Credit Union Sector Report: Motion

Deputy John McGuinness

I move:

That Dáil Éireann shall consider the Report of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach entitled Report on the Review of the Credit Union Sector with specific reference to the Credit Union Advisory Committee Review of Implementation of the Recommendations in the Commission on Credit Unions Report (June 2016), copies of which were laid before Dáil Éireann on 6 November 2017.

I welcome the opportunity to present to the Oireachtas the credit union report, which has been deliberated upon by the members of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for some time. I thank the members of the committee for their input and I also thank all who appeared before us to outline the issues as they see them. I also acknowledge the exceptional work undertaken by the secretariat. Ours is a busy committee and the secretariat had to find time within its own resources to ensure that this report was completed to the type of detail that would impress on the Minister and Members of this House the need for appropriate changes to ensure that credit unions can continue to service local communities in the way they have done since their foundation.

There are 27 recommendations in the committee's report. We have had a reply from the Minister which is favourable towards the recommendations we have made. I emphasise the fact that so many Deputies who clearly understand the credit union movement are supportive of what the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach is trying to do. The credit union movement wants to be a co-operative movement that is fit for purpose. It is up for the change that is necessary to service its customers. It has brought about its own reforms based on its own due diligence of its organisation.

We are talking about almost 3 million members of the credit union movement, serviced through 361 credit unions. The movement is a significant contributor to the welfare and financial well-being of its customers and members. During the course of the crash, it was forecast that the credit union movement would cost the State €1 billion. That was far off the mark. In fact, it could be said that, barring some minor exceptions, the movement came in pretty clean in terms of its operations. Where there was a need for reform, amalgamation or other changes, the credit union movement moved quickly to ensure that corrective measures were taken and matters dealt with efficiently and in the interests of the movement itself.

It is no harm to look back on the work of the credit union movement since its foundation. It has always been tightly associated with local communities. Families have used credit unions for all sorts of loans, to ensure they could make ends meet, maybe build an extension, or get loans for the day-to-day things that matter in their lives. The movement has helped families to move on and have a better quality of life and a better understanding of financial matters. It has also enabled people who would otherwise have turned to moneylenders to be facilitated and helped out of difficult circumstances in which they may have found themselves, either as families or as individuals. We cannot ignore that. The co-operative movement right across Europe has shown that it is a significant contributor to the affairs of community and family. It is the way of the future for families, individuals and businesses to ensure that they have the right understanding, conditions and interest rates with their credit unions, and that they are given affordable, sustainable loans.

Credit unions have acted well and responsibly. What are they asking for? We have to look at the regulation and how it was applied. It was applied on a one-size-fits-all basis in a manner that was slow and cumbersome. We have to ensure that, in the future, the regulation of credit unions is carried out on the basis of their general activities, allowing them to flourish and contribute to the significant issues in the lives of their members. It is a significant burden on the credit unions that, even for smaller loans, they have to ask so much of the person making the application. There is no flexibility to allow credit unions, knowing the history of borrowers and what work is going to be done, to make simple and effective decisions on that basis. I do not know of many loans that the credit unions have given out that have faltered on the basis of poor information or not understanding the means of borrowers or the purpose for which money was being borrowed. They have a good track record. The Central Bank and the regulator should understand the movement far better and should be prepared to provide the flexible legislation that the credit unions are asking for and that Members of this House see as being essential for the credit unions to perform their duties to the fullest extent.

With regard to credit union activities and what they want, I was a member of the county enterprise board in Kilkenny many years ago when we linked up with the credit unions. Analysis was carried out by the board and the credit unions supported by way of funding the projects that were approved. That initiative worked and it was significant for the small businesses it supported. We have to allow flexibility within the credit union movement to ensure individual members can grow that type of business and be an effective lender in the market to those who want to build from scratch or whose businesses are small enough to engage with them. The threshold for the amount that can be loaned needs to be examined in the context of what the credit union movement wants to achieve.

Similarly, in recent times, permission has been given for the movement to invest in housing initiatives but the amount is tiny relative to what it could provide. Its €8 billion in surplus funds should be put to work in a better way for local economies and to provide a solution to the problems of expanding small businesses and addressing the housing crisis. Credit unions have a huge role to play and we need to consider that to ensure they can put their money to work in this context. They want to do so in a constructive, regulated way and the Government needs this to happen in respect of housing. We should allow the credit union movement to do what is necessary to put that money to work properly for its members and, indeed, for the country.

The committee has had discussions regarding the Sparkassen banking model in Germany and we are continuing to examine the possibility of the credit union infrastructure being used, perhaps in conjunction with post offices, to ensure the banking model Sparkassen represents is replicated in Ireland. I see no reason the regulator or the Central Bank should be an obstacle in developing that type of community banking system, which has proven to be a huge success in Germany. It was interesting for the committee to hear from Sparkassen officials that they continue to give to their members a tracker mortgage product with an interest rate of 1.2% and they can loan any amount ranging from €5 to €50 million to businesses or projects that are central to the local communities that each of its outlets supports while the profits from this activity go back into the community unlike in a banking system that is driven solely by profit for directors and shareholders. As a result of our experience in Ireland of the banking crash, it is absolutely essential that we examine what was successful for us during the period. When the banks closed in on people, credit unions made it possible for them to continue in business or to secure individual loans to get them over a particular problem at that time in their lives. We should not, as legislators, ignore the value of that type of community-driven movement, which benefits members and is focused on their well-being and improving their lives.

The regulator has listened to the argument for too long and perhaps he was not convinced by what the credit unions were saying they wanted to do but the time has come for us to show leadership in this regard. If we truly believe in the credit union movement and in its value to family and community, then we should put in place the policy measures that are necessary through the regulator to enable credit unions to achieve what they want. They are willing to participate and they are anxious to get into proper lending, whether it is for business, mortgages and so on, while policymakers and the regulator are holding them back. I do not expect us to rush forward either but we should be more constructive in how we treat them because of how they were formed and because of the work they do locally.

