Restrictive rules on lending by credit unions must be shelved in order to give the community-based finance co-op more room to grow, it was claimed today.
In an address to the Joint Oireachtas Committee on Finance and the Public Service, the Irish League of Credit Unions warned many branches would be breaking the law if they continued to approve loans.
The ILCU explained that due to strict legislation, only passed in 1997, the not for profit body is limited in how much money it can hand out.
And many offices are on the brink of passing their limits. Anne O'Byrne, president of the ILCU, said the organisation was being disadvantaged by outdated rules.
Anne O'Byrne, president of the ILCU
"This places credit unions at a competitive disadvantage, which is not an acceptable situation," the ILCU said.
With just 3 million members the ILCU has assets now in excess of €14 billion and it wants the Credit Union Act 1997 rewritten to give them more leeway to lend.
Ms O'Byrne noted the financial services sector in Ireland is the most dynamic in the economy but she claimed credit unions were being barred from reaching their potential by restrictive legislation.
She told the committee the process to have new credit union services approved is slow and cumbersome in what is a highly innovative marketplace.
"Change is desirable and necessary and will happen, but overnight inappropriate change could undermine this extraordinarily successful development resource for Ireland, one which provides access to financial services for all," Ms O'Byrne said.
"It could drive out the very volunteers who ensure that the not-for-profit service remains in place for all communities; urban, rural, well off and disadvantaged.
"Credit unions are not afraid of regulation but are concerned at what a well-meaning Financial Regulator might do to a voluntary, not for profit credit union movement."
Under Section 35 of the Credit Union Act only 20 per cent of a credit union's loan book may be loaned out to customers over 5 years and only 10 per cent may be loaned out over 10 years.
Many credit unions are already at this limit and, as such, are in a perplexing position whereby they cannot legally provide loans to their members for periods in excess of five years. This is having a seriously negative effect on the level and breath of lending services that credit unions can offer their members.
The ILCU represents around 530 credit unions, 104 in Northern Ireland and 426 in the Republic. Total membership is at approximately 3 million.