President Higgins signs the Credit Union (Amendment) Bill 2022

Dr. Could you summarise what the Bill does?

I assume it's progressive and bans Credit Unions from insisting on holding shares while charging interest on loans?

Brendan
 
Had a skim through to see what would impact the average Joe.
The bill mostly relates to setting up, internal and reporting changes for credit unions.

Some of the wording is brought up to date(ie changes of him/his to them/they)

The only piece on member loans I saw was this

Section 32 (c) change
“(a) If a member of a credit union seeks to withdraw savings in the credit union at a time when the member has an outstanding liability(including a contingent liability) to the credit union, whether as borrower, guarantor or otherwise, that withdrawal shall only be permitted—
(i) if the savings are not attached savings, or
(ii) where the savings are attached savings, if the withdrawal of such attached savings is approved by the credit committee or a credit officer.”.

I assume all loans would have 'attached savings'
 
Brendan Burgess said:
Dr. Could you summarise what the Bill does?

I assume it's progressive and bans Credit Unions from insisting on holding shares while charging interest on loans?

Brendan
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I will revert on the Bill shortly.

Need I remind Mr Burgess that the requirement on holding shares (apart from the minimum) in order to get a loan has ceased as long ago as the No 10 Bus to Belfield.
 
WizardDr said:
Need I remind Mr Burgess that the requirement on holding shares (apart from the minimum) in order to get a loan has ceased as long ago as the No 10 Bus to Belfield.
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It might not be a requirement but loads of credit unions have specific products doing this.
 
The main summary of the Credit Union (Amendment) Act 2023:

- to provide for the establishment of corporate credit unions;
- to amend the requirements and qualifications for membership of credit unions;
- to alter the scope of permitted investments by credit unions;
- to provide for changes to the governance of credit unions;
- to provide for the setting of maximum interest rates on loans by credit unions;
- to provide for the provision of services by credit unions to members of other credit unions;
- to provide for the participation by credit unions in loans to members of other credit unions;
- and for those purposes to amend the Credit Union Act 1997;
- and to provide for related matters.

So for example policies only now require a 3 year review rather than annually but no change to the vile 10% reserve;
Board and BOC meetings can be reduced from 10 to 6 annually;
Slight alteration in the limited scope of investments;
Interest rate ceiling can be lifted from 12.68%APR;
Corporate Credit Unions to provide services to member credit unions;
Referral of business from Credit Union A to Credit Union B without having common bond requirement and even if CU A have the service or product (a very important change);
Loan participation with other Credit Unions;
Allows for notifications of meetings by electronic means building on virtual meetings enabled already;
The killing of of him/ he etc.

All changes to 1997 Act and as usual we will be relying on Law Reform Commission to consolidate legislation as opposed to Oireachtas reviewing the full legislation in a consolidation.

As pointed out there is no legal requirement to have more shares than the minimum for a loan - but an individual Credit Union may see it differently. It should be noted that one of the principles is to promote thrift. A good idea when you consider large swathes of the population have virtually no reserve fund for unexpected expenses. A lot of people are short.
 
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WizardDr said:
The main summary of the Credit Union (Amendment) Act 2023:

- to provide for the establishment of corporate credit unions;
- to amend the requirements and qualifications for membership of credit unions;
- to alter the scope of permitted investments by credit unions;
- to provide for changes to the governance of credit unions;
- to provide for the setting of maximum interest rates on loans by credit unions;
- to provide for the provision of services by credit unions to members of other credit unions;
- to provide for the participation by credit unions in loans to members of other credit unions;
- and for those purposes to amend the Credit Union Act 1997;
- and to provide for related matters.

So for example the heavy hand of the CBI on the most regulated business in the country is diluted slightly in that policies only now require a 3 year review rather than annually but no change to the vile 10% reserve;
Board and BOC meetings can be reduced from 10 to 6 annually;
Slight alteration in the limited scope of investments;
Interest rate ceiling can be lifted from 12.68%APR;
Corporate Credit Unions to provide services to member credit unions;
Referral of business from Credit Union A to Credit Union B without having common bond requirement and even if CU A have the service or product (a very important change);
Loan participation with other Credit Unions;
Allows for notifications of meetings by electronic means building on virtual meetings enabled already;
The killing of of him/ he etc.

All changes to 1997 Act and as usual we will be relying on Law Reform Commission to consolidate legislation as opposed to Oireachtas reviewing the full legislation in a consolidation.

As pointed out there is no legal requirement to have more shares than the minimum for a loan - but an individual Credit Union may see it differently. It should be noted that one of the principles is to promote thrift. A good idea when you consider large swathes of the population have virtually no reserve fund for unexpected expenses. A lot of people are short.
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Not really sure there's much of a revolution to be ignited by any of that to be honest. The sharing a loans between credit unions is somewhat interesting and should allow for better loan concentration risk management but outside of that what's really going to change? I can also see some merit in the referrals to another CU where your own CU doesn't offer a product but it's hardly going to make a huge difference in the grand scheme of things. I assume the referring CU will get some sort of commission or referral fee for this?
 