It is essential for us, having read the report, not to put it on a shelf and to ensure it acts as an incentive for Government to engage directly with the movement, the regulator and the Central Bank to ensure whatever is necessary is put in place in a speedy manner in order that a flexible, regulatory system can be applied to credit unions on the basis of their individual activities without adopting a one-size-fits-all approach, given individual credit unions may not want to engage in a range of financial activities. Those that want to do more can be regulated as necessary but without that being over the top.

The OECD Secretary General commented on the organisation's Ireland survey for 2018 earlier before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. One of the issues raised in the report is the cost of doing business and the bureaucracy that attaches to that for SMEs and how they are regulated. The OECD says it is too heavy and cumbersome, and that we need to lighten the bureaucratic load and allow people to perform to their maximum while, at the same time, sensibly regulating them. The credit union movement wants sensible, flexible, workable regulation to enable individual credit unions to be part of the solution to the problems the country faces. If we are putting people first, and at the centre of our recovery and how business is done politically, then the easiest way to display that is by giving the credit union movement the supports it requires to fully develop the range of financial products it wants to sell.

Minister of State at the Department of Finance (Deputy Michael D'Arcy)

On behalf of the Minister for Finance, Public Expenditure and Reform, I drew the Government's attention to the joint committee's report. The motion offers a welcome opportunity to address the House on the importance of the credit union sector and, in particular, to discuss the report of the joint committee, which followed the credit union advisory committee, CUAC, report in 2016. I welcome the committee's comprehensive report and I thank the Chairman, Deputy McGuinness, and members for their work as well as those who made contributions before them. It is a tribute to the committee that there was cross-party support for a range of recommendations designed to support further development and growth of the credit union sector. The report, along with the CUAC report and its forerunner, the Commission on Credit Unions report, makes an important contribution to the debate on credit union reform.

The Minister is pleased that the committee acknowledges the unique role credit unions have played, and continue to play, throughout society. The Government supports the invaluable role of credit unions in Ireland, managing €16.8 billion of assets and providing €2.4 billion of new lending, primarily consumer lending, in the year to September 2017.

In line with the Government's position, the Minister believes that credit unions have a key role to play in providing access to credit and other important services in local communities. The Government has put in place a number of measures to ensure that credit unions can continue to provide these services to their members and to ensure the stability of the sector into the future.

These measures include the establishment of the Commission on Credit Unions in 2011; the Credit Union and Co-operation with Overseas Regulators Act 2012; the establishment of the Credit Union Restructuring Board, ReBo; the availability of €500 million to support the stability of the credit union movement; the introduction of the stabilisation support scheme; the request to CUAC to review all recommendations in the commission report; and the establishment of an implementation group to oversee implementation of CUAC's recommendations.

I wish to highlight that much of what the committee is recommending is already under way in terms of the work of CUAC, the CUAC report implementation group, the Central Bank and the Department of Finance.

The committee makes 27 recommendations around a number of themes many of which are common to the CUAC report, such as, tiered regulation; business model development; and consultation and engagement. The committee report also expands on a number of additional areas: review of legislative framework and regulatory requirements; introduction of a new appeals mechanism to allow credit unions appeal regulatory-related decisions by the Central Bank to an independent body; levies clarification and communication to the credit union sector around the Minister's intention surrounding future contributions and levies; and the development by the Department of Finance of a policy for credit unions that sets out their current and future role and function, their position vis-à-vis other financial institutions in Ireland and the future vision for the sector.

In response to the committee's report and to address the issues referred to above, the Minister wrote to the committee in December 2017 to update it on the work of the implementation group. It is intended that a further update will be issued to the committee at the end of the first quarter of 2018.

On the committee's call for a review of legislative framework and regulatory requirements, I would make the point that a considerable amount of work has been done by credit union stakeholders in establishing more effective governance and regulatory requirements.

The Commission on Credit Unions, with extensive stakeholder involvement, produced a detailed review of the sector and proposed a wide range of legislative and regulatory reforms which were in the main introduced in legislation in 2012-2013 and in subsequent regulations issued by the Central Bank. This was the first new credit union legislation since 1997. Most of these regulations were introduced on 1 January 2016 following a detailed consultation process by the Central Bank with the sector.

Furthermore, as required in law, the Central Bank was the subject of a peer review of credit union regulation in 2015. The next peer review of the Central Bank is required by 2019 and preparations for that will begin this year.

The committee recommends the introduction of a new appeals mechanism for credit unions relating to all regulatory decisions made by the Central Bank. I can advise that there is a complaints procedure already in place whereby a number of decisions of the Central Bank are appealable under the Credit Union Act 1997. There is also an element of appeal built into many other regulatory interactions with credit unions.

An alternative dispute resolution which rests with the Minister is also recommended by the committee. The role of the Minister is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions. The Registrar of Credit Unions at the Central Bank has responsibility for the regulation and supervision of credit unions. The two roles in relation to the credit union sector are distinct.

The functions of the Central Bank are to administer the system of regulation and supervision of credit unions. As such, it exists to achieve objectives deemed by Government to be in the public interest. The separation of powers must be respected and it would, therefore, not be appropriate for a dispute mechanism to rest with the Minister on matters which require regulatory expertise.

With reference to the committee's recommendations on business model development, I can advise that a consultation in relation to the investment framework has just been finalised by the Central Bank, which allows for investment in social housing through investments in approved housing bodies, AHBs, subject to certain requirements and limits. At a sector level, the concentration limit could facilitate a sector-wide investment of €698 million in tier 3 AHBs.

The committee recommends that responsibility for assessing business model proposals be removed from the registrar and given to the Department of Finance. It is the responsibility of the regulator to assess business model proposals for the credit union sector. The Central Bank is best placed to continue that role, both in aggregate and for individual credit unions. As previously stated, the separation of powers must be respected and it would not be appropriate for the Department of Finance to assess credit union business model proposals.

