I move:
That Seanad Éireann approves the following regulations in draft:—
Friendly Societies Regulations, 1987
a copy of which regulations in draft form was laid before Seanad Éireann on 4th June, 1987.
Friendly Societies Regulations, 1987: Motion.
I intend to make regulations, called the Friendly Societies Regulations, 1987, which will bring about a considerable improvement in the operation of friendly societies. A draft of these regulations has been laid before each House of the Oireachtas and in accordance with the legislation governing friendly societies each House must pass a resolution approving the draft before I can go ahead and make the regulations.
The proposed regulations can, for convenience, be split into two parts. The first part deals with the position of specially authorised loan societies and the second part applies to all other friendly societies.
Specially authorised loan societies were originally established to take in monthly subscriptions and from these to provide loans for special family events such as weddings, holidays etc. They are small-scale operations and by law the maximum single deposit they can accept is £200 and the maximum loan they can make is £50. These limits were set in 1896 and are far too small by today's values.
The regulations propose to raise these limits, fixing the maximum single deposit at £3,000 and the maximum loan at £1,500. These are intended merely to reflect realistic present-day values and they are not in any way intended to change the nature of the societies concerned from mutual help bodies or to permit them to carry on business in a commercial sense; that was never the purpose of these bodies and it is not intended now. In view of these increases the regulations will also require specially authorised loan societies to have supervisory committees. In this way there will be an extra degree of supervision for these societies.
I also intend to raise the monetary limits applying to all other friendly societies in regard to certain types of assurances under mutual self-help schemes and benefits payable from these. These limits were last set in 1966 and on reviewing them it was considered that more realistic limits should now be provided. It is proposed to increase the maximum benefit assurable to a member and to which a member is entitled to £10,000 and to set a similar limit to the amount a member may dispose of, on his death, by nomination or distributable when a member dies intestate. The maximum amount payable on the death of a child would be £1,000. Once again, these changes are not intended to permit any change in the mutual status of friendly societies.
The regulations will also provide additional safeguards for members by requiring proper accounting and auditing procedures in all friendly societies. As the amounts of money handled by friendly societies has grown over the years, provisions are included in the proposed regulations requiring each society to keep proper accounts, to retain the accounts of the six most recent years, to present accounts at each annual general meeting and to have the accounts audited each year by a properly qualified auditor.
I now ask the House to approve the draft regulations.
The societies which we are speaking about in the motion which the Minister has asked the House to approve are the friendly societies, benevolent societies and special loan authorised societies. These are governed by the Friendly Society Act, 1896 and subsequent legislation. The regulations before us today propose increases in financial limits on deposits and loans for the societies and also require special authorised loans societies to have supervisory committees and to stipulate the contents of accounts of all registered societies to be provided at annual general meetings. They also provide that a public auditor should audit the accounts of these societies.
The kind of work carried out by these societies is not always fully understood and appreciated and especially their social overtones. Friendly societies themselves are generally for the relief of members in sickness and old age and for the payment of sums to meet expenses of funerals and also to meet certain expenses of members for their wives and children. Benevolent societies provide benefits not just for members but for people outside the membership.
The regulations now before us are to an extent what was brought before the House in an amending Bill in 1977. I will quote from the Minister's speech on that occasion, on 27 October on the Second Stage of the Friendly Society Bill, 1976:
Section 3 of the Bill embodies a new control in relation to the activities of friendly societies and their branches. It relates specifically to the maintaining and auditing of accounts by these societies and their branches. As the law stands at present, accounts of friendly societies can be audited by any two persons appointed by the societies, who need have no accountancy qualifications or background. In addition, existing legal requirements are silent on the form of accounts for friendly societies and their branches and it is very desirable that these accounts should conform to recognised standards. Under section 3 of the Bill, therefore, it is proposed to take power to provide by regulation for the form of accounts and records to be kept by friendly societies and their branches, for matters relating to the audit.
