important role in our communities in providing funding to individuals who would not necessarily want to get involved with banks. Generally they are people of modest means with moderate or low incomes. Credit unions provide financial services, loans and savings opportunities. A movement with 3 million members and 400 registered credit unions must be respected.

The Bill is welcome. It is important that those 3 million members have confidence in the regulatory regime and that the credit union in which they are involved is run properly for the sake of all its members. Nobody would object to the regulatory regime being put on a firm footing. As with all institutions, credit unions are not immune from the financial challenges of recent years although they have not experienced the same issues as the banks. Since 2008 there has been a deterioration in some of the key financial indicators. The Irish League of Credit Unions said it had a deficit of almost €46 million in 2010 compared with a surplus of €15 million in 2009. The size of dividends paid by credit unions has been reducing. Some 75% of credit unions paid a dividend to their members in 2010. Some 12 months ago the Irish League of Credit Unions said the difficulties were having a direct effect on credit unions. If people's incomes are reduced that has a direct effect on the number of financial transactions being entered into. There were references to people buying property that would be perceived to be outside their remit but we do not have all the details. However, the financial situation in the community must have a detrimental effect on credit unions.

Like other speakers, I had been contacted by credit unions in my area and yesterday I had a further communication from them. The three issues of concern have been addressed by the Minister but I look forward to discussing them on Committee Stage. One issue was in respect of legislation and the definition of "financial services legislation". The Minister stated that he will clarify those that would be required by credit unions rather than financial services legislation generally. I hope that will satisfy the concerns.

On the issue of terms for board members, I had long discussions with members. There is also the issue of corporate memory. It will be welcomed that the term for same has gone from nine to 12 years because a certain level of expertise has developed and it is important that is continued.

A certain level of expertise has developed and it is important that we continue to support it. This does not take from the fact that we need rotation, fresh blood, new ideas and the opportunity for new expertise to be brought on board.

The issues of shared services and electronic transfers are relevant. From what I know and understand, some credit unions operate using these facilities and there is no legislative or statutory prohibition from using electronic transfers or shared services. It is an issue for discussion on Committee Stage and the Minister of State has acknowledged as much in his statement.

It is important that the credit union movement continues to grow, especially since many banks are closing down in our communities. We should continue to support the credit unions and allow them to grow in a fashion that gives confidence to their members and those who have dealings with them. I welcome the fact that 60 of the recommendations of the final report were included in the legislation.

Senator Feargal Quinn

The Minister of State is very welcome to the House. He seems to be getting rather fond of us because he is here every second day.

Deputy Brian Hayes

God help the House.

Senator Feargal Quinn

I am pleased to see the Credit Union Bill before the House. I had not realised the extent to which I was connected with it. My father was actively involved in the first two credit unions in Dublin. I looked up the Internet today and discovered that he was actively involved in 1955, 1956 and 1957 when the Dún Laoghaire credit union co-operative was established. I believe the Donore Credit Union was the first of its kind set up in Dublin. If I remember correctly there was one in Castleblayney or somewhere in County Monaghan as well. I grew up in a house where people were actively involved in the credit union co-operative movement. People such as Nora Herlihy, Seamus Mac Eoin and Brendan O'Cearbhuill were the founders in those days and they went on to establish something that has been worthy of support over the years.

I like to think that the steps we are taking today will enhance and build on the reputation of the credit union movement. While I welcome the updating of legislation on credit unions, we must at all costs avoid tarring credit unions with the same brush with which we have tarred the banks. It is fair to say that the banks deserve it. We all agree.

As someone who has lived through four or five recessions and done business in tough times during those years I am fully aware of how credit unions have provided a lifeline to many businesses and individuals. On occasion, banks simply would not lend unless they were given full security. Thus, credit unions were established for the people. We are getting to the point again where it is remarkably difficult for individuals and SMEs in particular to get loans from banks. This is where credit unions come in. In the nine months from October 2011 to June 2012 they provided €1.1 billion in loans to the membership. People would be a great deal worse off without this vital facility.

There is a great worldwide movement back to credit unions and what is termed community banking. Bill Clinton made an interesting comment recently. He remarked on how this was the way forward. When asked about the Occupy Wall Street movement call to shift billions of dollars from banks to smaller credit unions he said he believed it was a good thing. I do not think many people would necessarily disagree with this, especially because the larger banks are reluctant to loan now. He suggested that one simple thing people could do was to put their money in a community bank sensitive to their needs. Such community banking is common in certain countries, including Germany. An SME funding bank was set up recently in France. Germany has two such banks while community banks in America lend to local communities. These banks are vital. We need to consider ways to attract or establish such banks in Ireland to complement our credit unions. This is something we should be able to achieve and such developments are important to consider.

