Wednesday, November 11, 2015

CUs want to expand services, but regulations will 'hamper' development

As banks impose controversial over the counter transaction restrictions on personal customers, Kilcullen Credit Union is reminding members that it continues to provide personal, face to face financial services, writes Brian Byrne.

It's the kind of personal service that is 'highly valued' by credit union members around the country, Kilcullen CU says in a statement reflecting the ethos of the Irish League of Credit Unions.

The credit union sector wants to provide a full range of personal financial services to members 'and all who wish to avail of' such services, according to the statement. But new regulations due to come into force from the end of the year will 'hamper' such development.

The sector describes the regulations — which have been the focus of discussion between the credit unions and the Central Bank under a document called CP 88 — as 'draconian' and even 'devastating', and says they are designed to ensure that credit unions are 'restricted from competing effectively with other financial services providers' into the future.

Among other things the regulations will limit the amount of savings by a member to €100,000, and any balance existing over that will have to be given back to the member unless there are special individual circumstances sanctioned by the Central Bank. "In many cases, Kilcullen Credit Union believes that it will be forced to send older, vulnerable lifelong savers to the banks because of the restrictions that will be imposed."

Statutory changes to the loans category structure, currently decided locally by the Boards of CUs, are also seen as a real difficulty. In particular, loans specified for home improvements will require the CU to have a first legal charge secured on the property. Home improvements are among the big reasons for loans.

Proposed limits on lending and borrowing by the CU, and the extension of already onerous regulatory procedures in a primarily social and community based organisation, will also make the operation of the sector unnecessarily difficult.

Credit unions say they have implemented all of the requirements from the latest legislation around matters such as governance, compliance, risk management, and internal audit. The sector had expected to be allowed to expand its business model but CP 88 does not enable that. Credit unions also feel they have to put so much of their surplus into regulatory reserves that they will not have the money to pay for the costs of setting up new services.

"As a movement that is socially as well as economically orientated, we are fundamentally different from banks," says Brian McRory, President of the ILCU, who adds that there there is now a 'growing disconnect' between the ethos of credit unions and that of the regulator, the Registry of Credit Unions, which sits within the Central Bank. "We have members who are owners, not simply shareholders. The motivation behind our prudence with member’s savings is to make those savings available as appropriate loans for a social purpose."