AMENDMENTS to the Credit Union Bill will give credit unions more flexibility in the size of loans they can advance to members and in the amount members can put into shares and deposits. But they will be still be prevented from becoming serious competitors in the home mortgage market.
Trenchant criticism of the proposal to limit the amount of all loans, shareholdings and deposit accounts to £20,000 in the Bill published last December led to the publication of a number of amendments yesterday. While there will be limits in place, the new limits offer some more flexibility to individual credit unions and reflect more the differences in the sizes of the 434 credit unions operating throughout the Republic. But the new combination of limits will hold back the bigger credit unions.
On loans, the Minister for Commerce, Science and Technology, Mr Pat Rabbitte, has raised the general limit from £20,000 to £30,000 but credit unions will be able to make bigger loans. A credit union can make an individual loan of up to 1.5 per cent of its total assets and up to 5 per cent of a credit union's total loan book can be made up of loans of more than £30,000.
This means that the biggest credit unions could make individual loans of more than £900,000. The two largest credit unions have total assets of £65.5 million and £63 million respectively. However, the total amount of funds they could advance in loans of more than £30,000 each would be restricted to about £3 million - the aggregate amount of all loans of over £30,000 cannot exceed 5 per cent of their total lending. That means they could advance just 100 loans of £30,000. The loan books of the two biggest credit unions are £43.5 million and £49.5 million respectively.
Further flexibility is provided for in that the limits can be changed at any time by Ministerial Order and the Registrar of Friendly Societies can waive the 5 per cent limit at the request of an individual credit union.
Mr Rabbitte argued that this new flexibility would allow credit unions to lend to members who wanted to buy their local authority homes and to members who wanted to develop their small businesses.
The Irish League of Credit Unions wanted the limit on individual loans to be set at 5 per cent of total assets, arguing that any less was "unrealistic and would restrict the development of some of the larger unions".
However, its argument was rejected by Mr Rabbitte. Describing the 5 per cent figure as "patent nonsense", he argued that the level was 1.5 per cent in Britain"and it works quite well there". But the limit that loans of £30,00 or more must not be more than 5 per cent of total loans will restrict the expansion of bigger or under-lent credit unions.
Underlying the decision on the lending limits is Mr Rabbitte's philosophy that the credit unions should provide access to personal finance "for the everyday needs of life for people who the conventional financial institutions would not entertain". He is not prepared to allow the credit unions to "become banks or building societies" arguing that the area of mortgages is "already well provided for".
On shares and deposits MrRabbitte raised the £20,000 limit on shares and deposit accounts to an aggregate figure of £50,000. However, there is a proviso that no more than £20,000 could be held in the form of deposits, based on the fear that "hot money" was more likely to be put on deposit rather than in shares.
More flexibility has been introduced in this area too. A member can hold up to £30,000 on deposit - to cater for cases where members get redundancy or inheritance sums for example. But the number of members exceeding the £50,000 aggregate savings limit cannot be greater than 1 per cent of the credit union's members.