The implementation group has held discussions on business model development and is finalising a paper outlining some of the key areas which are, and could be, developed further by credit unions and representative bodies without changes to regulations. CUAC will also focus on this matter during 2018. In addition, and as recommended by CUAC in its 2016 report, CUAC submitted three policy papers to the implementation group in December 2017 on the following: common bond; alternative means of voting by members; and loan interest rate cap.

Another recommendation is that the Minister clarifies and communicates to the credit union sector his intention surrounding future contributions and levies. To address any lack of clarity around levies charged to credit unions, the Department of Finance will shortly publish an information note to explain the levies and charges the sector pays.

With reference to the development by the Department of Finance of a policy for credit unions that sets out their current and future role and function, their position vis-à-vis other financial institutions and the future vision for the sector, the current position is that the Department of Finance has policy oversight for the credit union sector, which is member-owned, and is committed to implementation of all the recommendations of the CUAC in a cohesive manner. Members and credit unions should have their own vision, tailored to the needs of their common bond.

The credit union policy team within the Department of Finance is well resourced and in order to assist its work, it has ongoing communication with credit union representative bodies, the Central Bank and other credit union stakeholders on a wide range of matters, both formally and informally, and regularly attends at sectoral events.

By way of update, on 3 November 2017, the Minister provided the committee with two documents prepared by the implementation group and submitted by the group to the Central Bank.

The first document relates to section 35 of the Credit Union Act 1997, as amended, which provides for the making of loans by credit unions. The paper details a range of proposals for consideration in the Central Bank review of section 35 which could provide for a material increase in long-term lending for those credit unions that have the capability to do so.

The consultation and engagement paper sets out key principles for consideration by the Central Bank which may assist in progressing the CUAC recommendation. The introduction of such an agreement is a matter for the Central Bank but the CUAC and the CUAC implementation group have strongly recommended its introduction.

The Minister wrote to the Central Bank Governor recently to outline his support for these matters being progressed in early 2018 and is advised that both matters are included in the Central Bank work plans for 2018.

The committee's report also made recommendations around financial inclusion. In that regard, I can advise that a number of credit unions are involved in the personal micro-credit scheme, which was established by the Department of Employment Affairs and Social Protection and which is aimed at moving people in the wider local community away from the use of high-cost moneylenders and providing an alternative, legitimate and low-cost personal loan scheme. Credit unions are offering it-makes-sense loans, at reasonable rates, to people struggling to get credit elsewhere.

Members will be aware that in 2011 the Government established a Commission on Credit Unions, with extensive stakeholder involvement, which produced a detailed review of the sector and proposed a wide range of legislative and regulatory reforms which were in the main introduced in legislation in 2012-2013 and in subsequent regulations issued by the Central Bank. Most of these regulations were introduced on 1 January 2016 following a detailed consultation process with the sector.

As required in law, the Central Bank was the subject of a peer review of credit union regulation in 2015.

Separately, the CUAC reported to the Minister in June 2016 on the implementation of the recommendations in the report of the Commission on Credit Unions. CUAC's recommendations, the most relevant of which relate to long-term lending, tiered regulation and consultation and engagement, are being progressed by an implementation group. As stated previously, the implementation group has submitted papers on long-term lending and consultation and engagement to the Central Bank.

Tiered regulation was the subject of consultation in 2013 by the Central Bank which proposed a two-tier regulatory model. However, the sector was not amenable to this approach at the time and it was unclear what form of tiered regulation it wanted. In light of the feedback received, the Central Bank did not propose to introduce a tiered regulatory framework for credit unions at that time. The implementation group continues to consider tiered regulation and will report to the Minister shortly. The work outlined above, particularly that being progressed by the CUAC and the CUAC implementation group, is well under way and covers almost all of the substantive issues raised in the recent committee report. The progress to date provides a solid platform from which to proceed with future reforms.

In summary, the Government recognises the important role of credit unions as a volunteer co-operative movement in Ireland and has a clear policy to support their strategic growth and development. The Government wants not only strong, vibrant credit unions offering a safe and secure place for members' savings but also credit unions which are appropriately positioned to offer their members a wide range of services. The Minister is committed to implementation of all the recommendations of the CUAC report in a cohesive manner. He looks forward to continuing to work together with all stakeholders in making progressive and effective changes to the credit union sector. I thank the House for its attention and I thank the committee for its work on the report. I look forward to hearing the views of Members from across the House.

Deputy Sean Sherlock

This is a timely and important review of the credit union sector, a sector which has served the people of Ireland well and which continues to deliver excellent services in an ethical manner in communities from which the banking sector, one could argue, is existing. Credit union directors, managers and staff have willingly adopted seismic changes in the four short years since the enactment of the last Credit Union Act. They have survived unrelenting regulation and universal restrictions at a time when the banks are still being allowed to get away with murder by their shared regulator, the Central Bank.

It is evident that the Central Bank is well advanced on its road to eliminating smaller credit unions while handicapping the medium and larger ones. The report calls for constructive engagement between the regulator and the regulated. It was evident during the hearings and has been evident since they concluded that this is not happening and will not happen. Shortly after the hearings wound up, the Central Bank issued a series of further restrictions on credit union deposit investments despite widespread opposition. Put simply, the Central Bank is actively limiting credit union investment options. This is the most powerful Central Bank in Europe when it comes to credit unions and it does not manage its power well. The joint committee recommended that a new appeal mechanism should be introduced to facilitate appeals of regulatory decisions to an independent body. This is long overdue and should now be pursued as a matter of urgency. The credit union directors and staff we all know are decent people. They have shown a great capacity for change yet we now witness a breakdown in the relationship between the all-powerful Central Bank and these decent people. I am very pleased, therefore, that the report suggests an alternative dispute resolution method. I am also pleased to see the recommendation in the report to make regulatory impact analysis a feature in the future. This is standard in developed regulatory jurisdictions and was a very firm requirement of the Commission on Credit Unions. Unfortunately, it has been ignored by the Central Bank.

