#1 More Home,  Business & Community Lending

Problem: The rapid retrenchment by banks creates a reduction in competition and service in many communities. Credit unions can meet some of this demand but require legislative change to enable sectoral lending at scale.

Solution: Credit unions should be permitted to (i) introduce loans to each other and (ii) syndicate participations among credit unions with capability and capacity. This practise is common in mature markets, e.g. Canada and USA, and could be used by credit unions to co-lend. 

This allows credit unions to share risk rather than prevent people access to credit union services. This requires enhancement to common bond definition S6(1)(b) and S6(3).

Benefits: Consumers receive a trustworthy alternative to banks. Credit unions generate income, return on assets, and achieve economies of scope and scale offering larger sized solutions, especially to businesses. This modernisation of the common bond, of cooperatives cooperating, also sees the regulator benefit because lending is standardised and subject to multiple assessments. 

#2 Allow credit unions meet more credit needs of members

Problem: Credit unions are restricted from lending to members who may wish to purchase a buy-to-let [often self-employed as part of their pension planning].  They are also not permitted to lend to members who may wish to purchase a holiday home.

Solution: Remove these regulatory restrictions and allow credit unions to prudently  meet the needs of members who wish to borrow for BTLs and holiday homes.

Benefits: Consumers receive competitive choice while enhancing credit unions lending capacity and sustainable financial model.

#3 Commercially Active Members

Problem: Credit unions can only offer services to members in their common bond. This does not fit the modern economy where people may live/work/consume across many locations or online. Businesses wishing to offer credit union loan products can do so only in a restricted manner by having to identify credit union membership qualification. 

Solution: People who are commercially active in a common bond would be allowed become a member of the credit union in that common bond. This will encourage relationships between credit unions and local and national businesses. This will require enhancement to S6(1)(b) and S6(3).

Benefits: Consumers receive a trustworthy alternative to banks and FinTechs. Credit unions generate income, return on assets, and develop relationships with businesses who they can also lend too.

#4 Housing for All

Problem: Credit unions can make social and affordable housing ‘investments’ [which are underlying loans] but are restricted from supporting tier 1 and 2 AHBs, local authorities and housing cooperatives. 

Solution: Credit unions should be permitted to accept a wider range of social and affordable housing members and lend to them directly and via loan participation. The amendment would require an enhancement to Section 6 of the Credit Union Act 1997 [as amended] and enable credit unions to collectively lend for social and affordable housing projects.

Benefits: Consumers receive much needed lending capacity to the market. The regulator benefits from lower risk given the nature of lending and collateral. Credit unions generate income, return on assets, and strengthen their position as a community hub.

#5 Savings for All

Problem: As banks abandon consumers to address their own profitability, the consistent inflow of savings is applying pressure to capital levels.  Credit unions are working on enabling new opportunities, to grow income, and reduce costs, through proposals such as sharing / introducing loans to broaden the credit union market.  However, they are currently being forced to curtail or withdraw services to members and potential members, and therefore a more holistic approach, for example identifying solutions to the savings conundrum, which is much more than a simple commercial issue as espoused by the Registrar, is required.  This needs to be considered in the context of capital and indeed the future business model and role of credit unions in Ireland’s financial landscape, if not credit unions will be forced to withdraw even more services. As we seek to pick up the gaps left by banks, some credit unions will require short term solutions to assist while the business model [enhanced lending] continues to evolve.

Solution 1: Permit credit unions to distribute State savings in the same way as is open to post offices and regard it as an exempt service for credit unions.  

Solution 2: Amend the rule requiring credit unions to hold more than half their savings as shares.  This will allow savings to be held in deposits aligned with market rates.

Solution 3: a Government Covid-19 recovery bond available to credit unions which critically will carry a capital requirement reflective of the underlying risk, i.e. considerably lower than the currently required 10%.  

Benefits: Enable credit unions to provide a safe home for members savings without risking the sustainability of the credit union.

#6 Capital Reform

Problem: As banks abandon consumers to address their own profitability, the consistent inflow of savings is applying pressure to capital levels.  Credit unions are working on enabling new opportunities, to grow income, and reduce costs, through proposals such as sharing / introducing loans to broaden the credit union market.  However, they are currently being forced to curtail or withdraw services to members and potential members, and therefore a more holistic approach, for example identifying solutions to the savings conundrum, which is much more than a simple commercial issue as espoused by the Registrar, is required.  This needs to be considered in the context of capital and indeed the future business model and role of credit unions in Ireland’s financial landscape, if not credit unions will be forced to withdraw even more services. As we seek to pick up the gaps left by banks, some credit unions will require short term solutions to assist while the business model [enhanced lending] continues to evolve.

Solution 1: Permit credit unions to distribute State savings in the same way as is open to post offices and regard it as an exempt service for credit unions.  

Solution 2: Amend the rule requiring credit unions to hold more than half their savings as shares.  This will allow savings to be held in deposits aligned with market rates.

Solution 3: a Government Covid-19 recovery bond available to credit unions which critically will carry a capital requirement reflective of the underlying risk, i.e. considerably lower than the currently required 10%.  

Benefits: Enable credit unions to provide a safe home for members savings without risking the sustainability of the credit union.

#7 Business Model enhancement

Problem: CUAC [the Minister for Finance’s statutory based advisory committee on credit unions] state that better collaboration across the sector would help combat existing business model challenges and new financial pressures arising from the current crisis. Greater collaboration is key in the longer term to improving the viability of the sector, and therefore it is essential that work in this area is intensified.

Solution: Establishment of a Business Model Development Taskforce on a statutory footing that would support the sector in implementing business model change in a more coordinated manner.  It was acknowledged that the taskforce could be established by the sector itself. However, some of the bodies believe that a statutory basis would make such a Taskforce more credible.  

It cannot be ignored that there is a variety of commercial interests impacted by any proposal in this space, and ultimately each credit union has to make commercial decisions that are driven by their fiduciary duty to their members.

Benefits: Credit unions would benefit from the availability of meaningful and realistic business plans and the opportunity to see the real benefits of collaborating which would motivate appropriate implementation. While society would have access to a wider range of services and competition in the market.

#8 More Enabling Regulations / legislation

There are a number of areas where regulations can be enhanced to be more enabling:

• increase limit on SME lending to allow meaningful business opportunities and remove unyielding provisions relating to business plans for small business loans. 
• Stabilisation fund  and related Levies should be set at 0%, The Fund had reached an appropriate target size in 2020, and 
• The Dept should now be working towards dissolving the Fund over the next 2 years as it would appear that the Dept. has no appetite to amend the structure of the Scheme to ensure it is fit for propose.