During the boom the banks lost a great deal of their ability to know their customers. Has the Minister of State heard of a new bank that could be an attractive option?

I have in mind a bank in Britain although I cannot remember the name of it. The head of the bank said: "We have chosen to operate through brokers rather than a branch network which makes us efficient and agile, and we make fast, robust decisions based on common sense and knowledge of our customers — not a computer score." I admire this thinking because it harks back to when the banks knew their customers. Such co-operative banks pride themselves on this philosophy.

The Irish League of Credit Unions argues that credit unions should be leaders in assisting the Government in implementing its financial inclusion agenda. It maintains that this could be realised through the Bill. The legislation should encourage credit unions by permitting them to offer electronic payment accounts. This is a sensible idea to make it easier for the customer to do business and I believe the relevant provision should be included in the Bill. I offer an example of how this could be good for business in Ireland. In the United Kingdom the "one in, one out" system requires Government Departments there to assess the net cost to business of complying with any new regulation proposed. This is an "in". Each time this is assessed, calculations are validated by the independent regulatory committee. If a new regulation means a cost to business, a deregulatory measure or "out" must be found to reduce the cost. If we are to succeed in making the Credit Union Bill do exactly what we want it to do we must ensure any steps we take enable the credit unions to have the freedom which they had in the past. We should not tie them down with more regulations, although we must ensure that some of the faults that occurred in the past do not recur in future.

Acting Chairman (Senator Marie Moloney)

Senator John Kelly is next. He has five minutes.

Senator John Kelly

I hope to be a good deal briefer than five minutes. I welcome the Minister of State to the House. Prior to Senator Quinn speaking on the credit union movement, no Member had expressed any involvement in it. I am pleased to say that I was a founder member of the credit union in Castlerea, County Roscommon, in the late 1980s. I know what is involved in setting up such a body and the hours, days and years it took to establish it. I was a director for ten years and a teller for ten years. If I am complimentary of the credit union movement, the House will fully understand why because I see the great work it does.

As Senator Quinn noted, it is important that we do not tar the credit union movement with the same brush that the banking sector, rightly, should be tarred with.

The Irish League of Credit Unions has campaigned for radical reform in this area and it is broadly positive about the majority of the provisions. However, some elements of the Bill were not considered by the commission. There are requirements under financial services legislation which have not been detailed in the Bill or which are referred to but not in a specific way. It is something of a catch-all scenario. We need clarity in the Final Stages of the Bill with regard to this issue.

The issue of term limits has been raised. I have some experience in this area, purely from my participation in anything related to voluntarism. I know that most of the original directors of the Castlerea Credit Union, of which I was a founder member, are still directors today. This is not because they want to be, it is because it is not possible to get volunteers to do anything now. It is important that prospective volunteers for the role of director of a credit union should be tellers first in order that they know what they are doing and what the job is about. It is not as simple as recruiting. In recent years some members of the same credit union have passed away and it has been difficult to recruit volunteers as directors. I am unsure about the associated provision in the Bill. I suggest that in the case of the credit union to which I have referred, if people have been directors for the past 25 years, they should be left on the board and perhaps the new provisions should apply to new members.

It is important that credit unions are given a chance to provide enhanced services for members and so on.

The proposal regarding the provision of social finance for Government guaranteed schemes is an excellent one. I know that there are other organisations that can do something similar, but if there are local projects which are Government-backed, local credit unions should be allowed to play a role in them.

In the context of the Central Bank (Supervision and Enforcement) Bill 2011, I hope the Central Bank will not come down too heavily on credit unions because it is important that we do not take away the flexibility in the sector. I am also concerned that credit unions will not be forced to pay the price for what the banks did to the economy. Credit unions play an important role in local communities and legislation should not take away from the ethos of the credit union movement.

I have raised the matter of guaranteeing loans on numerous occasions in this House and not many of my colleagues believed me when I said what I said. Many of them had never heard it said before and checked to see if I was correct in my assertion. If one guarantees a loan for someone else, one hopes and prays that the loan will be repaid. If it is repaid after a year or so, one blesses oneself and breathes a sigh of relief at being let off the hook. However, one will not be off the hook unless one ensures one's name is removed from the guarantee. When one signs a guarantee, one is not just guaranteeing the particular loan but also guaranteeing the person who took it out for life. It is not a simple process to withdraw from a guarantee. One must obtain the bank's permission to have one's name withdrawn. It is very important that people are made aware of this because many individuals have been caught out. As we can see from the way the banks are conducting their business, they will take any scalp they can get. If a guarantee was given and is still in a bank's files and the guarantor is still alive, he or she should withdraw his or hers lest he or she is made liable for future borrowings.