Well for example the CBI claim there are billions in unused limits for mortgages in CUs - except much of it is locked in Credit Unions that don't do mortgages so the nationwide element is somewhat retarded. The steps are incremental but with legislation that reflects a period when the CBI thought there was €500mn in losses (remember that and Minister Noonan saying it could be a €1bn) it takes a generation to unwind some of the most ludicrous restrictions. This Act assists this at least.

CBI facilitated the introduction of business current accounts.

So the atmosphere is positive and even Mr Burgess got excited about CU mortgages.
 
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WizardDr said:
Well for example the business prevention wing of the CBI claim there are billions in unused limits for mortgages in CUs - except much of it is locked in Credit Unions that don't do mortgages so the nationwide element is somewhat retarded.
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OK, so I can see how it's beneficial in the mortgage space. Say you have 3 credit unions based in Dún Laoghaire-Rathdown where the median house price is €630k but where none of the credit unions have the risk appetite for such a big loan, each of them could advance a loan of €210k (or whatever amount adjusted for their respective size/risk appetites), which based on the asset/loan book size for most credit unions would be far safer from a credit risk perspective. Seems very messy though.

I can also see why the CB citing the unused mortgage funds in credit unions is problematic. I just had a look at the most recent data published by the CB and the avg. Average CU asset size was €99m at the end of Sept-22 with a loans to asset ratio of 28.4%. At this level of scale it hardly makes sense to bother with mortgages with a regulatory concentration limit of 10%. If I can only do €10m of mortgages that's mortgages for about 30 - 35 average priced homes. Is it worth the hassle of acquiring/developing staff, setting up systems, developing procedures etc.

Why credit unions got into current accounts boggles the mind. Seems to be an absolute white elephant for them.
 
On the mortgage front people assume this is rocket science and it is a slightly longer process than an unsecured loan needing assessment. It has a much longer duration and pays above the investment alternative. On credit risk there is diversity of the earnings/income that members have and the concentration risk in the credit union's common bond isn't therefore acute. The business expansion side of CBI has seen this and is encouraging a move to 15% (in the Regulations) and I don't see why this wont change again particularly at the exiting of several major FIs in the last while and the slow entry of others which many have suggested is because of the business prevention (hence no risk) side of CBI. Public exclamations are seen as capital offences.

On the current account aspect given that many credit unions already had sophisticated electronic money transfer systems (after the barriers of entry were swept away by SEPA) an extension to current accounts was obvious. From the review of accounts, CUs show the fees and charges received and the direct costs of provision - many are already in positive earnings territory. Added to that in the Irish context many people keep large balances in their accounts and these are free funds as the banks' already know and are large contributors to income.

Your view of Credit Unions appears aligned to that of our great leader Mr Burgess - and while I score him highly on most matters (e.g. mortgage matters is 10) his score on credit unions is (subjectively) adjacent to UKs Eurovision scores - Royaume Uni un polint!
 
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WizardDr said:
On the mortgage front people assume this is rocket science and it is a slightly longer process than an unsecured loan needing assessment. It has a much longer duration and pays above the investment alternative. On credit risk there is diversity of the earnings/income that members have and the concentration risk in the credit union's common bond isn't therefore acute. The business expansion side of CBI has seen this and is encouraging a move to 15% (in the Regulations) and I don't see why this wont change again particularly at the exiting of several major FIs in the last while and the slow entry of others which many have suggested is because of the business prevention (hence no risk) side of CBI. Public exclamations are seen as capital offences and CBI are sensitive to criticism.
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Nobody said it is rocket science but it is a considerably longer process. I'm also not sure it pays above the investment alternative in the current interest rate environment, credit unions are probably getting a better margin on their longer term investments now than they are on mortgages.

I'm not sure you understand the point I'm making about loan concentration risk. If a credit union issues a small number of large loans its loan book will become concentrated in a small number of borrowers. Their size makes mortgage lending problematic. Not sure what the common bond has to do with that, it's just maths. In fact, the common bond adds additional local risk factors (e.g. what if the large local employer closes down?).

WizardDr said:
On the current account aspect given that many credit unions already had sophisticated electronic money transfer systems (after the barriers of entry were swept away by SEPA) an extension to current accounts was obvious. From the review of accounts, CUs show the fees and charges received and the direct costs of provision - many are already in positive earnings territory. Added to that in the Irish context many people keep large balances in their accounts and these are free funds as the banks' already know and are large contributors to income.
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Can you show me any evidence that credit unions are making any money from current accounts? The volume of accounts is most definitely too low for it to be anywhere near breakeven.
 
Mortgages may have considerably a longer process by duration but the amount of time spent on a mortgage is hours not days. Seen and conducted detailed process reviews of FI including the major suppliers and with further uploading of documents by applicants this transfers the work from FI to applicant.