It is disturbing to read in the report that the representative bodies raised serious concerns about the existing regulatory environment. Their view is that the current framework is disproportionate, too costly and burdensome, stymies innovation, restricts opportunities for credit unions to lend to and support members and communities and prevents the sector from receiving a fair return on investments. The Central Bank has stubbornly refused to introduce tiered regulation to make it proportionate to scale and complexity. I was perplexed by the Minister of State's statement that tiered regulation was the subject of consultation in 2013 by the Central Bank which proposed a two-tiered regulatory model to which the sector was not amenable at the time. He said it was unclear what form of tiered regulation the sector wanted. I am confused by that statement. The Minister went on to say that, in light of the feedback received, the Central Bank did not propose to introduce a tiered regulatory framework at that time. I do not doubt the bona fides of the Minister of State, Deputy D'Arcy, who was formerly a member of the committee. However, I am confused by his statement which warrants further interrogation.

The Central Bank's one-size-fits-all approach is a blunt and ineffective instrument. Volunteer directors and paid staff live in terror of the heavy hand of the regulator which knows it can push small organisations around, unlike our serial mortgage offenders in the banking sector. The cost of regulation is crushing and it is eroding credit union surpluses. The only people winning out in all of this are the so-called "expert consultants" who charge inflated fees to credit unions. Recent Central Bank speeches have focused on diminishing returns on assets, which is a small wonder given the range of penal regulatory charges, direct and indirect, the same bank imposes on credit unions.

A great deal of emphasis has been placed on the relatively low loans-to-savings ratio in credit unions. The main problem here is the cost of regulatory reserves. Every €10 lodged in a credit union costs it €1 in reserve costs. Here again, the Central Bank has refused to move to a risk-based reserving model which is 10% of loans rather than 10% of assets. Credit unions are saddled with a huge bill as a result. It should be remembered that members of the public decide voluntarily in the credit union which is, in an increasing number of cases, the only financial institution left in their communities. I am aware of credit unions which are refusing savings from members because they cannot afford the regulatory reserve costs. It is unacceptable that the Central Bank is so obdurate as to penalise members of the public in this manner. It is very poor regulation indeed which forces money to be hidden in mattresses and presses.

It was very disturbing to learn in the course of the hearings at the committee how many of the recommendations of the Commission on Credit Unions had been ignored by the Central Bank. It was seven in all. This is indicative of a culture of intolerance towards credit unions in the Central Bank. I highlight the support in the report for the retention of the common bond structure which is essential to underpin the community and democratic base of credit unions. The action which the Government most immediately needs to take on foot of the report is to establish a financial vehicle to allow credit unions to, at last, invest in tier 3 approved housing bodies. I note the Minister of State made some reference to this and we await progress.

I take this opportunity to ask the Minister about the status of the public banking investigation.

We have been told since before Christmas that the report is complete. We are awaiting its publication. This will also have an impact on the future of the credit unions' business model.

Are we content to have Ireland go back to a banking duopoly involving Allied Irish Banks and Bank of Ireland? Are we prepared to risk our entire society again by being held to ransom by these two institutions in any future global financial crisis? We need to defend and protect our society against such threats. We need to strengthen and expand our credit union movement. We need a vision for the sector from the Government and a framework for credit unions to move forward over the medium to longer term. The Government must establish a financial vehicle so the credit unions can at last invest in social housing. We await further word on that. The requirement of the Commission on Credit Unions for regulatory impact analysis must be also met. I welcome the committee's report. We hope its recommendations will be taken seriously.

Deputy Michael McGrath

I welcome the opportunity to speak on the Oireachtas finance committee's report. I welcome representatives of the various credit union bodies in the Visitors Gallery. They might have missed the start of the debate because it started earlier than scheduled but I am glad they are here. I am sure they will be able to watch a recording of the beginning of the debate, introduced by the Chairman of the committee, Deputy John McGuinness, and hear the response of the Minister of State, Deputy Michael D'Arcy.

This is a really important report and it cannot be allowed just to gather dust as time goes by. The Government has not shown enough urgency so far in addressing the challenges facing the credit union sector. These are very real challenges but alongside them are many opportunities. Those opportunities need to be seized. The Credit Union Advisory Committee report was completed in June 2016 and presented to the Minister in July of that year. It is based on a review of the recommendations of the Commission on Credit Unions. The overarching recommendation of the advisory committee was that there be an implementation body to implement the recommendations set out. It furnished its report in July and there was not an implementation body in place until February 2017. The body held its first meeting on 20 February 2017, which said an awful lot about the lack of urgency and about the Government not affording priority to dealing with these issues. That is partly why I suggested to the finance committee that we undertake this body of work and hear from the sector. Each of us, as an individual public representative, had been hearing from representatives of the sector but it was a matter of giving them an opportunity to come in and lay out their concerns and giving us an opportunity to put those concerns to the Central Bank and Government in a constructive manner and in a spirit of co-operation. There is broad agreement as to where we would like to take policy on the future of credit unions.

The Chairman of the committee, Deputy John McGuinness, spoke about the statement in the Seanad by the previous Minister for Finance in the autumn of 2011 to the effect that the bill for rescuing the credit union sector could be anything up to €1 billion. We all know that has proven to be dramatically wide of the mark. When one considers the various levies paid by the sector itself, one realises there has been little or no cost to the State in respect of issues that have arisen in a number of individual credit unions. It would be wrong, however, to understate the significance of the statement in 2011 because it came against the backdrop of a terrible banking crisis — a banking crisis that cost more than €60 billion gross. There was an assumption and perhaps a belief within the Central Bank and the Department of Finance that if one looked under the bonnet of the credit unions, one would find that the problems were proportionately as bad as those in the banks. That has certainly not proven to be the case.

