Credit unions ‘may not survive’ tough rules

Unless credit unions are permitted to broaden their business and current regulations are relaxed, they will not survive.

That is according to the chief executive of the Credit Union Development Association, Kevin Johnson, who told the Oireachtas finance committee that current regulation is severely curtailing credit unions’ ability to do business.

He said: “The regulation that has come into force over the last decade on savings, loans, and payment systems has resulted in credit unions permitted to do less business now than they could 10 years ago.

“This is neither proportionate nor fair, and can only lead to the marginalisation of credit unions as an effective force in lending if this is allowed continue. We need your help to put this right.”

Mr Johnson said his association has helped credit unions strengthen governance despite “an absolute barrage” of regulation.

He called for an amendment to the Credit Union Act 1997 that would enable credit unions to collectively lend to approved housing bodies and local authorities for social and affordable housing projects.

Mr Johnson asked TDs and senators to urge the Central Bank to “substantially extend lending limits” and to allow credit unions invest in funds for housing related purposes.

“The effect of new regulatory rules, without proportionality, relegates credit unions to compete in less than 10% of the Irish credit market. Yet we have the capital, competency, and community from which we can and should compete on a fair playing pitch with other lenders,” he said.

“The effect of these new rules is like asking us to win an All-Ireland whilst marginalising our team to staying inside our own square, at the same time allowing our competitors free reign over the remaining 90% of the pitch.”

The Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 came into force for credit unions in January 2016.

The regulations cover a number of areas, including reserves, liquidity, lending, investments, savings, and borrowings, building on existing governance requirements.

They also included the establishment of types of categories of loans which credit unions may provide, together with related limits, counterparty and maturity limits for investments, and a maximum individual member’s savings limit of €100,000.

Tim Molam of the Credit Union Managers’ Association told the committee that some credit unions were reluctant to take in deposits in the current climate. “If there is a deposit of €10,000, they have to come up with €1,000 to put into the regulatory reserve. It is a significant cost,” he said.

“They have no option but to meet those requirements. If that level falls below, it means trouble with the regulator. The bottom line is that a number of credit unions have taken the decision to put a cap on deposits for prudential reasons.”

Brian McCrory, president of the Irish League of Credit Unions, said because of restrictions, credit union lending had deteriorated over a number of years. “There is a direct correlation. It is a disingenuous playing field that is not to the advantage of ordinary people,” he said.

The Central Bank last month berated boards and senior managers at credit unions after a review showed some lenders failed to com-ply with regulatory controls.


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