Select Committee on Enterprise and Economic Strategy debate

SECTION 35.

Mr. Rabbitte

I move amendment No. 46:

In page 32, subsection (1), lines 19 and 20, to delete "unless it is guaranteed by the member's parent or guardian" and substitute "and neither is nor has been married unless an indemnity is provided by the member's parent or guardian or by a person approved by the board of directors".

There are three intentions behind this amendment. Section 2(1) of the Age of Majority Act, 1985, specifies that a person attains full age at 18 years or upon marriage, if earlier. Accordingly, it is necessary to amend this subsection to provide that a loan to a married member of a credit union under the age of 18 years does not have to be guaranteed by the member's parent or guardian. Second, the Irish League of Credit Unions has questioned if repayment of loans made available to under 18 year olds is legally enforceable even where guaranteed by a member or guardian. Following discussion with the Government's legal advisers, it has been confirmed that payment of a debt contracted by a person under 18 years is not legally enforceable, even where so guaranteed. Accordingly, where a credit union wishes to advance money to a minor, it should take an indemnity from the parent or guardian. Third, the Irish League of Credit Unions has sought that the guarantee or indemnity provision be extended to another person approved by the board of directors to allow greater flexibility in approving such loans. The purpose of the amendment is to deal with these three issues.

Mr. E. O'Keeffe

This amendment has implications for the Departments of Justice and Equality and Law Reform. Had they an opinion on it?

Mr. Rabbitte

The amendment has been cleared with the Department of Equality and Law Reform.

Amendment agreed to.

Chairman

Amendments Nos. 48 and 49 are alternatives to amendment No. 47 and amendments Nos. 50, 52 and 53 are related. Amendments Nos. 47, 48, 49, 50, 52 and 53 may be discussed together. If amendment No. 47 is agreed, amendments Nos. 48 and 49 cannot be moved.

Mr. Rabbitte

I move amendment No. 47:

In page 32, subsection (2), lines 34 and 35, to delete paragraph (c) and substitute the following:

"(c) in the circumstances specified in subsection (3).".

This subsection defines circumstances in which a credit union shall not make a loan to a member. The conditions relate to the term and amount of loans and specify an individual loan limit of £20,000. While the provisions relating to loan periods have not provoked comment in the credit union movement, the £20,000 loan limit has attracted criticism. Following further consideration, I have decided to amend the conditions relating to individual loan amounts and this is dealt with in the new section 35. The purpose of amendment No. 47 is to substitute reference to the new subsection (3), which now deals with the limitations to the loan limit, in place of the former reference to the £20,000 loan limit.

Before drafting the new subsections (3) and (4) of section 35, I considered at length representations made by the league of credit unions, the credit union advisory committee, individual credit unions and Deputies from all sides of the House about the £20,000 loan limit. The 1995 figures for credit union annual returns, provided by the Registrar of Friendly Societies, suggests there are 1,000 credit union members with loans of or above £20,000. In its submission to my Department following publication of the Bill, the league suggested there are 683,643 members with loans from credit unions, of whom 1,436 or 0.2 per cent of credit union borrowers or 1 in 500 have loans of or above £20,000. A further 12,422 members, or 1.8 per cent of borrowers, have loans of between £10,000 and £20,000.

A number of contributions from Deputies on Second Stage, as well as the submission of the credit union advisory committee, suggested that a figure of £30,000 be substituted. I have decided to include that figure in the new subsection (3). However, based on current league figures, 276 members or 0.04 per cent of borrowers have loans of or more than this amount, and account must be taken of this circumstance. I have decided, therefore, that room for manoeuvre must be made to allow for future growth in the individual requirements of credit union members. The arguments of certain Deputies for flexibility to allow members to acquire their local authority houses were particularly persuasive.

