Credit unions 'would be undermined' by changes

The list of prohibitions proposed for who can act as a director of a credit union in proposed new legislation will militate against smaller credit unions, the Oireachtas Joint Committee on Finance, Public Expenditure & Reform has been told.

A draft general scheme for the proposed new legislation includes a lengthy list of people who cannot serve as directors of a credit union, including people whose spouses, siblings, partners or children work for the credit union, including as volunteers.

The chief executive of the Irish League of Credit Union, Kieran Brennan, said he was "aghast" at the list of prohibitions that were being proposed. "Who is being allowed to serve on the board of credit unions?" he asked.

Mr Brennan said small credit unions could be undermined by some of the measures being proposed as they would require the engagement of a whole range of new volunteers. The proposed bill would prevent people who currently carry out more than one function on a volunteering basis from doing so.

He said the league also had a difficulty with the imposition of term limits for members of credit union boards because this was contrary to the democratic idea that was inherent to the credit union model.

The vice president of the World Council of Credit Unions, Michael Edwards, told the committee that as far as he was aware, no jurisdiction had such a law. He thought the issue of term limits was best dealt with by way of by-laws. Making them mandatory in law could be detrimental, he said.

Committee chairman Alex White noted that the proposed limit for an ordinary director was 9 years out of any 15 years. Mr Brennan said the rule that was being proposed did not exist for the financial institutions that had done so much damage to Ireland's economy.

Mr Brennan said the proposed legislation would assign credit unions to different tiers of regulation depending on their asset size. However the league believed the model used in the UK and Northern Ireland was superior. That model involved assessments as to a credit unions complexity and level of risk. However he agreed that big and small credit unions needed to be treated differently.

He also suggested that a memorandum of understanding be drafted that would govern relations between the Financial Regulator and individual credit unions, particularly in the area of communication.

The committee was told the league would like to see the law enable electronic payments and the facilitation of alternative methods for credit unions to raise capital.

Mr Brennan told deputy Michael McGrath that the volunteering principle should be promoted but some of proposed changes in the bill would work against that principle.

Deputy Arthur Spring said it was high time the Central Bank was told that no credit union ever provided finance for the building of office blocks in Ballsbridge, Dublin, or for speculative property investment abroad. The credit union movement is in very good shape compared to other financial institutions. "What they are looking for here [in the bill] is way over the top," he said.

League president Jimmy Johnson told deputy Joe Higgins that the points being made to the committee came from feedback the league had received from its member credit unions.