– Loans on the decline as stagnation sets in –
Fianna Fáil TD for Cavan-Monaghan Brendan Smith says more needs to be done to expand the role of credit unions to ensure that they are protected and utilised into the future. The party is highlighting the problems being faced by credit unions in Cavan, Monaghan and across the country during its Private Members time in the Dáil this week.
Deputy Smith commented, “Credit unions are at the heart of many communities across this country and have played a major role in providing small and medium sized loans to personal customers, businesses and farmers. Their association with communities and localities added a personal touch and for many people, they were the “go-to” institution for most financial services. This has helped credit unions weather the economic turmoil, but measures must now be taken to secure their viability into the future.
“Despite showing tremendous resilience during the downturn, credit union growth has now effectively stalled. Loans are declining, and the sector is being unnecessarily limited. The credit union regulatory framework has been dramatically enhanced over the past few years. The unions have managed to improve their reserves without hiking interest rates or increasing charges, as has been the case with the main banks.
“The current legislative and regulatory framework is curtailing the ability of the credit union network to expand. Restrictions on loan durations, deposit limits and approval processes for products such as debit cards are undermining their ability to expand and offer new services.
The Fianna Fáil Dáil motion will set out a number of key initiatives aimed at bringing new vibrancy to the sector:
· A review of Section 35 legislation relating to restrictions on rescheduled loans and term limits on lending;
- A streamlining of the process for the approval of additional services;
- A financial impact analysis to be conducted on the extent of losses incurred by credit unions arising from the Personal Insolvency legislation;
- An examination of the Personal Insolvency Act by the Competition and Consumer Protection Commission;
- The Central Bank in its Consumer protection role to engage directly with Credit Unions to establish the impact the current legislative and regulatory restrictions are having on communities.
- The Minister for Finance to bring forward a white paper on the role of the Credit Union sector within the broader financial services sector in Ireland;
- the proposed liquidity requirements for less than 8 days will diminish any potential for earnings on those deposits for Credit Unions;
- the combined effect of all of these factors, which are outside the Credit Unions control, could seriously impair the Credit unions ability to grow and flourish and will ultimately lead to the weakening of the sector; andThe establishment of an industry-led forum with representation from all stakeholders thatPRIVATE MEMBERS BUSINESS
“That Dail Eireann:
- the Government has no clear policy to support the strategic growth and development of Credit Unions in Ireland;
- the Credit Union Movement is critical to the economic and social wellbeing of communities all over Ireland with almost 3 million members and nearly 400 offices nationally;
- offering primarily savings and loan services, the sector employs 4,000 people and has almost 10,000 volunteers;
- credit unions have survived the crisis well with just 1% of credit unions needing state funding support since the financial crisis began;
- the not for profit and independent nature of credit unions is vital to the success of the sector;
- in other jurisdictions, the role and function of credit unions is clearly set out at a national policy level and credit unions have been able to develop and grow the products and services that they offer members;
- with the necessary infrastructure development and support, credit unions could develop into a vibrant, not for profit and competitive alternative within the financial services sector in Ireland; and
is concerned that
- the sector is overburdened with restrictive limitations which are disproportionate to the nature of its lending and this is stifling the growth potential of credit unions;
- 35% of all credit unions have been operating with lending restrictions for a period of 5 years or more;
- Current government policies do not support credit unions developing additional products and services and not a single credit union has received approval for additional services since the banking crisis began;
- The approval process for credit unions seeking to engage in services such as debit cards is unclear;
- transfers of engagements and mergers seem to be the only solution being progressed at the moment with no clear view as to what the long term positioning of these larger credit unions will be;
- section 35 of the Credit Union Act restricts the percentage of a credit union’s loan book that can extend beyond a 10 year term, thereby restricting credit unions from engaging in any meaningful long term lending including mortgages;
- section 35 further restricts a credit union for lending to any members for a period of 1 year who have altered their repayments; while no such restrictions apply to the banking sector, thereby placing credit unions at a disadvantage;
- mortgage customers in arrears are effectively forced to rely exclusively on banks or moneylenders for credit;
- recent legislative changes have had the effect of further disadvantaging credit unions and given a competitive advantage to the banking sector;
the Personal Insolvency Legislation has had a disproportionately negative impact on credit unions vis- a- vis other financial institutions ;
- the re-classification of Credit Union funds under Basel 3 rules has given Banks a competitive advantage in attracting deposits;
- The European Banking Insolvency Directive (transposed into Irish Law in December 2014) offers no protection to credit unions;
- the proposed legislation in the most recent consultation paper issued by the Central Bank of Ireland (CP88) further diminishes the competitive position of credit unions;
- the proposed cap on savings, has potential to cause reputational damage to credit unions, will drive funds from the credit union sector into the banking sector and distort competition between the banking and credit union sectors for new deposits;
- the Minister for Finance to bring forward a white paper on the role of the Credit Union sector within the broader financial services sector in Ireland;
- the establishment of an industry led forum with representation from all stakeholders that examines the future growth potential of credit unions in Ireland;
- investment in infrastructure development within the sector that will facilitate the growth and development of products and services offered by credit unions;
- a review of Section 35 legislation relating to restrictions on rescheduled loans and term limits on lending;
- a review of the process for the approval of additional services;
- financial impact analysis to be conducted on the extent of losses incurred by credit unions arising from the Personal Insolvency legislation;
- an examination of the Personal Insolvency Act by the Competition and Consumer Protection Commission;
- financial impact analysis to be conducted on any proposed future regulatory changes or additional guidance to ensure that such changes will not damage the sectors income potential;
- appropriate and timely consideration to be given to the impact on the credit union sector of decisions at a European level that affect them;
- the Central Bank in its Consumer protection role to engage directly with Credit Unions to establish the impact the current legislative and regulatory restrictions are having on communities.
Michael McGrath, Bobby Aylward, John Browne, Dara Calleary, Niall Collins, Barry Cowen, Timmy Dooley, Sean Fleming, Colm Keaveney, Billy Kelleher, Seamus Kirk, Michael Kitt, Micheál Martin, Michael Moynihan, Charlie McConalogue, John McGuinness, Éamon Ó Cuív, Willie O’Dea, Seán Ó Fearghaíl, Brendan Smith, Robert Troy
examines the future growth potential of credit unions in Ireland.