As part of the fallout from the banking crisis, it is likely that the days of light-touch regulation in Ireland are over. While attention has focused on stiffer rules the Financial Regulator Matthew Elderfield is expected to impose on the banks and building societies to prevent another meltdown, credit unions have voiced concerns that cracking down harder on those that caused the crisis could have a negative impact on them.
Both the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA), the two groups that represent individual credit unions across the country, say they are in better shape than banks and are continuing to lend to consumers. In the last couple of weeks the two groups have made it clear that any drastic changes to how they are regulated when the government's proposed Central Banking Commission takes on oversight of the financial sector should not impinge on them.
Credit unions – of which there are just over 400 in the Republic, with 2.9 million members, and assets of about €14bn – currently come under the aegis of the Registrar of Credit Unions, a post held until late last year by Brendan Logue. A successor to the long-serving Logue has yet to be appointed but when the post is filled the registrar will report to the head of financial supervision rather than directly to Elderfield, in a move seen by the credit unions as a diminution of their status.
CUDA, which accounts for 11% of credit union assets, says it favours remaining part of the main regulatory structure as that allows it to be part of the deposit guarantee scheme, which protects customers' savings up to €100,000, and also gives credit unions access to Central Bank and European Central Bank liquidity facilities.
But it said that credit union legislation needed to be overhauled and updated so that they could compete more effectively with banks and building societies. At a Dáil committee last week, CUDA chief executive Kevin Johnson outlined some of the changes he would like to see introduced that would improve the services credit unions could offer customers.
CUDA wants changes to Section 35 of the Credit Union Act that limits lending. At present only 20% of a credit union's total loan book can have a term of more than five years. CUDA wants that changed so the percentage is based on a credit union's assets and not its loan book. Johnson also said restrictions that required borrowers to retain savings equivalent to 25% of an outstanding loan before they could make any withdrawals were outdated. And he wants changes that allow credit unions to offer more products to consumers and small businesses.
The Credit Union Act was "in some places conflicting, overly prescriptive, overly restrictive," Johnson said. CUDA does not want to be included "in a one-size-fits-all prudential or consumer protection regulatory reaction or approach aimed at addressing failures in the banking sector".
"The actions of the regulator are reflecting the out of date legislation, as they are reacting to the current environment by imposing restrictions designed in a different era, becoming involved in the micro management of credit unions which does nothing to assist credit unions in their proactive development," he said.
But the credit union organisations are not united in their demands for a change in the regulatory structure.
The ILCU, the larger of the two, says there should be special recognition of credit unions' social role and it wants oversight removed from the Financial Regulator. The ILCU president Mark Bailey wants a new independent credit union regulator be established within the Department of Enterprise, Trade and Employment.
"This department already has responsibility for policy concerning the regulation of friendly societies, co-operatives and trade unions, as well as policy areas concerning consumer protection, corporate social responsibility, better regulation and competition," he said. "The Irish League of Credit Unions is also deeply concerned that in the redesign of regulation for financial institutions which currently includes credit unions, new structures would be put in place to address the worst excesses of banking in Ireland" which would then hurt credit unions.
Given the size of the credit unions' asset base – the €14bn in overall assets makes it larger than Irish Nationwide Building Society – it would be highly unlikely that the government would remove oversight from the Financial Regulator, or the Central Banking Commission when it is finally established. The suggestion was also rejected by CUDA, whose members broke away from the league several years ago following concerns about the governance of the credit union movement. Also going against the ILCU's case are controversies in the last decade that have dogged credit unions, from the botched and costly installation of new technology to investments in perpetual bonds that have gone sour.
Whatever their differences over how credit unions are regulated, the ILCU and CUDA agree that the government should make the changes quickly. That is unlikely to happen, sources suggested. The Department of Finance, Central Bank and Financial Regulator are battling to fix the banking system and have yet to get around to setting new capital ratios for banks before addressing the needs of credit unions.