The principal legislation under which credit unions are regulated in Ireland is the Credit Union Act 1997 as amended (the Act). One of the objects referred to in the conditions of registration of a credit union is the creation of sources of credit for the mutual benefit of its members at a fair and reasonable rate of interest In relation to interest on loans under Section 38 of the Act, a credit union may charge interest on loans made to its members under certain conditions, one of which is that the interest on the loan shall not at any time exceed one per cent per month on the amount of the loan outstanding at that time. The interest on the loan shall in every case include all the charges made by the credit union in making that loan.
Credit Unions will have a standard rate of interest which may be less than 12 per cent but which in any case, under Section 38 of the Act, cannot exceed 12 per cent (i.e. 1 per cent per month). Credit unions may also offer classes of loans at rates of interest which are less than their standard rate of interest e.g. loans for particular purposes such as for cars, home improvement loans, education etc. The rate of interest charged on any class of loans granted at a particular time shall be the same for all loans of that class. I am informed that a representative sample of rates currently being applied by credit unions indicates an average standard rate of 10% interest on loans. This sample does not include classes of loans other than those to which the standard rate applies, ie loans which attract a rate lower than the standard.
Section 37 C of the Act sets out the details which a credit union must include in its credit agreement with a member — this includes setting out the rate of interest charged in respect of the loan and the relevant APR. The forthcoming Strategic Review of Credit Unions, being initiated by the Financial Regulator at my request, will be comprehensive and will include consumer protection issues. Its recommendations will inform the development of policy in relation to credit unions and will feed into a review of credit union legislation.