Senator Kathryn Reilly

I welcome the Minister of State and his assertion that the Seanad will play a crucial role in the making of amendments to the Bill. I assure him of Sinn Féin's full and positive input during all Stages in the Seanad. This is a very important Bill that we need to get right, which is why it is so important that we examine amendments thoroughly.

As other Members have said, the credit union movement is critical in Irish society and has been a very practical and reliable friend to Irish families for decades. I received my first loan from my local credit union when I was 17 years old. I also received a loan every year when I was in college and can say the credit union actually put me through college. I had better tell my mother what Senator John Kelly has just said about guarantors, lest I am tempted to go wild in Las Vegas and leave her to pick up the bill.

In approaching the Bill we must constantly remind ourselves that is not just further legislation to regulate profit-hungry and risk-taking private credit institutions. As Members have said - the point should be reinforced - the credit union movement is a unique institution which is central to Irish communities, coming from the meitheal system, an approach we have seen so often in communities. The ethos of, and respect for, the credit union movement stand in direct contrast to the discredited and rightly vilified politicians and wide-boy bankers who brought the country to its knees. Having said that, reform of the credit union sector is needed. Sinn Féin is clear about this and will be supporting the thrust of the Bill. Obviously, we have some concerns about certain aspects of it and will be tabling amendments to it. The Minister of State also referred to amendments.

We are where we are after a long period of consultation following publication of the report of the Commission on Credit Unions. It is now up to us, as legislators, to make sure a fair reformed regime is put in place. I remind Senators, following earlier comments, that the credit unions will be levied to the tune of €500 million and are not getting away with anything. The Minister and his Department have done a good job on the big picture details and I am happy to give credit where credit is due. The tone struck on probity, restructuring and stabilisation is sensible and worthy of the support of all Senators.

There are some areas of concern that we believe can be ironed out through the Minister amending the legislation or accepting some of the amendments we will be putting forward. The first issue of concern is the confusion around the definition of financial services legislation, which is a core issue. Failure to deal adequately with it will be to the detriment of all concerned. As I stated earlier, it is all well and good for us to praise the uniqueness of credit unions, but if we fail to address this important question we risk their being lumped together with other credit institutions. Members of my party met the Department on this issue. While it was stressed that only those portions of the legislation which already applied to credit unions would be covered by this definition, we remain concerned about leaving this open to discussion. The Minister of State stated it should be possible to add some nuances to the definition to clarify it. I would welcome if he could elaborate in his summation on how it is proposed to do this.

The second issue of concern is that of term limits in respect of membership of the board of directors. We can talk all we like about the uniqueness of the credit union movement and the volunteer ethic behind it, but these are but words if we do not recognise this in the Bill. I know the Minister of State will have already heard the arguments in this regard. However, I implore him once again to rethink this provision. As Senator Kelly has already raised the issue, I will not go into too much detail on it now. We need to ensure the commission's recommendations in regard to allowing credit unions to offer electronically enabled payments to facilitate the sharing of services between credit unions are taken into account. This needs to be explicitly permitted for member-level shared services. The Minister of State mentioned in his speech that the Minister had reiterated the Government's position in support of this and that a report and recommendation on how to proceed has been requested from the Credit Union Advisory Committee. I would welcome if the Minister of State could elaborate on the timeframe in that regard, how that will feed into this legislation and what the credit union movement is seeking. In this day and age, it is a matter of common sense that member-level sharing, such as is being sought by the credit union movement, is explicitly included in the Bill.

I call on the Minister of State and my fellow Senators to consider the inclusion of a memorandum of understanding in respect of the relationship between credit unions and the registrar of credit unions, which has been an uneasy one. I do not propose that the detail of the memorandum of understanding be inserted into the legislation. It could be thrashed out by the Central Bank in consultation with the implementation group. Sinn Féin supports this legislation and urges the Minister to strengthen it to ensure it is good legislation. We are all united in our support for further regulation reform. It is hoped that on Committee Stage we will hammer out the last few chinks in the legislation. I look forward to Committee Stage, where we can discuss these issues further.

Senator Tom Sheahan

While the credit unions are deserving of all the plaudits and plámás they are getting today, what they really need is protection from the Central Bank and Mr. Matthew Elderfield, whose reputation precedes him. Having made inquires, I am aware of what happened under his watch to the credit union movement in another jurisdiction.