The regulatory and policy responses following the developments in 2011 and 2012 were really predicated on the belief that credit unions were in a really bad way. That has not proven to be the case. That has to be acknowledged. Wherever the estimate came from, it was quite damaging. It had a key influence on the formulation of policy at the time. That is not to say individual credit unions did not have problems because they did. They have been dealt with, however. They have been dealt with largely by the sector itself. There has been some intervention by the Central Bank, but on a very limited basis.

We have to acknowledge that the key recommendation by the Commission on Credit Unions has been ignored. Many other issues arise from the failure to deal with that. I refer to tiered regulation and the failure to recognise the diverse range of credit unions across the country, in addition to the diverse range of services provided. The policy of imposing a one-size-fits-all regulatory approach has been very damaging. In some ways, it has restricted credit unions that are expansive, want to invest in technology, and want to change their business model. Furthermore, it has been really difficult for smaller credit unions, which have a much more simple model, to operate within the constraints imposed on them by the new approach to regulation and the changes in governance. Those issues have been really serious. The sector is facing very significant challenges but opportunities exist also.

Over the course of our meetings, we heard that the loan-to-asset ratio, which is a key indicator of viability, stands at approximately 26%. Therefore, the credit unions cannot give out loans quickly enough. They are being repaid too quickly. The ratio is not where it needs to be. It probably needs to be between 40% and 50%. Therefore, we need to get to a point where credit unions are engaging in more lending, including more long-term lending. That is why the recommendation for the review of the lending limits — the section 35 limits, the concentration limits — is so important. It needs to be implemented swiftly. It is almost two years since the publication of the advisory committee's report so the Government and implementation group need to demonstrate further urgency if we are to deal with these issues.

Members of the committee called for a new appeals mechanism to be introduced to allow credit unions to appeal all regulation-related decisions made by the Central Bank to an independent body. This is very important. It should extend to matters beyond what is currently appealable in terms of what is described within the 2012 Act, and it should provide a forum under which a credit union or group of credit unions has the right to appeal decisions made by the regulator in respect of its new regulation-making powers. This is really important. Currently, one can challenge only a regulatory direction. It is very costly to do so. This issue needs to be addressed.

We need to have a thorough review of the legislation because extensive powers were given to the registrar under the 2012 Act. In a sense, the Oireachtas has divested itself of responsibility and denied itself a role in dealing with these issues. Again, that was against a backdrop of a belief that the problems were far more serious than they turned out to be. Therefore, there is a need to review the legislative framework that we have in place. The Minister of State said in his remarks today that he is committed to implementing all the Credit Union Advisory Committee's recommendations. I would like him to go beyond that. He should be committed to dealing with the majority of the recommendations the Oireachtas finance committee has made. He needs to bear in mind that these are all-party recommendations that were agreed unanimously. That does not happen too often in any Oireachtas committee. Therefore, I ask the Minister of State to bear it in mind and move on the issue of a proportionate regulatory approach by the registrar.

There is a need for much better communication between the registrar and individual credit unions. I know from talking to credit unions that they find it very frustrating. They feel there is insufficient engagement in dealing with the issues they are raising.

We need a better structure and for an independent appeals mechanism to be put in place as a priority.

I spoke earlier about lending and limits. The Minister of State must move on the issue of long-term lending. It is a key issue, particularly for larger credit unions. The restrictions there now of 10%, or 15% in some cases, subject to the approval of the registrar, is not sufficient to enable the credit union movement to invest properly in the underwriting capacity and the expertise that is required to get into long-term lending in the mortgage business in a really meaningful and sustainable way.

Our report is the best effort we could make to identify the key issues and try to come up with solutions. We are keen to work with the Minister of State, the Government and the Central Bank, but the Minister of State will be brought before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach again, as will the registrar of the Central Bank, to provide a response to what is being done on these recommendations. We welcome the implementation group in respect of the CUAC, but the Government needs to go beyond that and embrace these recommendations meaningfully.

We have a provision in the confidence and supply agreement for a new strategy for the growth and development of the credit union sector. To be frank, we have not seen that and we are calling that in now. It needs to happen and to be done as a matter of urgency.

Deputy Paul Murphy

It is worth looking back at the origins of the credit union movement in Ireland which was founded by a teacher, a baker and a civil servant during the 1950s in response to the grinding poverty that existed in Dublin, with conditions of high unemployment, low pay, poverty and low levels of welfare. These were ingredients for moneylenders to prey on working class communities and to exploit the situation for their own profit. While we are not quite back at that situation, unfortunately in some communities there are significant elements of it after the crisis. One sees that same preying on communities by licensed moneylenders and illegal moneylenders who charge extortionate interest rates. Credit unions were established to assist ordinary people with cheap affordable credit to make ends meet and encourage saving. It was a collective response by ordinary people, what the credit union movement describes as part of a tradition of co-operative self-help, with similar movements having taken place across Europe.

It is a very impressive movement. There are 2.9 million members, €11.9 billion in savings, 9,200 volunteers, some of whom are in the Gallery this evening, and 3,500 employees. There are still 260 individual credit unions in the State in communities providing that support for people. Chatting to some people earlier, they gave examples of some of the things they have done in recent years. They were small things at one level but for the individuals concerned they were crucial, and things that make a huge difference to people's lives, such as a €200 loan at Christmas so that people can have a Christmas dinner and eat decent food then. One credit union gave out three different loans for €50. Where else can a person get a loan of €50? A bank will not give a loan for €50, and the alternative is to go to one of those moneylenders who will charge interest rates at percentages in the hundreds or thousands. It is extortion.

It is worth contrasting the record of credit unions in our society and economy with the role of private banking. Others have noted how warning was given that credit unions would collapse and cost the public a huge amount of money. That did not happen but the private banking system collapsed and was bailed out by the public. The private banking system cost the public about €64 billion while during this massive crisis the credit union movement cost about €2.5 million. Lying behind every major banking scandal we have experienced, from the vulture funds to the tracker scandal to the banking collapse, has been the drive to maximise profit. Some months ago at the finance committee, Professor Phillip Lane, governor of the Central Bank, said that the problem which lay behind the tracker mortgage scandal was a culture of pursuing profitability to the detriment of the banks' customers. That is because they are the banks' customers, not their members. The banks exist to extract maximum profit from their customers rather than serving their members, as is the tradition and philosophy of the credit union movement.