I have decided that 5 per cent of credit union lending should be set aside for loans above £30,000. This 5 per cent figure compares with the 1 per cent of credit union lending which currently operates above the £30,000 figure, according to the figures submitted by the league. Subsection (3)(b) gives effect to this revised formula. Paragraph (a) also tries to address the formula which has been promoted by the Irish League of Credit Unions. A number of Deputies also took up this matter. The 1.5 per cent of credit union assets which is included in my amendment is the formula which applies in the UK. In the context of this subsection, the formula attempts to limit the maximum loan which an individual credit union member may obtain. In theory, 1.5 per cent of a credit union's assets means that a loan of about £1 million could be given to one member in the largest credit union in the State. This is a generous percentage, but I hope a credit union's board of directors would try to accommodate a number of members' applications for loans of more than £30,000, rather than seeking to accommodate one or two members with very large loan applications. I have no doubt this is the practice and that it will continue.

In addition to the more flexible arrangements set out in the new subsection (3), the new subsection (4) provides the further flexibility that in the circumstances of any individual credit union, the Registrar may grant a dispensation from the 5 per cent limit in paragraph (b) of that subsection. The purpose of this provision is to enable the circumstance of an individual credit union to be catered for by decision of the Registrar rather than having to rely on ministerial order or regulations which would change these provisions for all credit unions.

In summary, I am providing both a higher general limit of £30,000 and providing credit unions with the right to provide loans of a higher amount to their members on certain conditions. In addition, if a credit union has a unique requirement in this area, the Registrar is being permitted to act to modify the 5 per cent lending limit in such terms as he thinks proper.

Miss Quill

I welcome the Minister of State's comments on his amendment. It meets to a welcome degree what my party sought to achieve in our amendment. He has raised the limit substantially and has built in the type of flexibility that is essential when drafting legislation to serve the credit union for the next 20 or 30 years.

It is important when drafting laws to build in flexibility that makes provision for changing circumstances, and circumstances in the money market change quickly. Last night, when considering the purchase of a new car, it occurred to me that the cost of the new car will be more than twice what I paid for a decent house 20 years ago. That is how money values have changed and the reality of the market place——

Mr. Power

It does not run on water either.

Miss Quill

It does not, and I am worried about how my tax will be increased in the next budget. However, that is not pertinent.

The Minister of State has vastly improved the Bill. Raising the limit and the provision of flexibility and discretion without reverting to ministerial order has helped significantly. I will, therefore, withdraw amendment No. 48.

Mr. E. O'Keeffe

The 1966 Act provided no monetary limit. The Bill originally proposed a limit of £20,000, which was a short sighted provision. All those who spoke on Second Stage, especially on this side, were opposed to it and the Minister of State made these marginal changes under the ensuing pressure.

There is no necessity for capping. The economy is performing well, people are being paid good wages and modern industry is investing in the country. As a reflection of this, the standard family car is a 1.5 litre and many families have two cars, at a combined cost of approximately £30,000. Families with two or three children may incur additional expenses in home improvements, such as the provision of an extension or a new kitchen. The modern kitchen today costs approximately £7,000 to £8,000. The installation of a new kitchen and the provision of two cars could therefore cost a family approximately £38,000. This is the environment in which wage earners find themselves today.

Mr. Rabbitte

Public spending could go through the roof in that kind of environment.

Mr. E. O'Keeffe

In view of this, a strong case could be made for an open limit, to be left to the discretion of the board, who can best judge business. The best loan is often a big loan. The Minister of State has been very fair and I do not wish to quarrel with him, but the cosmetic changes he has introduced to improve the legislation are unacceptable.

Mr. P. Gallagher (Laoighis-Offaly)

The Minister of State has done an excellent job on listening to the points made on Second Stage. Subsection (3)(b) of amendment No. 50 provides that the total amount of loans above £30,000 should not exceed 5 per cent of the loan book. Will he reconsider this? The battle in many credit unions is to keep the assets loaned out and out of Government stocks. If there is a 5 per cent limit, the money which members make available to unions will increasingly have to be put into Government stocks, instead of being loaned out to members.

At present, 1 per cent of the total loan book is above £30,000 and from that point of view, a limit of 5 per cent would appear to be generous. However, this does not take account of the circumstances of individual credit unions, where the limit will be a serious impediment to their future growth and development.

