Credit Union Policy

Credit Union Policy Section is primarily responsible for the development of efficient and effective credit union policies.

 

Principal Objectives

 

Legislation

Credit unions in Ireland operate under credit union specific legislation. The principal legislation covering credit unions are the Credit Union Act 1997, as amended, and the Credit Union and Co-operation with Overseas Regulators Act 2012, known collectively as the Credit Union Acts 1997 – 2012.

The Credit Union Act 1997 established a Registrar of Credit Unions and included a relaxation of common bond definitions, an increase in the duration and amount of savings and loans allowed and also permitted credit unions to provide additional services.

Credit Union Act 1997

Following publication of the Report of the Commission on Credit Unions, the Credit Union and Co-operation with Overseas Regulators Act 2012 was enacted. The 2012 Act implements over 60 of the recommendations of the Commission on Credit Unions across a range of areas, including:

  • Prudential Regulation – including reserves, liquidity, lending, savings and investments.
  • Governance – including the role of the Board, Chair and the Manager.
  • Restructuring – providing for a process of amalgamations and transfers to be undertaken on a voluntary, incentivised and time-bound basis and overseen by the Restructuring Board, ReBo.
  • Stabilisation – providing financial support to viable but undercapitalised credit unions.

Credit Union and Co-operation with Overseas Regulators Act 2012

 

Financial Snapshot

Total Savings and Loans

  • Savings with credit unions remained resilient through the financial crisis and are now above pre-crisis levels.
  • Loan volumes have declined from a peak of €7.3bn to €4bn, this is set against a backdrop of deleveraging across the Irish economy.
  • Overall loan to asset ratio stood at 26% at end-2015.

 

Loan Arrears > 9 Weeks   

  • Loans over nine weeks in arrears increased significantly from 7% in 2006 to 20% in 2012.  Since 2012 arrears have declined to 11% at mid-2016.

 

Average Regulatory Reserve Ratio

  • The Regulatory Reserve Requirement in a credit union is at least 10% of the assets of the credit union.
  • The average Regulatory Reserve Ratio continues to strengthen and stood at 16% at end-2015.

 

General Information

Credit Unions and the Irish Economy

 

 

  • Ireland has one of the highest levels of credit union member penetration in the world.
  • The credit union sector is a large employer with 3,500 employees, putting it in the top 5 financial services employers in the State.
  • Credit unions have a volunteer ethos and community focus with 9,200 volunteers involved in the sector.
  • Credit unions ranked Number 1 in the Customer Experience Ireland Survey (CEXI) 2015.

 

Credit Union Stakeholders

 

  • 331 registered credit unions in the Republic of Ireland serve the needs of 3.1 million members.
  • The role of Minister for Finance is to ensure that the legal framework for credit unions is appropriate.
  • The Registrar of Credit Unions at the Central Bank is the independent regulator for credit unions in Ireland.
  • The main representative bodies are:
    • ILCU - 434 credit unions affiliated to League in the Republic of Ireland and Northern Ireland.
    • CUDA – represents 11 credit unions and also provides affinity membership for a number of additional credit unions.
    • CUMA – represents credit union managers in Ireland.
    • NSF - supports board oversight committees in the Republic of Ireland and supervisory committees in Northern Ireland.
  • CUAC is a statutory body providing advice to the Minister for Finance on credit union matters.
  • The Credit Union Restructuring Board (ReBo) facilitates and supports credit union amalgamations.

 

Commission on Credit Unions

 

  • In 2011 the Government established the Commission on Credit Unions to review the future of the credit union sector.
  • The Commission presented its final Report to the Minister for Finance in March 2012.
  • Recommendations were made to strengthen the credit union regulatory framework and to provide for more effective governance and regulation.
  • The Commission on Credit Unions comprised members from various credit union stakeholder groups and included:
    • the Department of Finance
    • the Registry of Credit Unions
    • the Irish League of Credit Unions (ILCU)
    • the Credit Union Development Association (CUDA)
    • the Credit Union Managers’ Association (CUMA)
  • The Report was agreed over a nine-month period by all Commission members.
  • The Credit Union and Co-operation with Overseas Regulators Act 2012 implements over 60 of the recommendations in the Commission Report.