That is what the Minister is proposing today. He is proposing under that amending Bill to provide that these accounts would be audited, prepared and presented at annual general meetings in a special way and also that the auditors no longer be two members who have no auditing experience but a public auditor. That is most welcome. He is also updating the amounts of loans and deposits for these societies. That is only reasonable because the Minister in his speech on 27 October 1976 said that money values change and it is only reasonable that it should be done by regulation. I have put great emphasis on the audit and the form of accounts because while I am sure many friendly societies operate very satisfactorily there is still a tremendous demand in society for friendly societies and in the last report which we have from the Registrar of Friendly Societies, there are 127 friendly societies of this type still registered who have a substantial number of members and a substantial amount of funds are invested in these friendly societies.
There was one aspect of the friendly society situation that caused great disturbance to many people recently. That was in relation to the transport employees Tontine and Benefit Society which closed its doors on its members. Many people were left without the funds needed for very sensitive issues such as the burial of members of families, the payment of hospital bills, and so on. I am pleased to see that in future there will be a strict audit on these friendly societies. This will not allow a similar situation to arise again. The Minister may like to say something about that society when he concludes because I note that 200 members of the society in 1983 asked that an inspector be appointed to examine the affairs of that society. If the Minister can throw any light on that subject I will be grateful. I welcome the proposals in the Minister's speech.
These regulations are aimed at increasing the limits for money transactions friendly societies may deal in and tightening up various bookeeping exercises within those associations. It is a technical up-date and is not contentious. It is something for which the friendly societies have been lobbying for some years and were promised. This up-date is certainly not before its time when you consider that the limits now in force were set as far back as 1896.
These societies were the forerunners of the credit unions. It must be said they served the people well for many years.
Prior to the establishment of the credit union movement the friendly societies and the SALS — the specially authorised loan societies — were virtually the only means available to the wage earner to save and to provide against the possibility of having to meet unforeseen expenditure, such as funerals, weddings, holidays, etc. Without the friendly society the only alternative for people in need of money was the moneylender, in many cases the unlicensed moneylender. We had a debate earlier this morning on consumer credit, which pointed out the dangers of borrowing money from the wrong source. People can end up paying enormous interest rates on loans they get from moneylenders and other such sources.
Friendly societies, I am pleased to say, are still providing a very valuable service today. We should welcome any move which will assist them in performing this function. I understand that this is the object of the regulations the Minister has introduced today. I am very pleased to support the approval by this House of the draft regulations.
I welcome the updating of the draft regulations for the friendly societies. The Minister will agree that it is a timely intervention on his behalf to update the regulations in view of the fact that they were not updated since 1896. Certain changes have taken place in society since then. At that time the maximum single deposit was £200, and the maximum loan was £50 — you certainly would not go too mad on that nowadays.
I am glad that the Minister has seen fit to introduce supervisory committees in order to oversee the powers and the workings of friendly societies. In that regard I hope the Minister will consider extending supervisory committees to the broadest possible range of friendly societies, and that would include credit unions and building societies. Building societies have been the subject of much debate in recent times.
The Minister, rightly, is introducing accountability provisions in order to make the public more aware of the finance which is being held on deposit, the finance which is being given out in loans and the number of loans which are being issued. The public are entitled to this information. I welcome the provision in these regulations for the proper accountability of friendly societies.
The building societies have grown dramatically over the last number of years. I refer briefly to my concern at a number of developments in this area. As you are aware, the big five building societies account for 90 per cent of the total assets of Irish building societies at present. They bear no resemblance to the small institutions which were built up to serve communities in the 19th century. Perhaps they are being displaced in local communities by the rapid growth in recent times of credit unions. All Members of the House will be aware that in many large towns and villages throughout the country credit unions are giving tremendous service to the local community. They are accountable to the local community. They run small scale operations and deal in small scale finance; but they meet a tremendous need. When the smaller depositor is urgently looking for a small personal loan it is dealt with very swiftly by the local credit union. There is a place for the expansion in the future of this financial network and source of revenue.