Given the battle to keep the assets loaned, if the credit unions are increasingly forced to place them in Government stocks rather than loans, the return to members will be reduced in the long term. In view of the situation regarding European Monetary Union, the long-term yield on Government stocks is unknown and the limit of 5 per cent could put members' shareholding at greater risk. Doubtless the Minister of State hopes the "out" clause provided for the Registrar would allow flexibility for credit unions in such circumstances. However, if the Registrar declines, they will be faced with the same problem.

The limit of 5 per cent is unnecessary. The previous safeguards on percentages and limits are satisfactory. The job of the board is to make the most of the funds the members have made available to the credit union, preferably by loaning them out. If we put limits on the loans to bona fide members in whom the board of directors has trust, we will drive funds into Government stocks resulting in less money being made available. The biggest problem is to keep the money loaned out and no impediment should be put in the way of that.

Mr. Crawford

I thank the Minister of State for his efforts to meet the requirements of the members of the committee and the deputations from the credit union groups. This amendment goes a long way. In discussion with a number of credit union personnel in my county we considered the danger that, in view of the 5 per cent limit, large amounts of funds will have to remain in Government stocks. This is the one area above all that concerns them.

There is a 10 per cent limitation at present and the figures quoted by the Minster of State confirm this has not been abused. Will he consider increasing the 5 per cent limit to 10 per cent to ensure greater flexibility? I would be concerned that credit unions may have to go the Registrar too often because of difficulties that may arise in this area.

The Minister of State has tried to be as helpful as possible. Unfortunately, when some people get that help they claim it as a weakness rather than a genuine attempt to make this the best possible legislation for credit unions and their members.

Mr. Power

Much concern was expressed on this aspect of the original Bill. The Minister of State is concerned about the financial stability of the credit unions. Given the way they operated under their own rules, before having to work under bureaucracy of the kind that will be placed on them by this Bill, the cap of 5 per cent was unnecessary. It is an insult to the credit union members to suggest a union may grant £1 million to a client. It fails to recognise the maturity and prudence they have displayed when carrying out their business. The cap restricts their development; it is something they can do without.

Yesterday we discussed shares and deposits and the difficulties facing people taking up redundancies and voluntary retirement packages in the Defence Forces. The same would apply to loans. Many people working on six or 12 month contracts cannot get loans of £20,000 to £40,000 from banks because they do not have security of employment. They will be discriminated against by this legislation.

The Registrar is being given too many powers and in future credit unions will have to seek his approval for functions they carried out very well in the past.

Mr. E. Byrne

The Minister of State has done an excellent job in taking on board the cases made to him by various Deputies and the Irish League of Credit Unions. I share some of my colleagues' concerns and it has been pointed out to me that a certain average-sized credit union would be limited to loaning £30,000 to only nine members, notwithstanding its investments of £1.5 million with a merchant bank. They feel the 5 per cent cap is a debilitating factor. They could easily loan more than £30,000 to their members; they might loan £50,000 for a taxi plate to each of three applicants. That would amount to £150,000. Other applicants might apply for loans for house extensions. This credit union is in a part of my constituency with very old housing stock which is expensive to upgrade. With these old houses and phenomenal building costs, this credit union is often pressurised into loaning sums in excess of £30,000 to their members. There is, of course, a range of other matters that people borrow for.

This credit union argues that a member in very good standing with savings at the £30,000 limit might want to extend his home. The credit union might then discover it had committed itself up to the 5 per cent limit. Such a situation would make it feel it did not serve its members to the extent it would wish. It is a complex situation and I understand, in particular cases, the credit union can seek a derogation. Would the Minister of State agree that the 5 per cent cap is too low in certain circumstances?

Mr. Boylan

This is an important section and is central to the role of the credit union. If credit unions are to function, it is important they get money back into the local community where it creates jobs. Credit unions should broaden their base, as a result of the last weeks' publicity. It is interesting to hear of their roles in urban and rural situations. In urban areas there is a demand for house extensions and urban renewal but in rural areas attempts are being made to attract the farming community into credit unions. Accordingly, if there is an upper limit of £30,000 and a farmer sees machinery or livestock he wants to buy, that amount would not meet that need.