Only today, Mr. Padraic Kissane was before the finance committee where he spoke of how €700 million was ripped off people by the private banking system through the tracker mortgage scandal, fuelled by that drive for profit. That is why the credit union movement is unique. It is not a bank and should not be treated like a bank because it is not driven by profit. It exists to serve its members, not to profit from their needs. Speaking to the credit union volunteers is inspiring because it gives a chance to hear of the work that is done and the difference it makes to real people in real communities. It also gives a vision of how banking and finance in our society could be run on a fundamentally different basis. It gives a glimpse of how it could be possible to have something based on public ownership, with democratic, community control of banking and finance and access to credit in our society. Instead of running our economy and our society to serve the interests of banks, financial institutions could be run to serve the interest of society, providing access to credit for those who need it, encouraging saving and so on, precisely as the credit union movement has been doing.

The dominant issue among the various issues which credit union volunteers will raise, is that fundamentally the Central Bank wants the credit union movement to be a bank. It treats it as a bank and tries to push it to become one. The Minister of State's response is fundamentally disappointing. He began his speech by saying that he welcomes the report but then went on to say that most of its recommendations are not implementable. He said "The separation of powers must be respected and it would, therefore, not be appropriate for a dispute mechanism to rest with the Minister on matters which require regulatory expertise." He defended the idea of the Central Bank continuing to have control of regulation which is fundamentally the problem. I echo Deputy Sherlock's point that the part in the Minister of State's speech about tiered regulation is extremely confusing. It said:

Tiered regulation was the subject of consultation in 2013 ... which proposed a two-tier regulatory model. However, the sector was not amenable to this approach at the time and it was unclear what form of tiered regulation it wanted.

The credit union movement disputes that. It says it always favoured tiered regulation. The only question related to how it would be implemented. Tiered regulation is an essential part of how the issues that exist can be resolved.

Clearly, credit unions do not exist in a vacuum; they exist in a profit-driven finance sector. It is important that they do not succumb to the pressure to become more and more like banks and that the non-profit, democratic and co-operative ethos is maintained and guarded. To do that, it is key that the credit unions are allowed to evolve to take account of the changes in how people use and manage their finances, and how they save, borrow and access their money. There is an idea that credit unions can continue to operate with one or two hands tied behind their backs, for instance, where the vast majority of credit unions are unable to offer current accounts and so cannot offer debit cards and other linked electronic payments. It puts them in a disadvantageous position when trying to attract young people, for instance, into the credit union movement. Only the larger credit unions, with assets in excess of €75 million, can apply for it. The Central Bank must understand that this is a different type of organisation that is based on volunteerism and democracy, and that the appointment of various positions should be done by the members rather than the Central Bank having a veto through the use of pre-approved controlled functions.

The effect is to reduce the level of democracy and communities' ownership of credit unions. A core aspect is that regulation has to be taken away from the Central Bank as this is a key part of the problem. The office of the registrar of co-operatives would be a much more appropriate place from where to provide for regulation, but it would have to be resourced sufficiently. It is clear that the Central Bank is not into the things that result from the benefits of credit unions and what is different about them. For example, there is a drive to encourage and push to say the Central Bank has been minded to recommend that credit unions merge together to reduce their number, which in recent years has gone from 420 to 260. When credit unions want to merge, that is no problem and is fine, but they should not be put under outside pressure to do so. There are benefits in having multiple credit unions in the diversification of risk, being really connected and knowing people on the ground. This provides the soft information that does not appear on balance sheets in knowing about people's ability to pay.

The State stabilisation fund continues to be built up. The credit union movement warned that it would never be used and it has still not been, yet the Central Bank continues to push for more and more money to be added to the fund. The Government needs to take this issue seriously. We need legislation to address it and to adopt a completely different model of regulation of credit unions that would recognise their special existence. There are ways in which they are better and different from banks. We need fundamental change to achieve this.

Deputy Peadar Tóibín

Fine Gael's policy on credit unions could be summarised as "credit unions are great, but ...". I have been a Member of the Dáil for seven years, during which time I have heard every Member, in every corner of the House, speak about the wonderful nature of the credit unions, how integral they are to community life, how they are an example of people doing things for themselves and about the voluntarism at the centre of this finance model. However, when it comes to the Government taking the necessary steps to set the credit unions free and allow them to function properly, it refuses to take them. I am fearful that, despite the Government's nice words, its policy is to run the credit unions down. It identifies the difficulties that there may be within the credit unions, but it does not come up with solutions to fix some of them.

I commend the work of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach in drafting the report which tells us what most representatives actually know: that the credit union movement is an essential part of the social and economic fabric of the nation. When the banks destroyed the country, the credit unions kept many families out of poverty. Now that the banks are posting billions of euro in profits, paying no tax and reaping more profits from a dysfunctional system, the credit unions are still doing the hard work of providing credit for families and communities. In 2011, for example, there was talk of €1 billion black hole in the accounts of the credit unions. We are in 2018 and nothing has come to pass in that regard. The credit union movement has actually come out of the crisis as strong as ever.

The attitude of the Central Bank of Ireland towards reform has not been positive for the credit unions. From lending rules to failures to keep promises, the credit union movement has not been treated fairly by the Central Bank. There are issues to be dealt with such as loan-to-asset ratios which are too low. The credit union movement is training and advertising to grow the number of loans, but we cannot separate this from lending restrictions that are too harsh. The section 35 limitations need to be reviewed. This has been asked for by the advisory committee and in the report. There should be no further delays in establishing the review. The limitations are stifling the credit unions and impacting on their ability to serve their members and communities. The promise of tiered regulation must be implemented in a real way. Please let us not have more lip service on this issue. Tiered regulation was to be about the proportionate application of regulations, taking into account the individuality and diversity of credit unions. Instead, we still see a blanket approach being adopted of maximum regulation, regardless of size. This points to the uneasy relationship between the credit unions and the Central Bank as regulator. There is scope for an independent third party to act as an appeals mechanism against the Central Bank's systems. It could help to build trust and allow for conciliation.

