Time to give credit to the credit unions - Regulation row

OF all the financial institutions that suffered during Ireland’s economic crash, the credit union movement emerged the most intact. Only 1% of them have needed State funding since the financial crisis.

The reasons for this are threefold:

1. Unlike the banks, credit unions are not profit-driven or beholden to shareholders. They are co-operatives owned by their members, who are depositors and borrowers. They are solely responsible to those members, who are also their customers.

2. Credit unions hold in their portfolios most of the loans they originate. They don’t sell them to investors or hedge funds, so they care about the financial performance of those loans.

3. Most credit unions were set up as social lenders to people who could not get loans from the main banks, and they fulfil their mission very well. Many credit unions have surpluses in excess of their loan book.

Part of their philosophy is sound money management and the financial education of members. The banks are only interested in how you are going to pay them back, and when.

For these reasons, and others, it is mystifying that the Government and the Central Bank refuse to listen to the credit unions when they make sensible suggestions on house building and when they warn that new legislation to regulate them could put many of them out of business.

As the Oireachtas finance committee heard on Wednesday, Irish credit unions have €8bn in surplus funds and want to direct some of that money to the construction of social housing.

Considering our homeless crisis, it seems extraordinary that Finance Minister Michael Noonan would not be welcoming that money as manna from heaven.

Instead, the credit unions’ overtures are being constantly rebuffed.

The sector is already tightly regulated and the Central Bank rules include a bizarre provision that requires a credit union to set aside reserves of 10% of members’ savings, even if those savings are invested in state-guaranteed, government bonds.

More regulation is certain to strangle them further. There is no reason why credit unions should not be able to offer long-term mortgages to their members, but section 35 of the 1997 Credit Union Act all but prevents them from doing so.

That act, along with the 2012 Personal Insolvency Act, places further restrictions on credit unions and, under new, proposed legislation, savings have to be capped.

With all of these restrictions, there is no overall guiding government policy for the strategic development and growth of credit unions in Ireland.

It is as if the Central Bank and the Government are trying to improve the financial competitiveness of our wayward banks, at the expense of credit unions, with the result that they will lose members who have nowhere to go except back to those very institutions that caused all our troubles in the first place.