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
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.
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.
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.
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.
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.
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.