The regulatory reserve ratio must be looked at. It is simply an arbitrary number which does not take into account the risk profile of individual credit unions and the maturity of the movement. Sinn Féin is disappointed by some elements of the Central Bank's investment rules. An alternative rule based on a minimum investment grade for bank bonds could be put in place instead of the severe restrictions on credit unions in investing in bank bonds. Let us not forget what the legislation states. The Credit Union and Co-operation with Overseas Regulators Act 2012 states: "... the Bank shall have regard to the need to ensure that the requirements imposed by the regulations made by it are effective and proportionate having regard to the nature, scale and complexity of credit unions, or the category or categories of credit unions, to which the regulations will apply”. Previously that provision formed the basis of clear registrar guidelines on investment exemptions. There are no reasons this cannot be done again.

All of these issues relate to the Central Bank. I am sure we will hear a phenomenally sympathetic Government tell us how much it cares, but sympathy is no replacement for action on this issue. There are possibilities through primary legislation that could bring about some solutions. For example, there is a rake of outdated practices with which credit unions are forced to comply such as sending hard copy AGM invites instead of electronic updates. The threshold for the grant of probate and small payment provisions could be increased. These are just some of the examples on which legislators in this House could walk the walk, as well as talk the talk.

The most glaring aspect of what the credit unions have told us is the billions of euro they wish to plough into social housing provision. We are all aware of the housing crisis, but we have a Government that is seven years on the go that simply cannot join the dots. It is absolutely unforgivable that this issue has not been resolved. Sinn Féin has made very specific proposals in its submissions to the consultation process on investment rules. There are ways to do it. It could be facilitated by the creation of a specific fund, from which tier three approved housing bodies could apply on a rolling basis for loan assistance for the purchase, renovation or building of social housing. Funding could be approved on a 100% or perhaps a 70% basis, with the Department of Finance providing 30% of the funding through AHB funding mechanisms that are already established. Loans could be repaid via a 30 year availability agreement between the approved housing body and the local authority housing department. The agreement would cover the repayment of the loan and a small premium to cover management and maintenance costs. In the case of larger approved housing bodies, if the appropriate finance was made available, an additional 2,000 to 4,000 social housing units could be built.

Sinn Féin supports the proposal made by the Irish League of Credit Unions to allow for the provision of €347 million annually in AHB loans to be built up incrementally to €1 billion over six years. The composition of the fund in terms of governance, board membership and so on could be decided on following discussions between the Central Bank, the Department of Housing, Planning and Local Government, the Irish Council for Social Housing, the credit unions and the AHB sector. That is the type of proposal a government that was not keeping its hands warm would actually seek to follow.

The overall message from the committee's report is that credit unions are both a movement and a force for economic and social good, that they have some problems but that their biggest problem is the State. That is the fact of the matter. Instead of seeking to empower and encourage, time after time the Central Bank's rules restrict and suffocate. Nobody wants light-touch regulation, but the movement deserves what it has been promised for so long, namely, tiered regulation reflecting its abilities. I hope this message is heeded.

Deputy Eugene Murphy

I will make a very brief statement on the position of the credit unions. In my part of the country, mainly in rural areas, credit unions have been so important in supporting families, farms, small business and communities. The banks in many of the towns in my region are closing, shutting up shop and leaving town, moving away from the people who put their ten shillings, one pound and fivers into those banks many years ago. These people endured a lot of poverty but they invested in our banks and built up much of their profits. Now, when the bad times come, the banks shut up shop and move out. In many respects, our banks do not care, but our credit unions do. Credit unions constitute a voluntary, visionary movement, with over €10 billion in savings, €12 billion in assets and 360 branches throughout the country. What a phenomenal success story. Even during the recession, when many banks closed their doors to people in very difficult situations when they may only have wanted a few euro here or a small loan there, as someone said earlier, to get them through a family situation or celebration when money was short, the credit unions' doors were always open. Despite all the major financial institutions that had all the backup and all the money and that acted recklessly and brought grief down on so many families, the credit unions survived. Yes, there may have been one or two bad stories, but through all that the credit unions survived. However, in the middle of that crisis there was a lot of talk, a lot of caint, to the effect that the credit unions were destroyed or had overstretched themselves. There was a lot of negative talk and I think some of it was deliberately focused against the credit union movement. There is no doubt but that there are people in high positions who would much prefer if there were no credit unions.

I very much welcome the committee's report - compiled under the chairmanship of Deputy McGuinness. This all-party committee clearly states in its report how critical the credit union movement will be for this country in the future. I have no doubt but that if credit unions were allowed to enter the housing sector, in which they were prepared to invest billions, we would not have the crisis we have today. We would not have children and young parents without homes because I believe credit unions would again show exemplary leadership if they were allowed to enter the sector.

Time and again, credit unions have been the only financial avenue open to people to keep them going. As for what they want to do for small business, what do we see? We see a group of people, many of them volunteers, who want to roll up their sleeves to support and promote small businesses throughout the country. Many small businesses, despite all the new initiatives and all the help that is out there, still find it extremely difficult to get sufficient finance to keep their operations going. We all accept that lending must be done prudently in order to be sustainable. However, as for what is going on with the regulator and, to some extent, in my view, the suffocation of a movement that has done so much, we really need to ensure that the regulator does not get away with this. If we do, we will have buried one of the greatest voluntary organisations that ever existed in this country.

