Credit unions criticise new Central Bank regulations

Credit unions across the country have criticised the publication of new regulations by the Central Bank on Friday morning, arguing that they will restrict lending and prevent the sector from competing effectively with other financial services providers.

The regulations, which the Central Bank says will come into force in December 2015, are intended to strengthened the regulatory framework for credit unions, following solvency issues in the sector . The regulations follow the publication, in November 2014, of a consultation paper, and responses to this consulation have been published by the Central Bank here.

Anne-Marie McKiernan, registrar of credit unions, said: “these regulations will foster a safer stronger credit union sector, with greater protection of members’ funds, through an enhanced regulatory framework”.

However, in a joint statement, the Irish League of Credit Unions, the Credit Union Development Association (CUDA) and the Credit Union Managers Association (CUMA), said the new rules will restrict credit unions from competing.

“Credit unions are now looking to provide more services to their members and their local communities at fair and reasonable rates – instead the draconian rules published today will restrict credit unions from offering real choice to members.”

The regulations

Some of the main proposals in the regulations are as follows:

*a minimum initial reserve requirement of € 10,000;

*a short term liquidity ratio of 5%(down from 10% in consultation paper);

*a member of a credit union can’t have savings of more than €100,000 and where they do, a period of 12 months (up from 6 months in consulation) has been provided to bring any savings over this limit into compliance with the new requirement;

*disclosure requirements in relation to annual accounts to include regulatory reserve requirement and loans to related parties;

*insurance services to be added on an introduction basis to list of exempt services.

In their response, credit unions argued that the regulations place “unwarranted restrictions” on credit unions, and send out a message that may cause “reputational damage” to the movement.

“Most importantly, those that will suffer most are ordinary members – current and future.”

In particular, credit unions have argued that the savings limit of €100,000 per member is “not appropriate”, given that no such limit applies to banks.

Credit unions also reject the limited options they will now have for the management and placement of funds.

“Essentially, credit unions have little option but to place funds on deposit with banks. The rules on investments should allow for centralised investments for home loans, social housing, SMEs etc.”

Further consultation

In its statement this morning, the Central Bank said it would invite interested parties to participate in focused dialogue in the coming months, “with a view to gaining a better understanding of how credit unions want to develop their business model”.

However, credit unions say this isn’t enough, and have asked the Minister for Finance to postpone the signing of the commencement order for the new regulations, to allow for “meaningful consultation” to take place.