 

Programme for Partnership Government

 

The Programme for Partnership Government states:

We will support the invaluable role of credit unions in Ireland. We recognise that the sector requires further support to help overcome the significant challenges it faces. We will develop a strategy for growth and development for the credit union sector. We are also committed to ensuring that credit unions benefit from regulatory support, in order to respond to the needs of a changing economy. Specifically we support:

  • The rollout and extension of the Personal Microcredit Scheme, which is providing simple microloans to members and helping to combat the use of moneylenders. Status 1
  • Assisting credit unions in making successful applications to retain members’ savings in excess of €100,000 (CP88), recognising the independence of the Registrar of Credit Unions. Status 2
  • Asking the Central Bank of Ireland to instigate a review of the continued appropriateness of the savings limit within a year of the formation of the new Partnership Government. Status 3
  • Working with the Registrar of Credit Unions at the Central Bank to gradually lift current lending restrictions as appropriate, including for housing. Status 4
  • Credit unions’ move towards more electronic and online services, including the rollout of debit cards and enhanced online banking services. Status 5
  • Asking the Credit Union Advisory Committee (CUAC) to conduct a review, and report by the end of June 2016, on the implementation of the recommendations outlined in the Report of the Commission on Credit Unions. Status 6

 

 

PROGRAMME FOR GOVERNMENT - PROGRESS

Status 1

PfG 1: The rollout and extension of the Personal Microcredit Scheme, which is providing simple microloans to members and helping to combat the use of moneylenders.

Status: The Personal Microcredit Scheme was commenced on a pilot basis in November 2015, involving 30 credit unions providing individual loans of between €100 and €2,000 with a maximum interest rate of 1% per month. The initiative is being led by the Department of Social Protection in conjunction with the Department of Finance and other interest groups. The It Makes Sense loan is designed to make short-term credit available on a low-cost basis to the people who need it most, and is designed specifically as an alternative to high-cost money-lenders.

To date more than 1,200 loans have been drawn down with an overall value of over €720,000.  The average individual loan is €500.  The pilot stage showed that more than half of those using the scheme had previously used a money-lender, and that 22% of those on the scheme were thinking about using a money-lender before they signed up.

The scheme has now moved to a permanent footing and is being offered to credit unions nationally. To date 75 credit unions have gone live with the scheme and a further 15 are in the process of going live. This scheme is entirely voluntary for credit unions.

Status 2

PfG 2: Assisting credit unions in making successful applications to retain members' savings in excess of €100,000 (CP88), recognising the independence of the Registrar of Credit Unions.

Status: The Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 (the Regulations) came into effect on 1 January 2016 following commencement of the remaining sections of the Credit Unions and Co-operation with Overseas Regulators Act 2012 which provided regulation making powers to the Central Bank. These Regulations set out an individual member savings limit of €100,000. The Regulations introduced on 1 January also provided that credit unions could apply to the Central Bank to retain individual members’ savings in excess of €100,000, which were held at commencement of the Regulations and that Credit unions with total assets in excess of €100m could apply to the Central Bank for approval to increase individual member savings in excess of 100,000.

The Central Bank consulted with the Department of Finance on the application process and accepted the Department’s observations​​​, making the application process less onerous.   Separately, the Registrar met with the representative bodies to get their feedback on the application process.

The Central Bank developed application processes to facilitate credit unions in seeking the approvals as outlined above. As provided for in the Regulations, in order for approval to be granted an applicant credit union must demonstrate that the granting of such approval is consistent with the adequate protection of the savings of members and effective and proportionate having regard to the nature, scale and complexity of the credit union. The submission deadline for applications to retain savings in excess of €100,000 was 27 June 2016. The application form to increase savings in excess of €100,000 does not have a submission deadline and will be accepted on an ongoing basis.

Under the process, applications to retain individual members’ savings in excess of €100,000, which were held at commencement of the Regulations, were assessed primarily by reference to objective financial criteria related to the excess reserves and liquid assets held by the credit union. In addition, applicant credit unions were required to outline a rationale for seeking to retain such savings.