The upper limit was previously 10 per cent of assets and that was not abused. The Minister of State has shown us the base from which credit unions will develop. If they expand, that growth should not be restricted because we put a cap on it.

I welcome the role of the Registrar of Friendly Societies, as I come from the co-operative movement and have seen the importance of the Registrar there. However, if he is to be consulted on a regular basis, it will be very difficult for those working on a voluntary basis. I welcome the Minister of State's actions but he should listen to the contributions on this section as it is a particularly important one.

Mr. B. Fitzgerald

I am not sure of Deputy Boylan's point regarding the 10 per cent. I understand there is no restriction at the moment and the Minister of State proposes to introduce a 5 per cent figure. That might be clarified as there seems to be confusion. Loans above five years can only be 20 per cent of one's total assets and loans over ten years can only be 10 per cent. There are built in safeguards but the 5 per cent restriction would be unnecessary.

Two comparisons were done for me. One was in relation to a credit union with £25 million total savings and another with £1 million. The former would have about 20,000 members and under the proposed restriction, the highest loan, more than £30,000, could be issued for ten members. Only one could be issued in the case of a credit union with £1 million and approximately 1,000 members. If this is the case, it would be a severe restriction. I appreciate that the Minister of State is trying to establish a fallback position with the Registrar but the Registrar's position should be that of interpretation and handling appeals rather than dealing with the day-to-day running of the credit union, which should be the responsibility of the local board. The Minister of State should look at this again.

I would be wary of the 10 per cent being suggested until there is further clarification. That would make the matter slightly easier but not solve the problem. This section should be deleted if possible but perhaps the Minister of State has an argument for introducing it. Otherwise he might consider removing this section on Report Stage.

Mr. Finucane

I have no wish to repeat what was already said. It should be appreciated the Minister was treading a tightrope with this legislation. Members have received representations from other lending institutions, many of whom feel the Minister has gone too far. We all respect the work of credit unions. The Minister had a delicate role to play and he performed well.

The legislation initially allowed for a maximum £20,000 loan. The Irish League of Credit Unions requested £30,000 and the Minister agreed. The Minister recently stated that the average credit union loan was £2,200. Would he expand on the point that it is possible for some of the medium sized credit unions to loan up to £75,000 subject to the 5 per cent limit? Are there any loans of more than £75,000?

The Minister mentioned the Registrar would have some discretion to exceed the 5 per cent in special circumstances subject to the 5 per cent loan limit. In what circumstances does he envisage that happening? The Minister is getting the balance right. We are all strong advocates of the credit union movement but we should be sensitive to what the Minister is trying to achieve.

Mr. Sheehan

I agree with previous speakers. The Minister has done an excellent job. He has met the wishes of the league and the various Members of the Oireachtas and is trying to finalise the details of the legislation. The Minister should remove the 5 per cent cap on loans. He should increase the figure from 1.5 per cent of assets to 2 per cent. If he introduces these two measures there will be no further problems with the legislation.

Chairman

Yesterday I received a substantial submission from the Irish Bankers Federation. This has been circulated to Members.

Mr. Costello

The Minister has done a good job in responding to the requests of the league and many of the points made by individual unions. He has gone to an aggregate ceiling of £50,000 in relation to the shares and deposits and increased the loan cap from £20,000 to £30,000.

Will the Minister confirm the increase would permit a loan of up to £75,000 in a medium sized credit union subject to the 5 per cent limit? Will he expand on the consequences of increasing the cap to 10 per cent? How might this operate in individual loans? We heard of many heart rending cases of people obtaining loans of £30,000 for a domestic need. Do these cases come under the dispensation available to the Registrar in subsection (4)?

Many credit unions raised questions about the intrusive nature of the Registrar's role as outlined in the Bill. It may not work out this way in practice but the Registrar will play a monitoring role. We have not had any scandals in the credit union movement but there have been in other investment bodies. The same monitoring procedures should be applied to voluntary, mutual organisations as to other financial institutions where people's money is at stake.