The Minister of State stated:

The report is focused on what is needed for the credit union system. It does not apply banking thinking; nor does it slavishly import models from other international credit union movements.

It is ironic that this is included in the Minister of State's speech.

On stabilisation, while the Government is making €500 million available, all of this money will be repaid through a levy. There is no bailout. All of this money will be repaid. Let us not get carried away. Ordinary members of credit unions will pay for this facility. The Minister of State mentioned that the credit union movement is not a banking system. While the title of the Bill is the Credit Union Bill 2012, the Central Bank is mentioned in it more times than is the credit union movement. On shared services, not every Garda station in the country has a breathalyser device, which is used to test the alcohol levels of a person suspected of drink driving. Shared services, in terms of their structure, will result in the demise of smaller credit unions. If I choose to have my single farm payment cheque paid into my credit union account I want it done by way of electronic transfer. If this facility is available in my town and not in my local credit union, it is obvious which one I will go to. Shared services must be as customer-friendly as possible.

As I understand it, the credit union movement has savings of €7 billion which it cannot lend. Only 25% of this money can be held by any one institution. There are only two pillar banks in this country, Allied Irish Banks and Bank of Ireland. This means the remaining 50% of credit union funds is invested in foreign banks. Perhaps the Government would consider establishing a bond of, say, €5 billion or €7 billion - there is still time to do so in this Bill - in which the credit union movement can invest, the return on which can be used by the Government for job creation and capital projects in this country. This would be a better use of credit union funds and would benefit every community in the country.

Section 29 provides that before introducing regulations - this relates back to banking-type thinking and the Central Bank and Mr. Elderfield - the Central Bank will be required to consult the Minister for Finance, the Credit Union Advisory Committee and other credit union bodies. Although this is not specifically required in legislation, this consultation is to be done in accordance with a consultation protocol which has been published by the Central Bank. I will leave it at that until Committee Stage.

Senator Brian Ó Domhnaill

I welcome the opportunity to contribute to the Second Stage debate on this important Bill. It is legislation that must be welcomed in the general context.

Before I comment on the Bill, I acknowledge the tremendous work being done by the credit union movement throughout the country, including the staff and volunteers who work in the sector. If one asks any individual living in a particular town where there is a credit union who is lending in the area, they will say the credit union, whether it is a loan to go to Las Vegas, buy a car, fund a child going to college or help support a small business. For this reason, credit unions must be supported. Any legislation that protects the credit union movement must be supported. Fianna Fáil supports the Bill, to which it tabled a number of amendments during its passage through the Dáil. The Minister has given assurances in relation to some of those amendments. We await the tabling of Government amendments in the Seanad as promised in the Dáil, which it is hoped will alleviate the concerns expressed by the Irish League of Credit Unions.

In Ireland there is a 67% level of penetration in terms of credit union accounts among the population. In other words, 2.9 million citizens have an account in one of the 403 credit unions throughout the country, a staggeringly high proportion of the population. This shows the confidence the general public has in the credit union movement. It offers a grassroots approach to the ordinary member who can go to the annual general meeting and play an active role within his or her local credit union, and this must be supported by all political parties. This legislation will go a long way in supporting the credit union movement.

The Minister of State will be aware we have had meetings with the ILCU, which has discussed the Bill with local branches. As Senator Kelly noted, they have expressed concerns about some of the Bill's proposals, and also the specific proposals made by the commission that were not included in the legislation, such as those pertaining to the term over which a member can sit on the board of a credit union. The Minister indicated in the Dáil that he might increase the period from nine to 12 years. I hope that can be done as it may go some distance towards supporting the views of the ILCU.

I refer to restructuring and rationalisation. I do not wish to speak at length because we will have an opportunity on Committee Stage to have much more discussion on the Bill. Rationalisation of credit unions is not new; it has happened throughout the world. I fully appreciate there are credit unions that may not be economically viable or are under financial pressure in certain areas. There was a case in Newbridge in County Kildare earlier this year in which there were major difficulties. The Bill is trying to protect such credit unions. By way of comparison, currently there are credit unions in local areas where banks are closing branches. In my home town there are branches of the AIB and Bank of Ireland but AIB is closing and Bank of Ireland operates only a three-day week. The Minister referred to this issue in his speech. We should give credit unions much more autonomy. Let us allow them to have the hole-in-the-wall facility and have salaries paid into accounts. That option is contained in the legislation and should be fully supported and rolled out as quickly as possible. It would increase the viability of credit unions and would also help the general public.