Today the large building societies are more comparable to banks, being largely anonymous and unaccountable. Recent legislation brought before the House, and regulations introduced by the former Minister for the Environment, Deputy Boland, have introduced more of a sense of accountability to building societies than in recent times. The consumer has benefited from the fact that he now has a choice of solicitor and a choice of insurance company. The trend to a monopoly and a cartel, which has developed over the years, is showing signs of being broken. The profitability of building societies is at variance with the popular perception that they are non-profit making. In essence, they operate in a very protective environment. I would encourage the Minister to look into the fact that they have failed to disclose management expenses and their advertising revenues and to alleviate the general public disquiet, which stems from the lack of information from those building societies.
There has been virtually no innovation in the type of loan or mortgage offered to housebuyers due to the lack of competition within the building society cartel. The big five certainly have most of the assets in this country. They seem more intent on the growth of their own branch network and more intent on seeking to purchase the prime locations in every town and village in order to enhance their own asset structure rather than ploughing their money into making necessary funds available to the hard-pressed building sector and to the people who, above all, should be looked after by building societies, the mortgagees. The ownership of these building societies by their depositors, on the basis of one vote per person investing, militates against the effective accountability of management. The proxy system we have seen in operation in all of the building societies means that there is a closed shop to the ordinary members of the public who wish to break into the management structure of these societies. It is something that is not in the best interests of the community. It is virtually impossible for a substantial number of members to have sufficient votes to enable them to exercise any control over a society.
Building societies present their annual report to the Registrar of Friendly Societies. They do not have to specify their management expenses and fees. They only give global figures. Management expenses and fees have increased dramatically over the years. Surely there should be an insistence by the Registrar for a revised and more detailed form of accounts? Since the Minister is going so far as to introduce more accountability into the general framework of friendly societies, he should extend it to make building societies in general more accountable to the Registrar. We do not hear much about the criteria used for compensating retiring board members? How do these moneys compare with the harsh imposition of a redemption fee, which is now, I am glad to say, eliminated, due to the recent regulations introduced by the previous Minister for the Environment? I am sure that the policy holders and the mortgage holders of building societies are glad that the three to six months penal interest charge for the redemption fee is eliminated and they can surrender their mortgage much more easily than heretofore.
Members of building societies do not have real ownership. They cannot affect the accountability of management. Thus, the question arises: how can they ensure that a society is being operated in the best interests of the shareholders and the community? Is it in their interest to expend revenue surpluses on increased advertising, on the provision of new branches, on increased management expenses as opposed to increasing the reserve ratio, reducing the mortgage or increasing the deposit rate? It is even more puzzling that other societies — for example, the industrial provident societies and the credit unions — can have appointments made to their boards by the relevant Registrar under the Industrial and Provident Societies (Amendment) Act, 1978. A similar amendment could be made to the Building Societies Act, 1976, to ensure that either a ministerial or registrar appointment could be made to such a board so that we can monitor consumer interests.
The operation of the closed shop system by the building societies is not in the best interests of the general community. The chances of people outside the club of getting onto the board of a building society are very remote. There is a great case to be made to the Minister to ensure that the Registrar of Friendly Societies has adequate power at his disposal and that there is adequate staff to unveil the shroud of secrecy surrounding building society management. Unaccountability is not controlled by the Registrar of Friendly Societies at present because he is treated as just a rubber stamp on their affairs.
I would think that 99.9 per cent of the members are dissatisfied with the operation of building societies. I am glad the draft regulations give us the opportunity to highlight the disturbing aspects of building society operations. I am glad that the Minister has introduced general accountability to friendly societies under these regulations. Therefore, I support the regulations as presented to the House.