C.195 credit unions held individual members’ savings in excess of €100,000 of c.€165m on 1 January 2016.  The Central Bank has indicated that c. one third of these credit unions have applied to retain individual member savings in excess of €100,000.

For those credit unions that are not approved to retain individual member savings in excess of €100,000 the transitional arrangement as set out in the Regulations apply, this means all individual member savings in excess of €100,000 held by these credit unions must be returned by 1 January 2017.

Status 3

PfG 3: Asking the Central Bank of Ireland to instigate a review of the continued appropriateness of the savings limit within a year of the formation of the new Partnership Government.

Status: The Central Bank has committed to review the savings limit three years from commencement of the regulations (01/01/2016). It is intended that the Minister will issue a letter to the Central Bank by the end of the year requesting an accelerated review of the savings limit.

Status 4

PfG 4: Working with the Registrar of Credit Unions at the Central Bank to gradually lift current lending restrictions as appropriate, including for housing.

Status: In February 2015 the Central Bank commenced a lending restriction review initiative, whereby credit unions that are subject to a lending restriction, but are satisfied that they have made the necessary improvements and have embedded these improvements in robust risk sensitive lending practices, could apply for a review of their lending restriction. The closing date for receipt of applications to review lending restrictions under this initiative was 30 September 2015.  This review has reduced the number of credit unions with lending restrictions. Currently approximately 25% of credit unions have a lending restriction compared with 52% at the start of the review process.  The Central Bank has informed the Department that there is ongoing engagement with credit unions to lift lending restrictions. We will continue to monitor the situation.

Social Housing - The Central Bank has indicated that it is open to updating allowable investments to include social housing if appropriate initiatives are put forward.  The Central Bank commenced a number of new regulations for credit unions on 1 January 2016.  Prior to their commencement, following careful consideration, some modifications were made, including to Regulation 25(2) which makes reference to the fact that the Central Bank may prescribe, in accordance with section 43 of the Credit Union Act 1997, further classes of investments for credit unions which may include investments in projects of a public nature.  The effect of these modifications is that regulation 25(2) now specifically provides that investment in projects of a public nature can include, but are not limited to, investments in social housing projects.

House loans - Under the 2016 Regulations, credit unions are allowed to provide house loans.  Restrictions that may impact house loans include:

  • A credit union shall not make a loan to a member for a period exceeding 25 years.
  • Not more than 10% of the loan book can have a maturity of greater than 10 years (this can be increased to 15% if approved by the Central Bank). For the sector, the average maturity over 10 years is 2%.  As part of the sector stakeholder dialogues, the Central Bank is in regular contact with the credit union sector on the issue of maturity.

CUACs recent Report makes a recommendation that a full review of Section 35 lending limits, including the basis of the calculation of the limits together with the liquidity requirements attaching to same should be carried out. The Minister will shortly establish an Implementation Group to oversee and monitor implementation of all recommendations in the Report.

Status 5

PfG 5: Credit unions' move towards more electronic and online services, including the rollout of debit cards and enhanced online banking services.

Status: We continue to support credit union initiatives to develop services while protecting members’ savings. We must be cognisant of State Aid rules when considering any specific supports. New services, in most cases, must also be approved by the Registrar of Credit Unions at the Central Bank. An Implementation Group consisting of members from the four main credit union representative bodies, the Central Bank and a CUAC member, chaired by the Department of Finance is being established to implement all recommendations in CUAC’s Report. This will ensure that all recommendations are fulfilled in the manner intended and that the Minister is informed of developments and progress on a regular basis.

Status 6

PfG 6: Asking the Credit Union Advisory Committee (CUAC) to conduct a review, and report by the end of June 2016, on the implementation of the recommendations outlined in the Report of the Commission on Credit Unions.

Status: In December 2015 the Minister invited the Credit Union Advisory Committee (CUAC) to carry out a review of the Implementation of the Recommendations set out in the Report of the Commission on Credit Unions. The review was completed by end-June 2016 and is now available on the Department’s website: Review of Implementation of the Recommendations in the Commission on Credit Unions Report made recommendations in a number of areas including: Tiered Regulation; Section 35; Consultation and Engagement; Governance; Restructuring; Business Model Development; and Additional Matters. The Minister will now establish an Implementation Group to oversee and monitor implementation of all recommendations.

