Following agreement from Cabinet, the Minister of State with responsibility for Financial Services, Credit Unions and Insurance, Seán Fleming TD, published the Credit Union (Amendment) Bill 2022 (the Bill) on 30th November 2022.
The Bill represents the culmination of two years of work led by Minister Fleming, supported by the Minister for Finance, Pascal Donohoe TD, to complete the Programme for Government commitment to review the policy framework within which credit unions operate.
It represents the commitment in the Programme for Government to grow credit union lending through the expansion of services and encourage further community development.
This Bill is the first substantive credit union legislation since 2012, which followed the Commission on Credit Unions.
The review of the policy framework focused on five key areas:
- Recognition of the role of credit unions
- Supporting Investment in Collaboration
- Supporting Enhanced Governance
- Improving Member Services
- Transparency of Regulatory Engagement (non-legislative)
Since his appointment, Minister Fleming has held over 50 stakeholder engagements and has met with more than 60 credit unions either individually or in groups, and many more at events. In total over 100 proposals, including all proposals submitted by sector representatives, for legislative and regulatory change were carefully considered.
On the 10th of March 2022, Minister Fleming held a consultative roundtable to discuss the Government’s proposals with the Irish League of Credit Unions, Credit Union Development Agency, Credit Union Managers Association and the National Supervisors Forum. The proposals received the support of all the representative bodies at this meeting.
Provisions of the Bill
The Bill will:
- Support investment in collaboration through the creation of corporate credit unions, as an additional regulated vehicle through which credit unions could collaborate. The Bill will also amend Section 43 to clarify that credit unions can invest in ventures supporting credit unions.
- Improve members’ services by allowing credit unions to refer members to other credit unions and to participate in loans of other credit unions.
- The Bill will also amend Section 38 to allow the Minister for Finance to set a maximum interest rate, currently fixed at 1% per month. This will provide more flexibility for credit unions to price risk in a rising interest rate environment.
- Support enhanced governance through amendments to facilitate a greater focus on strategic planning and to redress the balance of responsibility on the board between directors and management. These provisions include:
- The option of making the manager a member of the board;
- Reduce the minimum number of board meetings to six per annum;
- Reduce the frequency of review of policies; and
- Reduce the number of administrative issues to be mandatorily approved by the board.
There are three elements of the policy review which resulted in non-legislative policy action to support transparency in regulatory engagement.
Firstly, the Central Bank, the Credit Union Advisory Committee and the Minister for Finance will enter into a Memorandum of Understanding to improve coordination on policy matters, while respecting regulatory independence. Secondly, the Central Bank has agreed to introduce an enhanced engagement protocol with credit unions. And thirdly, we have amended the terms of reference of a stakeholder group, chaired by the Department of Finance, to widen attendance and enhance transparency with the sector.
Welcoming the publication, the Minister of State with responsibility for Financial Services, Credit Unions and Insurance, Seán Fleming TD, said:
“The local credit union and the role it plays in the economy and in the community is more important now than ever before.”
“The Government wants credit unions to develop a wider range of products, with greater accessibility. This legislation will enable greater collaboration through the ability to establish corporate credit unions. It will enable wider availability of products across the movement through changes to the common bond. It will give credit union boards a greater focus on strategic issues, through practical governance changes.”
“A strong, resilient and collaborative credit union movement can take advantage of the opportunity afforded by banks withdrawing from Ireland and from branch closures. This legislation will help the credit union movement to grow as a key provider of community banking in the country.”
“To help credit unions seize this opportunity, it is the Government’s priority to have this Bill passed by the Houses of Oireachtas as soon as possible.”
Summary of the Credit Union Amendment Bill 2022
The legislative provisions, grouped under the four objectives are set out below. In addition to the amendments required to effect the policy objectives there are additional technical and consequential amendments set out in the Bill.
Objective 1: Recognition of the role of credit unions
Credit unions fulfil an important role in communities across Ireland. This role has been emphasised further by bank branch closures and the impending exit of Ulster Bank and KBC. In recognition of this role the Bill includes an additional object in Section 6 “to promote and provide support to co-operative groups and voluntary associations”. Currently there is no recognition of or reference to the volunteer ethos of credit unions in the Act.
Objective 2: Supporting Investment in Collaboration
There are two legislative provisions categorised under this objective.
The first provision is a clarification and a broadening of the language in Section 43(2)(b) of the Act to make it clear that credit unions can invest in credit union service organisations. Enhanced collaboration is central to the future of the credit union movement. Increased cooperation will allow credit unions to better serve their members by increasing the range of services offered.
The second provision is the proposed introduction of corporate credit unions, a credit union whose members would be other credit unions, as entities through which credit unions can further collaborate. Corporate credit unions could allow an additional regulated structure through which credit unions could collaborate.
Objective 3: Supporting Enhanced Governance
There are a number of amendments under this objective which are intended to facilitate a greater focus on strategic planning and redress the balance of responsibility on the board between directors and management. These provisions include:
- the option of making the manager a member of the board, in line with best practice in corporate governance;
- reducing the minimum number of board meetings to six per annum;
- mandatory review of policies every three years from annually at present and removal of the requirement for the board to review procedures;
- reduction in 5 administrative issues to be mandatorily approved at board level;
- 4 amendments to streamline the work of the Board Oversight Committee; and
- allowing credit unions to seek deemed consent from members to receive annual accounts by electronic means and for the publication on credit union websites.
Objective 4: Improving Member Services
At present it is a lottery as to whether a member can access the fullest range of services. If a member’s local credit union doesn’t provide a current account or mortgage lending they can’t join a credit union that does. Nor can the credit union introduce the member to another credit union, though they can introduce a member to a bank or non-bank. And while the common bond may appear to protect a credit union from competition from other credit unions, it does nothing to prevent competition from banks or non-banks.
The purpose of the amendments under this objective is to increase the flexibility of the common bond and allow for practical improvements to help credit unions increase competitiveness and deliver a greater range of services to more members. These amendments are seen as a step towards ensuring accessibility to services for all members regardless of their common bond.
The legislative provisions under this objective include amendments which will:
- Allow for referral of members from one credit union to another;
- Allow for loan participation amongst credit unions;
- Allow the Minister power to create a list of public bodies which credit unions could consider a member;
- Allow flexibility to ensure legal structures operating in a common bond can be members; and
- Provide for the publication of common bonds, through the provision of a map or description on credit union websites, where relevant, or a description of the common bond in the annual accounts to aid transparency.
A provision has also been included to increase the interest rate cap from 1% to a cap set by the Minister (likely to be 2% per month), a proposal which was previously included in stand-alone legislation – the Credit Union (Interest on Loans) Bill 2019.