I welcome this motion on friendly societies. These societies are there to provide people who have not got substantial means at their disposal with funds for various family events such as weddings, holidays, deaths and so on. It is extremely important that we recognise the valuable contribution these societies make to local communities. These societies were set up initially to provide funds for people in communities who were unable to avail of finances from other institutions. Unfortunately, for various reasons, especially the idea of making a lot of money, the societies are now far removed from the initial intention. The nearest thing to the original societies at the moment is the credit unions.
These societies for which the regulations are being made here today are, in a sense, on the same basis as credit unions. I welcome the fact that the loan is being increased to £1,500 and the initial deposits are being increased to £3,000. It is extremely important that those provisions should be made because of this terrible idea of people in difficulties having to go to these dreadful moneylenders. Individuals who have to resort to financing themselves with loans from these moneylenders are put under absolutely dreadful pressure. Enormous pressures and difficulties are experienced within families as a result of trying to pay off loans from moneylenders. The difficulty is that when they cannot come up with the finance, they borrow more and get themselves deeper and deeper into debt. Families split because of pressure put on them and find themselves in a situation with no way out.
These provisions are a type of community action providing funds for people. They show a community spirit, as do the credit union organisations. People come together as a group. They have a common purpose and invest small amounts of money on a collective basis. They are quite happy that the money subscribed is used to benefit each other. That is a far cry from the building societies where the idea is to make as much money as possible. I agree with Senator Hogan that there is now very little difference between the banks and the building societies. Recent events suggest that they are the same type of financial institution. It is important that people who are not in a high financial bracket are catered for.
The increased financial limits apply to all friendly societies. It is proposed to increase the maximum benefit assurable to a member from £1,000 to £10,000 and to set a similar limit on the amount a member "may dispose of, on his death, by nomination or distributable when a member dies intestate." The maximum amount payable on the death of a child will be £1,000. It is high time these financial regulations and provisions were updated. I welcome these provisions and I hope the friendly societies will go from strength to strength.
I am very pleased with the regulations because, with the increased finance that will become available to these societies, accountability is very important. I welcome the idea that an auditor will have to audit the books of these friendly societies to ensure that everything is above board.
I congratulate the Minister on his initiative in improving the regulations for friendly societies. This is a technical update which has come after quite a number of years. The societies were started in the late 19th century. Society has changed a great deal, it is not before its time that we made a change. It is extremely beneficial to the member of these societies that the new regulations will require the societies to provide proper accounting and auditing procedures. This will help to protect the members of the societies and it will also help them to know how their business is going.
The societies have played an important role in the social aspects of small communities. They have served people and families well. They lent money for special family events. In recent years credit unions have provided young people with much needed money for cars and motor cycles in many rural communities where no public transport is available. This has helped people to travel to their places of employment. They also facilitated young people in a legal sense by keeping them away from illegal moneylenders. We have all seen the brutal tactics by which moneylenders operate their business. They lend money at extreme rates to people who are in severe financial circumstances. These regulations will provide a small but positive step in trying to weed out the criminal moneylenders from our society. I support the regulations before the House and congratulate the Minister on his initiative.
I will be very brief. Most of the main points have been covered by my colleagues so I do not intend to go over them. There are two points I want to make and they are slightly peripheral but I think they are important as they relate to the question of the Registrar of Friendly Societies. The first point concerns the very obvious backlog of work at the office of the Registrar of Friendly Societies. The reports are frequently a couple of years late and when they arrive are certainly less than detailed and raise questions as to whether the office of the friendly societies — I am not talking about the registrar or the people working there but of the office itself — is geared to function as efficiently as the public interest would require.
The range of activities there is enormous: building societies, friendly societies, trade unions and credit unions and the amounts of money involved run into billions of pounds each year. Yet the facilities available to the registrar and his office would seem to be stuck back at a time when building societies were small and friendly and when credit unions were still little more than an idea, a very good idea which has become a big and helpful business since that time. I wonder not just if the registrar has the necessary staff but whether, given the complexity of modern day high finance — we are talking about high finance — he has the capacity to hire and pay the very highly skilled type of people needed to run the office as efficiently as the public interest requires. I am raising my final point to ask the Minister to think about it rather than give an answer today, as I admit it is not relevant to what we are discussing now.