 

Credit Union Advisory Committee (CUAC)

 

  • CUAC is a committee established under section 180 of the Credit Union Act 1997.
  • The current CUAC was established in September 2014 and consists of 3 members:
    • Mr Donal McKillop, Chair, Professor of Financial Services in the School of Management at Queens University;
    • Ms Denise O'Connell, Partner, Audit and assurance services - Grant Thornton; and
    • Mr Joe O'Toole, Former Senator. Previously served as General Secretary of INTO and President of ICTU.
  • CUAC meets on a monthly basis in the Department, with the Department providing secretariat. It regularly invites credit union stakeholders to meetings to share their views on various topics.
  • CUAC has completed a number of research papers including, A Survey of Irish Credit Unions and Viability and Irish Credit Unions.
  • CUAC presented its report entitled Review of Implementation of the Recommendations in the Commission on Credit Unions Report, to the Minister on 29 June 2016. The Report was published on the Department’s website on 5 July 2016.

 

CUAC Members

 Donal McKillop – Chair of CUAC 

  • Donal is Professor of Financial Services in Queen’s University Management School.
  • In the last four years Donal has completed commissioned research on financial co-operatives for the Royal Irish Academy (exploring the efficiency and performance of Irish credit unions); the Joseph Rowntree Foundation (analysing how to build better credit unions in the UK) and the Scottish Executive (financial cooperatives in Scotland). He has also completed work on diversification strategies of US credit unions and the role technology has in the merger and acquisition behaviour of US credit unions which was presented to the Board of the Federal Deposit Insurance Corporation in Washington DC.
  • Donal is currently an advisor on Welfare Reform to the Office of the First Minister and Deputy First Minister (Northern Ireland) and a member of the Research Committee of the European Association of Cooperative Banks. He was also Chair of the Government Commission on Credit Unions (Ireland 2011-2012).

Denise O’Connell

  • Denise is a Partner at Grant Thornton and a fellow of the Institute of Chartered Accountants in Ireland (FCA) and completed her undergraduate studies in the National University of Ireland Galway and graduated with a Bachelor of Commerce (BComm) degree.  She has an in-depth knowledge of credit union operations and is responsible for the management of credit union audit and advisory assignments within Grant Thornton. In addition, she has worked on a number of inspection assignments from the Registrar of Credit Unions under Section 90/91 of the Credit Union Act, 1997 (as amended).  Denise also has considerable experience of the international credit union sector through her placement with a Canadian member firm in 2007. 

Joe O’Toole

  • Joe is a teacher by profession, was elected as an Independent Senator to Seanad Éireann 1987–2011.  He was General Secretary to the Irish National Teachers’ Organisation 1990-2002, and President of the Irish Congress of Trade Unions in 2000.  His other experience includes: Chair Audit Review Group 2001, Board Irish Auditing and Accounting Supervisory Authority 2003–2013, Vice Chair Personal Injuries Assessment Board (PIAB) 2004–2014, OECD Trade Union Advisory Committee (TUAC), Member Inaugural Leinster House Commission 2004–2007, Joint Oireachtas Finance & Public Service Committee 1997–2007, Joint Oireachtas Energy & Communications Committee 2007-2011, member of Government Commission on Credit Unions 2011–2012, and is currently a member of the Credit Union Restructuring Board since 2012.

 

Credit Union Restructuring Board (ReBo)

The Commission on Credit Unions recommended the establishment of ReBo to support and facilitate restructuring of the credit union sector on a voluntary, incentivised and time-bound basis.

  • ReBo was placed on a statutory footing on 1 January 2013 under section 42 of the Credit Union and Co-operation with Overseas Regulators Act 2012.
  • The Government put €250m into the Credit Union Fund for restructuring purposes.
  • ReBo has engaged with 208 different credit unions in 112 merger projects.
  • Credit unions were given until 31 March 2016 to receive a letter of offer from ReBo if they wished to enter a restructuring programme under ReBo. 
  • Over the course of its lifetime ReBo expects the number of credit unions in Ireland to have consolidated from c.400 to c.260-280.
  • ReBo expects to use no more than €20m from the Credit Union Fund.

 

Publications