Looking at financial services consumers, their needs and how to protect them today and into the future, it is clear that the promotion of effective competition in the banking sector is paramount. Credit unions across Ireland account for more than 40 per cent of all personal lending in the market currently and stand ready to play their part.
Competition requires greater consumer choice supported by meaningful regulatory and policy change. The Irish League of Credit Unions (ILCU) holds its annual meeting this weekend in Killarney focusing on the themes of ambition and action in the credit union sector, underpinned by structural changes in the form of the Central Bank’s review of the Consumer Protection Code and the ongoing progress of the Credit Union Amendment Bill.
The ILCU would like to see a consumer protection code that is modern and dynamic and can keep pace with the significant changes in the financial services sector – in particular, the ability for the consumer to be able to seamlessly migrate their account number to other providers.
Experience from utility and telecoms providers suggests that allowing consumers to switch provider while maintaining credentials that are familiar to them provides greater encouragement and confidence for shopping around, and therefore increases competition. Further measures would include an electronic automated switching code that would remove the need for the manual update of direct debit originators and concern over potentially missing payments.
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Financial education and awareness should also be cornerstones of the code.
Two million credit union members around Ireland will now have potential access to a current account service that offers Google Pay, Fitbit and Apple Pay functionality
Many consumers often do not fully understand the implication of personal contract purchase (PCP) and “buy now, pay later” (BNPL) contracts. PCP is actually a rental agreement and BNPL is a financial arrangement where large amounts of high-interest debt can accumulate on low value items. This is simply unsustainable and there are insufficient protections in place to prevent it from happening.
[ Hire purchase and buy now, pay later deals fall under Central Bank remitOpens in new window ]
The Credit Union Amendment Bill will significantly benefit consumers. This allows for the establishment of credit union service organisations (Cusos) and corporate credit unions that would permit groups of credit unions to come together and pool their resources by investing together in back-office functions, making it more cost-effective and economical for credit unions to provide a wider range of services.
The Bill, for which Jennifer Carroll MacNeill, junior minister at the Department of Finance, and her predecessor, Seán Fleming, deserve credit – also enables credit unions to refer members to other credit unions for the first time if they do not offer a particular product, and to participate in the loans of other credit unions. As a result of the establishment of Cusos, two million credit union members around Ireland will now have potential access to a current account service that offers Google Pay, Fitbit and Apple Pay functionality.
Differentiating factors
Alongside these regulatory and policy changes is the heritage, offering and innovation of credit unions themselves. Consumer protection is at the core of credit unions, and one of the many differentiating factors from other financial institutions. Member-owned and led, credit unions are completely focused on serving and protecting members, generating surpluses that are reinvested or shared among members and the community, as opposed to profits.
They have been offering a genuine alternative to Irish consumers for more than six decades and are evolving to meet their future needs, broadening their range of loan offerings to include personal loans, mortgages, business loans, secured and unsecured lending, community and agricultural loans.
And their commitment to innovation is evident in the way the services they offer have evolved, with many any credit unions increasing their digital member and loan application services while still offering a human service. On consumer access and service, the 270 ILCU-affiliated credit unions and their 500 offices have a larger physical footprint than Ireland’s three pillar banks – AIB, Bank of Ireland and Permanent TSB – combined.
We believe an overhaul of rules in respect of regulatory capital, liquidity and lending limits on mortgage and business lending by credit unions is due
There is a growing demand for credit union services in households across Ireland, with more than 200,000 loans of less than €2,000 advanced to members in the past 12 months supporting many households during the cost-of-living crisis. Mortgage and small business lending is also growing strongly – by 20 per cent and 25 per cent respectively over the past year.
While these indicators are positive for consumers, credit unions could do even more if they were subject to fairer and more proportionate regulation. We believe an overhaul of rules in respect of regulatory capital, liquidity and lending limits on mortgage and business lending by credit unions is due. This would provide a platform for credit unions to compete on even terms with the retail banks and other lenders in the market.
Credit unions are highly regulated, well run, well capitalised, intensively supervised and can provide effective competition to the retail banks with a local presence and high levels of trust. Every effort is required to copperfasten the progress to date, including ongoing regulatory innovation that promotes competition by providing an even wider range of financial services to Irish society.
David Malone is chief executive of the Irish League of Credit Unions.