Is the Registrar of Friendly Societies the proper authority to supervise the activities of the building societies, or should this responsibility be devolved elsewhere? I am asking this because of the enormous growth in the size and scale of building society operations and because of the adverse publicity which has surrounded the activities of a number of building societies in recent years. Certainly in the public mind, at present, there is a certain disquiet about the seeming arrogance of some building societies on the question of the right of shareholders to decide, both in the policy and in the boards of directors of building societies, in regard to the huge sums of money spent by building societies on advertising, whether this might not be better used to bring down mortgages.
There is a general feeling about the lack of accountability of building societies and the lack of public control and scrutiny. I make this point because similar institutions to the building societies in terms of scale at the moment are the banks and the banks are subject to the scrutiny of the Central Bank. It is ridiculous to compare the Central Bank with the Registrar of Friendly Societies because the registrar, in terms of staff and number of highly qualified people available to them, is not in a position to be compared with the type of scrutiny which operates as far as the banks are concerned.
One of the in-phrases these days among our financial friends is about playing on an even pitch, where the building societies and the banks believe that the other side has the wind behind them or that the pitch tilts in the other direction. The Minister may not have views on it today but I feel there is a case for examining the overall supervision of building societies, given their scale and complexity and the public disquiet about some of their activities — only some of their activities. There might well be a case for moving the overall supervision to the Central Bank. I am not sure the Central Bank would welcome this. They may feel they have enough to do at present but it is a question which, in the interests of recent developments, is worth considering. Otherwise, I welcome the motion and commend the Minister.
I thank Members of the House for their co-operation on these regulations. I commend them on the way they co-operate with each other as distinct from the shenanigans which we have in the other House of late.
A number of points were raised by Senator Doyle, Senator Hogan and Senator Manning to which I will attempt to respond. Points were raised about the supervision of various agencies. The Registrar of Friendly Societies supervises building societies and credit unions have supervisory committees under the Credit Union Act. In the case of specially authorised loan societies, the registrar has no supervisory powers. The only action he can take in relation to alleged irregularities is to report the matter to the Garda or the Director of Public Prosecutions. In the case of other friendly societies, with the Minister's agreement and on the application of at least 100 members, the registrar can have the affairs of the society investigated by inspectors. In the long term it will be necessary to amend the friendly societies legislation to strengthen the supervisory powers of the registrar. However, the proposed regulations will be of considerable assistance as friendly societies will now be obliged to keep proper books of accounts.
In recent years the registrar had to appoint inspectors to investigate the affairs of the transport employees Tontine and Benefit Society. Senator Doyle referred specifically to that society which got into serious financial difficulties. This society is not one of the few remaining specially authorised loan societies but is a friendly society registered under the 1896 Act. It is understood that investigations are not yet complete, but the inspector's report is expected soon. This is the only friendly society to run into serious difficulty in recent years. Some societies set up under the Industrial and Provident Societies legislation have run into problems: examples are the PMPS and the Irish commercial society group. These latter groups would not come within the scope of the proposed regulations.
Senator Manning raised a point about staffing. We are examining the staffing situation in the registrar's office but there are obvious financial constraints. We provide for consultancy services by professionals and we are planning a computerisation programme. The legal framework for the supervision of friendly societies is totally inadequate. These regulations are a first step in strengthening the registrar's powers. It will be necessary to review the friendly societies legislation to strengthen the registrar's powers further. Given the inadequate staffing position in the Office of the Registrar of Friendly Societies, it will be some time before this review can be carried out adequately.
The question of an increase in the loan and deposit limits from friendly societies other than specially authorised loan societies has been considered and there is no pressure, however, for an increase at present. Given the supervisory framework it would not be advisable to contemplate any increase for the time being. This matter can be reviewed at a later date should any representations be received.
Question put and agreed to.