The number of credit unions in Britain fell by 70% when new regulations were introduced. Australia had 700 credit unions but after new regulations the number fell to 106. There is a worry - I certainly worry - that if the regulations are too stringent we might end up with a reduced number of credit unions in the country. It is important that this does not happen and that we support the existing credit unions nationwide so we do not end up with a situation similar to that in Australia or Britain. I hope the Minister will bear that in mind.

Senator Paul Coghlan

I welcome the Minister of State to the House to discuss what is obviously an important matter. This is important legislation which will shape the future structure of the credit union movement that we all hold dear and are involved with in one way or another. That is why it is imperative to do the movement justice. We must ensure we take its views into account. In this context, the correspondence from the ILCU has been helpful in relaying the views of the wider membership of the movement. I am sure Members have studied it. I am aware the Minister promised to introduce amendments in this House upon the conclusion of work by the finance committee, although unfortunately I missed that work. Our contributions will therefore be ever more important. It is our duty to ensure we strike the right balance in this legislation and deliver a robust regulatory regime that allows the credit union movement to maintain its ethos and viability into the future.

Nobody can deny the major role credit unions have played in Irish society in the past 50 years. Credit unions play an active role in their communities and provide services to members that may have been denied by other more mainstream commercial financial institutions. It is the close knowledge of the volunteers that makes this possible. This element of the relationship is very important and allows for a sustainable lending model in which small loans are advanced. It has been stated by other Members of the Oireachtas that these small loans are the lifeblood of many families, especially in these recessionary times and in view of the current difficulties. However, the credit union movement has not been unaffected by the economic crisis and it is our duty to ensure the protection and future of the movement.

The ILCU was an active member of the Commission on Credit Unions. I am aware there were contrary views on offer but we must understand that the league must cater for the views of the wider membership. Furthermore, I understand there are some new elements in the Bill which were not considered by the commission. We must examine these closely. It was also brought to my attention that some of the issues considered by the commission are not reflected in the Bill. A number of sections appear to impose a new general obligation on credit unions to comply with unspecified financial services legislation. This was a matter discussed on Committee Stage in the Dáil and again I emphasise the importance of clarifying for the credit union movement which aspects of the financial services legislation will apply because a blanket imposition of legislation in this regard could be particularly burdensome for the movement. The Minister of State might outline to the House what legislation will apply, and it would be helpful if he were to state whether he intends to clarify this in the legislation.

We all know the credit union movement has an active role to play in the community, not only in providing financial services for members of that community but also in the significant contribution its members and volunteers provide in the administration of the credit union. One cannot state enough the important resource the credit unions have in their volunteers, particularly the smaller credit unions. Prohibitions and term limits on membership of credit union boards of directors were proposed by the commission, but it is felt by many in the movement that such provisions are too restrictive and represent a direct attack on volunteer participation on credit union boards. The aim may be to allow for renewal of the credit union boards, but the participation and involvement of volunteers, on which many credit unions rely so heavily, would be significantly undermined. The whole ethos of credit unions in this State, so distinct from that of other financial institutions, may be compromised. It could be said that on the one hand there is an impetus to align credit unions more closely with other financial bodies such as banks by imposing the type of governance restrictions contained in the Bill, while on the other hand, provisions for a more modernised service for members which could allow the credit unions to continue to compete alongside banks and allow for the modernisation of credit unions are glaringly absent from the Bill. These matters were discussed by the commission but have not been included in the Bill. Credit unions should be able to offer electronically enabled payment accounts. There are also opportunities for the sharing of member services between credit unions, which could significantly enhance services to members.

A number of Members in the adjoining House have raised the issue of the ability of credit unions to invest in Government-backed schemes. I raise an issue that should be explored in the legislation, which was raised by the movement, namely, the ability to raise additional capital. This is especially relevant against the backdrop of a restructuring of the movement and in the context of a sustained reduction in income. The provisions of the Personal Insolvency Bill and the new insolvency service-----

Acting Chairman (Senator Marie Moloney)

As the Senator's time is up, I ask him to conclude.

Senator Paul Coghlan

I will finish. Those were the points I attempted to make and I look forward to hearing the Minister of State respond to them. We all want to see a practical approach being taken to ensure the ongoing success of the credit union movement throughout the country.

Senator Michael Comiskey

I welcome the Minister of State back to the House. It is good to see him here again. I thank him for taking on board many of the concerns that have been raised by the credit unions.

Credit unions have already highlighted the difficulties they are experiencing in the context of recruiting new directors and volunteers. Many credit union officers have been in their positions for some time. As a result of the timeframe which applies to their periods of service, large numbers of them may be obliged to retire at the same time. I am aware that the Minister for Finance has given consideration to increasing the time limit from nine to 12 years. Perhaps it might be possible to put in place a transition period during which outgoing board members might work with those who are going to replace them. This would mean that the latter would obtain the skills that will be necessary to allow them to run credit unions in the future.