I give my full support to the credit union movement. I had not prepared much to say for this evening's debate but I have a lot of documentation on the issue. Since I became a Member of the Dáil, I have been very supportive of what Deputy McGuinness and the committees have been doing. I have always had an association with local credit unions so I am proud to give my support to them, to Deputy McGuinness, the chairman of the committee, and to others who really want to allow credit unions to involve themselves more in making this country a better place.

Finally, I return to the point I made earlier, namely, that where the banks are shutting up shop and leaving, the credit unions are standing with their communities. They should be allowed to expand. I know the Minister of State, Deputy D'Arcy, is very sincere about the message he is delivering, but neither the regulator nor the Government should be allowed to squeeze the credit unions out. If that happens, we will live to regret it.

An Ceann Comhairle

I thank Deputy Eugene Murphy for that insight.

Minister of State at the Department of Finance (Deputy Michael D'Arcy)

The discussions that have taken place on this motion on the report on the review of the credit union sector are timely and I very much welcome them. On behalf of the Minister for Finance, I thank the House for the opportunity to engage in this debate.

The Government welcomes the report and the significant work undertaken by the committee in its review and acknowledges that both the committee's report and the CUAC report are important contributions to debate on the credit union sector. I reiterate that much of what the committee recommends is already under way in respect of the work of CUAC, the CUAC report implementation group, the Central Bank and the Department of Finance in progressing the recommendations contained in the CUAC report. The Government supports the invaluable role of credit unions in Ireland, managing, as they do, almost €17 billion in assets and providing €2.4 billion of new lending, primarily consumer lending, in the year to September 2017. As I set out earlier, the credit union sector has undergone fundamental change since 2011, when the Commission on Credit Unions was established, managing many complex and difficult issues, including elevated arrears, reducing lending, an ageing membership base, low investment returns and a more intrusive regulatory environment.

Looking back on the 2011 position of credit unions, it is clear that the sector overall has managed to come through the financial crisis much stronger than expected, and we recognise this. Credit unions have gone through a restructuring programme overseen and facilitated by a time-bound statutory body, ReBo. The latter was established to facilitate and oversee the restructuring of credit unions on a voluntary, incentivised and time-bound basis. The objectives of the restructuring process were to underpin the stability and long-term viability of the credit unions and the sector at large and to provide an opportunity for stronger credit unions to develop a more sustainable business model. The Government provided €250 million in the credit union fund as a source of financial support for credit unions restructuring under ReBo. While it was envisaged that significant funding would be required for credit union restructuring, it is commendable that the credit union movement has provided funding from its own resources, thus minimising the requirement for drawing on Exchequer funding. During ReBo's lifetime, 82 restructuring projects involving 156 credit unions with total assets in excess of €6 billion have been completed. While ReBo completed a performance of its functions in March 2017, it is worth noting that restructuring continues, facilitated by the Central Bank, albeit at a reduced rate.

Credit unions are local, community, not-for-profit financial institutions that are built on the trust of their members. They have a national reach. As such, the Government recognises that credit unions have played and continue to play a crucial and prominent role in meeting the financial, economic and social needs of our communities. The Minister for Finance will continue to play a constructive role supporting credit unions in continuing to progress, develop and find ways of doing business to better serve their members. While credit unions have shown a willingness to embrace change while staying true to their core values, the safety of members' savings and the security of the credit union sector as a whole remain priorities for this Government. The Government will continue to work proactively with all stakeholders, particularly through the well-established CUAC.

The committee report will, along with the CUAC report, make a positive contribution to reforms already under way in the credit union sector.

I welcome the report. I met the Irish League of Credit Unions this afternoon before the debate. I have always been a huge supporter of the credit union, going back to when I was a teenager when I drew down loans from Gorey Credit Union when I started in business myself. I can only speak about the credit union I know best, which is Gorey Credit Union, and during that era in a different recession in different decades it provided multiple loans for businesses of every hue. There was no difference if someone was in retail, farming or any other business.

Deputy Peadar Tóibín

In fairness, this speech has been made for seven years and we have had no action.

Deputy Michael D'Arcy

The credit union in Gorey provided hugely important cashflow to those businesses. I know from speaking to other businesses over the years that the credit union has always been there.

The Government and the Minister are supportive of a change to section 35. The Government is supportive of change, and there will be a paper on tiered regulation, which will be available next month. Time is of the essence and I welcome this opportunity to contribute to what has been a good constructive debate. I do not agree with everything that has been said by some of the Members, but we are in a much better place than we thought we were in 2011. There was a real concern, and I am not sure what Deputy referenced it, that the difficulties being experienced by the banks would flow in a similar way to the credit unions. This did not happen. It did not happen because of the local knowledge available in every credit union. Something that, in my view, has been forgotten about in some areas is the local knowledge of the people behind the counter in the credit unions who know the families who pay and who have always paid over generations. This is something we should not lose.

I thank the Chairman of the Committee on Finance, Public Expenditure and Reform, and Taoiseach. The committee has done a lot of good work. Many recommendations are being enacted at this time. Will they all be enacted? Probably not, but most of them will and I support this as, I know, does the Minister, Deputy Donohoe.

Deputy John McGuinness

In my opening remarks I was fair and balanced to reflect what is in the committee's report. As was said by previous speakers, the report is an all-party report provided by the members of all of the parties in the House, including that of the Minister of State, and it reflects what is needed for the credit union movement now and for the future. I have to say I am deeply disappointed by the scripted reply the Minister of State has provided to the House. In that reply he stated the functions of the Central Bank are to administer the system of regulation and supervision for credit unions and, as such, it exists to achieve objectives deemed by the Government to be in the public interest. At this time, what is more in the public interest than an active, well-funded and well-organised credit union movement servicing families and communities throughout the country and unhindered by the State itself? It is the State that now provides the obstacles in the way of the proper and efficient development of credit unions and their movement to best serve their customers.

Credit Union Sector Report: Motion

Dáil Éireann díospóireacht -
Thursday, 8 Mar 2018