2022 will see the Minister for Credit Unions publish a draft policy on the future of the credit union movement. The context is that the Irish League of Credit Unions, on behalf of its affiliated credit unions, lobbied successfully for commitments in the Programme for Government to move us on from political platitudes to practical action.
The commitments in the Programme for Government include
● Enable the Credit Union movement to grow as a key provider of community banking in the country.
● Review the policy framework within which Credit Unions operate.
● Enable and support the Credit Union movement to grow.
● Support Credit Unions in the expansion of services, to encourage community development
There are a number of priority areas which require immediate attention.
The commitment for credit unions to become a provider of community banking has wide support. In December 2019, Minister Donohoe published an independent report by Indecon International Economic Consultants on Community Banking in Ireland which stated: “Credit unions are considered to be a ‘community bank’ with an increasing offering of financial products for their members.” The recommendations advocated support for the “Credit Union Market to deliver an Expanded Range of Community Banking Services.”
The commitment for credit unions to become a provider of community banking has wide support. The ILCU is advocating for the necessary supports and legislative change from Government to enable credit unions, who are the de facto Community Banks, to develop the full range of banking services to their members in communities across the country. This is about creating an alternative, people owned, financial services pillar.
ENABLE AND SUPPORT THE CREDIT UNION MOVEMENT TO GROW
POLICY FRAMEWORK REVIEW
Without legislative change, little will change for credit unions. The ILCU believes that there are three essential things which must be fixed for credit unions to work better
POLICY FRAMEWORK REVIEW
- Credit unions must be effectively enabled, as distinct from being nominally permitted, to deliver additional services across the board to really become a community banking platform.
- Notwithstanding the proposal for Lending in Common,, the community basis of credit unions, underpinned by the Common Bond, must be a pillar of policy and regulation.
- There must be a legislative refit of the institutional relationship between the Minister and the Central Bank, that fully upholds the regulatory independence of the bank, while enabling the Minister to set out key principles and objectives, including the power to set minimum reserves, which the Regulator must take account of
The ILCU, in our submission to the Department of Finance on the Policy Framework Review, outlined proposals to strengthen the long term viability of credit unions. These include
- Lending in Common - where one credit union could introduce a member to another for the purposes of applying for a loan from that credit union. This may occur if the initial credit union did not have the capacity or capability of providing that loan. The proposal also suggests that one or more credit unions could share a particular lending opportunity.
- Business Model Development Taskforce - The ILCU supports the establishment of a Business Model Development taskforce solely to assist co-ordination of development of new products and services at the origination stage to assist in avoiding fragmentation.
- Modernise additional services - The ILCU proposes the modernisation of the Additional Services regime in the Credit Union Act to reflect the current financial services landscape, to recognise the regulated nature of some additional services, and to streamline the approval process required. This will assist credit unions in providing the services of a Community Bank.
- Policy Committee - the ILCU proposes the establishment of a Regulatory and Legislative Credit Union Policy Committee, preferably on a statutory footing, to discuss potential regulatory and legislative changes in advance of the relevant authority commencing a public consultation.
The Regulatory Reserve ratio of 10% is out of step with the risk profile of credit unions assets. Unbelievably, a 10% regulatory capital requirement is applied to an Irish Government Bond and to an unsecured loan to a credit union member
Our ILCU “Credit Unions in a Time of Change”, of July 2021, shows that regulatory capital requirements for credit unions are significantly higher than ROI banks and credit unions elsewhere. We are disadvantaged in the financial services market and undermined in delivering competitive pricing of loans, and in the development of new services.
Credit unions are trusted savings institutions but Regulatory capital requirements mean an additional capital cost to us holding savings for members. For every €1,000 of savings received, a credit union must put aside a capital requirement of 10%, i.e. €100 in this example.
The ILCU advocates a risk weighted approach to capital/reserves for credit unions and proposes that the power to set minimum reserves be withdrawn from the regulator and assigned to the Minister for Finance or another Government department or agency.
The ILCU successfully campaigned for the reductions in the Credit Institutions Resolution Fund Levy (CRIF Levy). Reductions mean that credit unions will pay €4.2m for the CIRF levy in 2022 versus €8.6m in 2019.
However, the Central Bank is planning, and has Ministerial approval to increase the Industry Funding Levy in stages up to 50% (of Industry Funding costs) by 2022. This levy costs our affiliated credit unions approximately €1.5m per annum, and the increase proposed would cost approximately €5.7m. This is a tax on social capital and a levy on volunteers.
The ILCU strongly advocates that the increase in the Industry Funding Levy be reversed. On the Credit Union Stabilisation Levy, the reduction by the Minister means credit unions will pay €2.7m less in 2021 than they paid in 2020. Instead of having to pay €3m next year, they will only pay €300,000. While welcome, the ILCU position remains that there should be no such levies and amounts previously collected, but not spent, should be refunded. It hasn’t fulfilled its function and the ILCU has its’ own SPS fund.
In relation to the Deposit Guarantee Scheme (DGS), costing credit unions over €13m per annum, the ILCU believes that the movement’s schemes, such as the League’s Savings Protection Scheme (SPS), should be taken into account when levies are being set.
Credit union personnel can access support material
to assist their local lobbying activities on the affiliate area of the website.