The ethos of the credit union movement is local in nature. It aims to highlight voluntarism and the willingness of people to be involved with the local credit unions. This is an important factor in all communities. The local knowledge and expertise of officers has led to a large number of credit unions being in a healthy financial position. We should ensure that such knowledge and expertise is retained. Most Senators have worked with their local credit unions and are members of them. We usually visit our credit unions late in the evening and we see the range of different people who avail of the services on offer. In view of the difficulties relating to the banks in recent years, we have become more aware of the good work the credit unions do and we wish to acknowledge this.

I welcome the Bill and thank the Minister for State for coming before us.

Senator Michael Mullins

I welcome the Minister of State, Deputy Brian Hayes, to the House for the debate on this important item of legislation, which relates to a movement that is near and dear to the hearts of many people throughout the country. Credit unions are an example of the very best of the co-operative movement. Every small town in the country has a credit union which has served the needs of the local community very well.

Credit unions have always been regarded as the small person's bank. Credit unions provided lifelines for people who did not have many resources and who would have been overawed at the prospect of meeting a bank manager when times were difficult. Many small businesses in the town in which I live, Ballinasloe, and in the surrounding area began operating and have survived as a result of assistance provided by local credit unions. Like other Senators, I want the credit union to be strengthened. I appreciate the support which credit unions have provided within communities and in respect of particular projects. In Ballinasloe there is a community facility whereby small businesses can start up operations. The local credit union was one of the main sources of funding for the project in question, Ballinasloe Area Community Development Limited, which has been responsible for the creation of 180 jobs. This has been made possible by the efforts of the local chamber of commerce, the town council and the credit union.

Reference was made to voluntarism. The strength of the credit union movement during the years has been a result of the dedication and commitment of its volunteers, who have given unselfishly of their time and expertise. There is a need to be flexible and I welcome the fact that the Minister of State indicated a willingness to examine the provision relating to length of a time a person can serve on the board of a credit union and, perhaps, to making some amendments on Committee Stage in this regard.

The credit union in Ballinasloe raised two issues with me. The first of these - I am sure previous speakers referred to it - is that which relates to shared services. This obviously involves the inability of a credit union to service its members other than at its own office. As such, the Irish League of Credit Unions was looking to the Bill in the context of its enabling credit union members to have access to their accounts at any credit union office throughout the country. Members are facilitated in accessing their accounts by electronic means and they do so on a regular basis. However, physically accessing one's account at another credit union office remains a problem. This is because each credit union is obliged by law to serve only its members and no one else. The Irish League of Credit Unions is seeking to enable credit union members to access their accounts wherever they wish. This is a sensible and practical suggestion and I urge the Minister of State to consider it.

The second issue raised with me relates to the memorandum of understanding, which will give the credit unions and the Registry of Credit Unions a clear comprehension of how they should interact with each other. It will also indicate the level of service each expects of the other. In the Dáil the Minister for Finance indicated that the registry had issued a consultation protocol for credit unions. This protocol will allow for structured engagement with credit unions in order to seek, receive, analyse and respond to feedback received, build consensus on new regulations and to inform the decision-making process. However, it does not contain any indication as to the type of service a credit union may, on an individual basis, expect to receive from the registry. During the past two to three years the latter has prohibited some credit unions from holding AGMs. Under the Credit Union Act 1997, AGMs are supposed to take place within four months of year end. The registry can, by law, delay an AGM for nine months. The 1997 Act is silent with regard to what happens thereafter. Credit unions have been unable to have this matter addressed. The Irish League of Credit Unions believes that a memorandum of understanding between credit unions and their regulator would be beneficial to all concerned. In addition, it would oblige both parties to behave responsibly.

We have made significant progress. I hope the Minister for Finance, as he indicated in the Dáil, will take on board some of the issues raised by Members and by the Irish League of Credit Unions. I would like a structure to be put in place that will guarantee the future success and viability of credit unions in order that they might continue to provide people and communities with the type of service they have both enjoyed and come to expect. There is huge support for the credit union movement. I want that movement to be strengthened.

Minister of State at the Department of Finance (Deputy Brian Hayes)

I thank Senators for their contributions to the Second Stage debate on this very important legislation. I reassure colleagues that the Government has a very open mind and is taking a constructive approach to progressing the legislation in such a way that we will put in place the best possible framework for the credit union movement.