On risk concentration - given the penetration rates of in the area of operation for 'community' CUs one doesn't get concentration in one business and the occupations are spread. Concentration in the one area is appreciated but that has more to do with property values. In any event with the rules on mortgages, one thing the CBI has ensured is that falls in property values will be largely a cost to the borrower and not the lender. Of course no lending means no risk. Whereas large unsecured loans to members rely for payment wholly on the income stream of the member.

As Financial Statements for CU are not published by CBI reliance is placed on those that put them up on their website. Core Credit Union as one example show:

- Current Account income and fees recovered €125,178
- Current Account charges €136,665.

So on a contribution basis this is not a significant loss. In addition people in Ireland keep large balances in their current account and this has been remarkably consistent over the years and balances are growing.

On Investment income, one of the factors determining return is a restriction on categories of investments that are allowed. The average return on investments would be below mortgage rates - that is not to say its permanent - but then the objective is to lend not accumulate large investments. The only reason investments grew was as a percentage of savings loan demand dropped despite an increasing share of the non-mortgage lending market. Mortgage lending is not new to CUs as it was permitted for many years. In fact prior to recent attention - up to 80 CUs had mortgages on their books.
 
WizardDr said:
Mortgages may have considerably a longer process by duration but the amount of time spent on a mortgage is hours not days. Seen and conducted detailed process reviews of FI including the major suppliers and with further uploading of documents by applicants this transfers the work from FI to applicant.
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I don't understand what you're trying to say here? The legal process for a mortgage is fairly cumbersome and costly and that's just one part of the process.

WizardDr said:
On risk concentration - given the penetration rates of in the area of operation for 'community' CUs one doesn't get concentration in one business and the occupations are spread.
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OK, that might generally be the case but I'm sure there are plenty of credit unions that do have large local employers or exposures to particular sectors. Most of the industrials seem to be public sector ones so I'm sure they're pretty safe but is that always the case? It's kind of besides the point anyway. I'm talking primarily about loan concentration at loan book level.

WizardDr said:
As Financial Statements for CU are not published by CBI reliance is placed on those that put them up on their website. Core Credit Union as one example show:

- Current Account income and fees recovered €125,178
- Current Account charges €136,665.

So on a contribution basis this is not a significant loss. In addition people in Ireland keep large balances in their current account and this has been remarkably consistent over the years and balances are growing.
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OK, so I've looked at that CU's annual report. They have 2,087 current accounts opened, opening a total of 461 in the last financial year. The previous year they had 2,043 at year-end so they had a net gain of 44 accounts. They have a membership of 35k according to their website so that's about 6% of all members. They introduced them some time in 2019 having spent years developing them before that. They are still making a loss on them. They would have had huge capital outlays to develop them. That seems like an awful waste of time and money. If this is replicated across credit unions then I'm right in saying that it's a white elephant.
 
24601 said:
OK, so I've looked at that CU's annual report. They have 2,087 current accounts opened, opening a total of 461 in the last financial year. The previous year they had 2,043 at year-end so they had a net gain of 44 accounts. They have a membership of 35k according to their website so that's about 6% of all members. They introduced them some time in 2019 having spent years developing them before that. They are still making a loss on them. They would have had huge capital outlays to develop them. That seems like an awful waste of time and money. If this is replicated across credit unions then I'm right in saying that it's a white elephant.
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Well the massive misapprehension you are labouring under is that the development cost was huge and was incurred singly when it was incurred by a larger group of Credit Unions and wasn't huge. Your assertion that it is a while elephant does not stand up to scrutiny as digital services were not new to Credit Unions. The only way to alleviate you of your slight prejudice is to become a Board member of a CU [no fees sorry] and then see first hand what is actually being done. [This particular development was PAYAC and was run by a number of CUs and ILCU were not involved and was a most successful development].

As regards the loan book concentration what in simple terms is being said is that the exposure is to the area and that the people working in the area also qualify for membership - there is not concentration in particular businesses except for non-community credit unions. Some of these were private sector employers e.g. Independent (now absorbed) most are gone, Some of the biggest would be Savvy (former ESB but now with an expanded common bond - see postings on mortgages for many of the common bonds) Heath Services Staff Credit Union (which is now the whole health sector and parts of CIE) St Paul's Garda Credit Union and St Raphael' Garda Credit Union. These credit unions have some very advanced processes as they do not have many locations (Garda one each) and are nationwide and don't rely on Pat the Postman. In any event Risk Management is well developed and CBI used to think that the losses after 2008 were €500mn or €1bn, In fact the losses never materialised but nobody talks about this. It heralded the microscopic regulatory regime when in fact CUs were one of the few FI that didn't have catastrophic losses and this was without the 'changes' in 2012. Any of the 'failures' (was it three or four?) were such that they could have survived as one of the triggers was the regulatory reserve ratio being below 10% (which is three times higher than Banks) and in my view is not supported academically as the right level - which is more like 4% of total assets (without risk weighting). Had the ratio been at 4% Bank of Ireland would not have needed rescuing.
 
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