Skip to content

Plea to loosen the shackles on credit unions

BY Rachel | 6 January, 2016 | no comments

The Irish League of Credit Unions has heavily criticised Central Bank proposals that would tighten the watchdog’s regulatory grip on the sector.

Ed Farrell, the ILCU’s chief executive, said that there was a “growing disconnect between the ethos of credit unions and that of our regulator”.

In a hearing in front of the Oireachtas joint committee on finance, public expenditure and reform yesterday, Mr Farrell outlined ways that credit unions could ensure that lending was available to those who could not access it elsewhere and make a major contribution to key national objectives including social housing and small businesses.

However, Mr Farrell said that new Central Bank regulations for credit unions posed a major barrier to the sector’s expansion.

The rules will cap the amount and type of loans that credit unions can make and limit the types of investments they can pursue.

“This is not about being for or against regulation,” Mr Farrell said. “It is about better, more effective regulation and doing the right thing. A lot has changed since the report of the government commission on credit unions was published and its recommendations partially implemented. The government’s own analysis of Ireland’s economic position says as much.

“Now is the time we strongly believe to briefly pause, review and then move forward on the basis of better regulation for the future of credit unions.”

He said that regulation was stifling credit unions in their attempts to provide credit and serve a broader social agenda.

“At present credit unions hold surplus funds of €8 billion in investments on behalf of members,” Mr Farrell said. “We believe these surplus funds could be used more effectively. Under current regulations, there are limited options for the management on the placement of these funds.

“We believe these funds could be better used to deliver key social goals, while also fully protecting them. For example credit unions’ surplus funds could be used to assist in important areas of government policy such as social housing.”

The ILCU represents 437 credit unions across Ireland. In the south it has almost three million members, savings in excess of €11 billion and more than €13 billion in total assets.

Credit unions are regulated by the Registry of Credit Unions, which sits within the Central Bank.

Mr Farrell said that the disconnect between unions and regulators was highlighted in a recent report on the way the Central Bank regulates credit unions. The review team “expressed concern at the sheer volume and complexity of the requirements with which credit union boards of directors and management must now comply”, he told the committee.

He added: “It is acutely frustrating, therefore, that the views expressed on behalf of credit unions in relation to the overly onerous regulatory approach of the Central Bank have not been taken into account or acknowledged.”

Kevin Johnson, chief executive of the Credit Union Development Association, said that the new requirements around governance needed to be proportionate and argued against a “one size fits all” regulatory model.

“We don’t have an average credit union. They range in size and shape and cover a diversity of needs,” he said.

The committee heard that the sector was in good shape as in the past two quarters there had been a rise in loans taken out by members.

The Credit Union Restructuring Board said last month that it expected to spend €20 million on its work by the time it wound up in March — significantly less than the €250 million set aside for the restructuring of credit unions in the wake of the financial crash.