Senator Quinn made an extremely striking point when he stated that one of the outcomes of the financial crisis will inevitably be that people will view banking, saving and prudential risk in a different way than they might have done ten years ago. I agree with the Senator in this regard. The credit union movement which, in view of the enormous losses that have taken place in the banking sector, is coming through the crisis relatively unscathed. There will, as a result, be enormous opportunities for credit unions to exploit in the future, particularly when people reconsider their banking requirements and those of their communities. I am aware of the comments made by the former US President, Mr. Bill Clinton, when commenting on the opportunities in the context of community banking. There is a need for a new ethos and such an ethos has always been articulated by the credit union movement. I am interested, for example, in the Islamic financing model, which looks at the question of prudential risk in a completely different way. Investment in public infrastructure is a key element of this model. We must always be prepared to learn from other such models. The community banking model - in this country we refer to it as the credit union model - will provide an opportunity to place the credit union movement on a more firm footing in the coming years and it will also allow people to make different decisions in respect of their finances.

I wish to recognise the role played in this area by a very distinguished former Senator, Mr. Joe O'Toole, who was a member of the original commission and is currently a member of ReBo.

He and the other members of the commission played a crucial role by working on the 60 or so original recommendations to ensure they were fit for purpose and reflect the mainstream view of credit unions. The credit union movement is not just one homogeneous group but reflects the community with big and small credit unions in urban and rural Ireland. We are trying to reflect all of that in legislation on the financial requirements in the years ahead.

The criteria we used are based on three pillars. We must respect the mandate of the credit union movement, which is a not for profit organisation. That is individual and unique and accounts for the success of the movement. As Senators said in the course of their contributions, we must recognise the volunteer ethos, which is at the heart of the Irish credit union movement. The point forcefully put by many Senators is that we do not want to see unintended consequences as a result of the legislation. Senator Ó Domhnaill made the point on the impact such legislation had in Australia. We need to learn from that experience. We must ensure that at the heart of this legislation is respect and understanding for the volunteer ethos. The third pillar on which the legislation is built is the community focus. Local knowledge is the one difference between the credit union movement and the banks. As I have said repeatedly, the banks should get to know and understand their customer base and know their requirements. They need to get into the heart of the community again and do the things that bank managers did 30 years ago and understand the risk. That knowledge is already there in the credit union movement. The community focus ensures the knowledge transfer, which is really important if the credit union movement is to go forward.

I congratulate and thank the commission for its work. It was open and inclusive and attempted to bring together the various strands of the credit union movement and produce a report that is capable of being implemented. The Bill delivers on the 60 recommendations of the Commission on Credit Unions. It clearly demonstrates the Government's commitment to the early implementation of this report. There is no point in having recommendations and not following up on them. The legislation reflects the consensus majority view expressed in the recommendations.

I will now deal with the issues raised by Members. Senator Gilroy referred to section 10 and the reference to lending to a credit union being unenforceable if it is in breach of limits. There is nothing new in this. This was in the 1997 legislation on credit unions. My understanding is that the Credit Union Act 1997 places the onus on the third party entity lending money to the credit union. The onus is on the third party entity to ensure that it is not lending to credit unions above and beyond the limits that have already been set by the Central Bank. That is a measure to protect credit unions and to ensure that the onus is on the entity lending them the money not to do something over and above the limits that have already been set by the Central Bank. That is a prudential provision in the 1997 legislation and is simply reinforced in section 10. Senator Gilroy referred also to the definition of shares. Shares in a credit union do not compute to the definition of a share in a company or limited company. Every single euro that a member has on deposit in a credit union is equivalent to a share. Shares in the credit union refer to savings and depositors. It is not like having shares in a company.

Senator Reilly raised the question of shared branching. This came up on both Committee and Report Stages in the Dáil. A report on shared branching is being prepared by the credit union advisory committee and the Minister, Deputy Noonan informed the lower House that by the end of the second quarter of next year he expects to be in possession of that report. He is open to the idea but his view is that it is probably premature to legislate for it in the current Bill. If new legislation is required, he will consider it. He cannot do this outside of the commission recommendations and that is the reason for a specific piece of work to be done. The matter is being followed up. We will see the outcome of that report. It was not dealt with in the commission report. We must ask why and whether it was regarded as a major issue by the Irish League of Credit Unions and the credit unions generally. We will be in a better position by the middle of next year to come to a view on shared branching. I thank Senator Reilly for raising it.

Senator Sheahan asked for a number of amendments to be considered on the question of public investment projects. He will be glad to learn that we will bring forward an amendment capturing what is a public investment project and the Minister gave an assurance that he will bring in such an amendment on Committee Stage. There was very detailed discussion on this. It would be a good thing to encourage credit unions to invest in public infrastructure projects, where it yields a public good from it. We will bring forward an amendment on Committee Stage to reflect that.

