Credit unions 'may have to exit small-loan market'

Credit unions may be forced to exit the market for smaller loans if regulation costs proposed by the Irish Financial Services Regulatory Authority (IFSRA) are implemented, a body representing the majority of credit unions has warned. Laura Slattery reports.

The Irish League of Credit Unions (ILCU) said if over-regulation by the regulator significantly increased its costs, credit unions could have to focus less on the movement's ethos of mutual self-help and more on cost issues.

This could lead to withdrawal from the market for loans of less than €1,000 and leave members, many of whom are from marginalised communities, with little option but to borrow from high-interest moneylenders, the league said.

In 2001, over a third of loans advanced by credit unions were for an amount less than £500 (€635).

These loans are traditionally not offered by other financial institutions because they are not profitable, the ILCU said.

In its response to IFSRA's proposal on how it should be funded, the league said the regulator's proposed expansion of the number of staff employed in its Office of the Registrar of Credit Unions division would lead to a greater financial burden for individual credit unions.

Total annual contributions by the credit union movement to the previous regulator, the Office of the Registrar of Friendly Societies, were approximately €750,000, the credit union league said.

However, under the funding model proposed by IFSRA, credit unions could be required to pay a total annual levy of up to €2.73 million.

The ILCU said that the unique voluntary, community-based and not-for-profit nature of the credit union movement had not been acknowledged by the regulator in its funding proposal.

It was "inconceivable" that the rural and marginalised communities that credit unions operate in would be asked to pay increased regulation costs when the rationale for the regulation was to protect members from exploitation, the ILCU said.

The league, which represents 423 credit unions in Ireland, believes that IFSRA should dovetail rather than duplicate the existing self-regulatory supervision services it implements.

However, the Credit Union Development Association (CUDA), which represents 19 credit unions, broadly supported IFSRA's funding proposals and said they were not excessive.

It criticised the current system of self-regulation in the credit union movement, saying it constituted "a serious threat" to the safety, soundness and reputation of credit unions.

The depiction of credit unions as "the poor man's bank" is outdated, the association added.