Rabbitte to warn credit unions of attack on their tax status by rivals

CREDIT unions will have to defend themselves against lobbying by the banks and building societies for the removal of their preferential tax status, the unions expect to be told this weekend.

Some 1,000 credit union delegates are meeting in Killarney today and tomorrow for the annual general meeting of the Irish League of Credit Unions (ILCU). They meet as the Credit Union Bill to extend their powers goes to the President, Mrs Robinson, for signature.

The Bill is expected to come into effect on October 1st, the start of the next financial year of the credit unions. With observers and guests, the conference is expected to bring about 4,000 people to Killarney for the weekend.

The Minister of State for Commerce, Science and Technology, Mr Pat Rabbitte, will address the delegates tonight at their annual dinner in the Gleneagle Hotel. He is expected to warn them to expect strong lobbying from the banks and the building societies against their preferential tax status when the Bill is enacted.

Credit unions are not liable for corporation tax and are not required to deduct deposit interest retention tax (DIRT) from interest payments on members' deposits. The banks and building societies argue that as the credit unions' powers to lend and take deposits are expanded and they grow in size, the retention of their current tax status would give them an unfair advantage in the marketplace.

Mr Rabbitte is expected to tell delegates that, as long as there is no change in the nonprofit making status of credit unions, they will continue to be exempt from corporation tax. On DIRT, Mr Rabbitte has already stated that he does not favour any change in the current treatment of interest on members' deposits.

The banks have warned that they will take a case against the credit unions to Brussels when the Bill is enacted because the credit unions are exempted from the first and second banking directives and the terms of the EU Consumer Credit Directive. These directives impose regulatory burdens on the banks and building societies.

Mr Rabbitte last addressed the credit unions at a special conference in Limerick in January to outline his proposals for extending their lending and borrowing powers and their range of activities in the Credit Union Bill. Strong lobbying by the ILCU resulted in changes in Mr Rabbitte's original proposals.

The proposed savings and lending limits were raised and an amendment was introduced to give official recognition to the ILCU. Under the final terms of the Bill, individual loans by credit unions will be capped at the greater of £30,000 or 1.5 per cent of individual unions' total assets. An earlier additional restriction that the total of all loans of £30,000 could not exceed 5 per cent of all the credit union's outstanding lending has been withdrawn.

There are additional restrictions limiting the size of individual loans. The sum of all loans made for periods of over five years may not be more than 20 per cent of a credit union's outstanding loans. And the sum of loans for 10 years or more may not be more than 10 per cent of all outstanding loans. On the savings side, an aggregate individual ceiling of £50,000 for deposits and shares will be put in place.