Regulations may hurt credit unions

Any tightening of our tax legislation to deter evasion and fraud is to be welcomed, but targeting credit unions to the same degree as commercial banks is something that needs serious pause for thought on the part of Finance Minister Charlie McCreevy.

The movement is now, obviously, a multi-billion, largely voluntary, organisation and the principle that credit unions should be regulated is not a problem for the Irish League of Credit Unions, as they have repeatedly stated. The problem is treating them like any other commercial institution in the money market when they are palpably not in the same field.

Applying the same regulations to credit unions as apply to commercial banks is completely over the top. There is more than just a lingering whiff about it of the long-standing row between the minister and the League, which had lasted for two-and-a-half years, and ended in an uneasy peace.

The ILCU maintains that they were given an undertaking that they would not be subject to the same regulations as banks when the Bill setting up the Irish Financial Services Regulatory Authority (IFSRA) was being formulated.

Under that proposed legislation, the Central Bank and Financial Services Authority Bill 2002, credit unions would be brought under the umbrella of IFSRA but, importantly, would retain a certain amount of independence under the Registrar of Credit Unions.

Since then the minister has intimated that the Registrar would, in fact, be subject to the authority of the board of the IFRSA, effectively treating credit unions in the same way as any commercial bank.

However, their roles in the community are not comparable. The credit unions are largely voluntary and their ethos is founded on the principle of non-profit-making, co-operation and self-help, as against the sheer commercialism of banks and similar financial institutions.

The credit union movement is one of the largest voluntary institutions in the State, holding deposits worth 7.5 billion for its 2.6 million members. As such, it warrants a degree of regulation to protect its members’ interests. The organisation does not resent that, and, indeed, had reasons to examine how it conducts its own business in recent years.

The ILCU has had its internal problems, notably the debacle over the 27 million computer disaster, the row over the withdrawal by some branches from their insurer provider, Eccu, as well as a limited number of localised disputes.

Most of the recommendations made by a committee chaired by consultant Phil Flynn, relating to internal reform, have been adopted, and should result in a more efficient organisation.

The problem with the proposed legislation is that it purports to give a measure of independence to the credit unions, recognising their unique role in society, when in fact it does not.

Under the legislation, banks and other financial institutions, including credit unions, will be required to report any “suspicion” of tax evasion or breach of the law.

Given that they are a community-based service in the true sense of the word, such an obligation would impact more fundamentally on them than commercial institutions. Another relevant factor would be the burden imposed on branches to train staff in the complexities of tax legislation.

The legislation is due to be debated at Committee Stage in the Dáil today and is expected to be enacted within a few weeks.

In the course of the passage of the Bill, very serious consideration needs to be given to the implications contained in it for credit unions, which may do them a disservice.