Chairman

Will the Minister use all his trade union skills to tackle the consensus which has emerged.

Mr. Rabbitte

The difficulty with that is that Deputy O'Keeffe would declare it another victory for Fianna Fáil. When I was on that side of the House I argued amendments vigorously and I have never regarded the acceptance of meritorious amendments as a weakness. At the league's special delegate conference I indicated I was amenable to increasing the loan limit. I have done so. Balance is important for a variety of reasons and I am sure Deputy Ned O'Keeffe is as aware of this as the rest of us. We cannot pretend to function in isolation. A submission from the Irish Bankers' Federation has just been circulated and I have asked by Private Secretary to see if we can meet a deputation from the federation before we start tomorrow morning. It has been seeking discussions with me for the past couple of months on these issues. I intend meeting it tomorrow morning if possible as it is entitled to have its views considered. The only reason I have not met it is that this Bill concerns the credit union movement which is entitled to shape its own future once the Government feels a balance has been achieved.

There are 276 of the 683,643 credit union members, or 0.04 per cent, with loans of more than the limit of £20,000 provided for in the Bill. In this context it is reasonable to question what the fuss is about. They are operating virtually without a limit. Deputy Ned O'Keeffe speaks of the person who wants to buy two cars in the same year as build a kitchen and send the family to Aintree for the Grand National. However, life is not like that. The economy is performing at such a rate that if all 683,643 members built kitchens, there would be an undesirable inflation problem. His argument is arcane. The changes I have made in respect of the provision of loans for longer than five and ten years are significant improvements.

Nobody — not least my loyal colleagues on the Government side — has bothered drawing too much attention to the positive aspects of this Bill. It provides for revolutionary progress in some aspects of which the longer term of loans is one. This is a very significant measure, a fact acknowledged by the league. There may be demand for higher level loans but there is a limit. I am delighted with the unanimous agreement in the House regarding the level of prosperity we have reached. I never cease to be amazed at it and I cannot keep tripping over people in my own constituency asking me to find a credit union which would take £50,000 for them. It is the land of milk and honey and things are getting better.

Deputy Eric Byrne is worried about taxi plates. I thought the problem was getting the plates rather than getting the loans. If Deputy Byrne and his colleagues in Dublin City Hall apply their minds to that problem Deputy Quill might be able to get around quicker when in Dublin.

Miss Quill

Exactly.

Mr. Rabbitte

The issue concerns paragraph (b) of amendment No. 50. I do not think Deputy O'Keeffe is serious in his argument about ceilings. He knows this is neither reasonable nor desirable as it would change the ethos of the credit union movement. It does not exist to extend commercial loans to large enterprises or the type of large personal loans that would be facilitated without a ceiling. The argument concerns whether the 5 per cent ceiling outlined in paragraph (b) of my amendment is necessary. A number of colleagues have expressed views on it and Deputy Sheehan has asked me to withdraw it. I will agree to withdrawal if this facilitates progress on the rest of the Bill. This would involve proposing a change to my amendment.

Mr. E. O'Keeffe

Does amendment No. 49 cover that?

Mr. Rabbitte

I have no hang up about whose amendment is appropriate. I am only interested in enacting the Bill because sooner or later there will be an election and I would like to see the Bill passed before then.

Amendments Nos. 48 to 51, inclusive, not moved.

Mr. Rabbitte

I move amendment No. 52:

In page 32, between lines 43 and 44, to insert the following subsections:

"(4) Nothing in subsection (3) shall render unlawful any loan made to a member before the commencement of this section but all loans so made shall be taken into account in the application of the financial (including percentage) limits in the preceding provisions of this section.

(5) The Minister may from time to time by order increase the financial (including percentage) limits applicable under the preceding provisions of this section.".

Amendment agreed to.

Section 35, as amended, agreed to.

Select Committee on Enterprise and Economic Strategy debate - Wednesday, 9 Apr 1997

SECTION 35.

Select Committee on Enterprise and Economic Strategy debate -
Wednesday, 9 Apr 1997