Senator Sheahan also raised the bond issue. The Minister is open to considering this, however this was not a major issue of concern among the credit unions when engaging with the commission. We need greater clarity from the credit unions about how that would work, but the Minister is open to the issue if a consensus view were to emerge. It has not been raised. I know it was raised in this House by Senator Sheahan and in the Dáil by colleagues, but it has not come up as a major issue of concern among credit union members. The Minister has no difficulty looking at it if there is broad support for it.

At the start I was asked to set out the areas in which we propose to table Committee Stage amendments. The first is a change in the definition of financial service legislation for clarification purposes. Many Senators raised this question. We are exploring with the Attorney General as to how to provide a better definition. A credit union is not a bank and it should not be outside the scope of the Parliamentary Counsel to reflect that in the definition. It must also be said credit unions have managed outside that definition to obtain new functions in the past decade and a half in areas, which one would regard as exclusively in the financial services area. Credit unions have become insurance mediators and provide products through insurance. Credit unions have involved themselves in the Investment Intermediaries Act 1995. Credit unions have an application in terms of the European Communities (Payment Services) Regulations 2009, which is the deposit guarantee scheme. Defining their role in such exacting terms as to exclude them from things they want to do would not be in their interest.

We are working with the Attorney General to provide a better definition for credit unions. This was a view expressed by all Senators. The second area in which we intend to bring forward amendments includes the question of changes to the exclusions from the board of oversight committee. The Minister for Finance has heard the views of colleagues and will bring forward amendments to reflect the majority view.

The third area covers the extension of term limits from nine years to 12 years out of 15, an issue raised by many Senators. The Minister stated in the other House that he would bring forward an amendment in that regard.

The fourth area includes the specific reference to investment in Government supported projects. I referred to this issue in reply to Senator Tom Sheahan.

The fifth area is ReBo running costs which are to be funded from the credit union fund rather than the Exchequer. Credit unions will obtain the benefit of this restructuring. ReBo is the overarching body which will be staffed by good people with a knowledge of the credit union movement. The provision of a levy is not a new idea and I take the Senator's point that the credit unions are paying for this. The €500 million is not an open-ended loan and the money will come back. It is not like the €64 billion we have had to put into the banks, although it is the Government's mission to get some of this money back at some point in the future. What is sauce for the goose is sauce for the gander and the Senator's observation is fair.

Senator Thomas Byrne asked why we were bringing forward changes on Committee Stage in respect of the IOSCO, the International Organisation of Securities Commission, - the memorandum to which I referred - to allow the Central Bank to sign an international co-operation agreement. This is an urgent matter and the detail will be dealt with on Committee Stage. We are using this opportunity to allow the House to give its views before the end of the year.

The issue of shared services was raised with reference to the role of the new restructuring board, ReBo. This is a small country, but the credit union movement is a varied sector owing to its size and nature. Costs can be cut by the use of shared services and if expertise is shared regionally and nationally. The new credit union movement will have many credit unions attached as spokes in a national movement. They can learn from each other and share services between them. This is essential, both for the Government which has to restructure and share HR and financial services and also for the proper functioning of the credit union movement. We cannot allow this to be used as an excuse for allowing small credit unions to fall off the face of the earth. There should not be unintended consequences as a result of this legislation. The Bill should not provide means by which smaller credit unions would find that they no longer had a mandate. We have to be careful to ensure this will not happen. The credit union restructuring board has been established with Mr. McVeigh as a very experienced chairman. Former Senator Joe O'Toole and others are on the board. This will help the restructuring plan such that the future viability of credit unions will not be in doubt and in order that people will have absolute confidence in their ability to continue their good work in the community.

I look forward to working with Senators next week, although I do not mean to presume that is when the House will decide to deal with Committee Stage. However, I assure Senators of the good intent of the Government to ensure we will have robust legislation to provide for the best possible standards for the credit union movement. I hope the Bill will be regarded as another essential development in the credit union movement which has done such good work in this country.

Question put and agreed to.

Acting Chairman (Senator Diarmuid Wilson)

When is it proposed to take Committee Stage?

Senator Michael D'Arcy

Next Tuesday.

Committee Stage ordered for Tuesday, 11 December 2012.

Sitting suspended at 5.45 p.m. and resumed at 6 p.m.

Seanad Éireann debate - Tuesday, 4 Dec 2012

Credit Union Bill 2012: Second Stage

Seanad Éireann debate -
Tuesday, 4 Dec 2012