Credit union mortgage lending rules may be loosened

The Central Bank is preparing to loosen restrictions on credit unions providing home loans, almost a year after the Oireachtas finance committee called for a review of lending limits amid concerns about the viability of the sector.

Ed Sibley, a deputy governor with the Central Bank, said at an event in Trinity College Dublin that credit unions "have significant headroom" for mortgage lending, relative to limits.

However, he added: “Shortly, we will be consulting on ways to allow them loosen that.”

The regulatory authority told credit unions on Thursday that a consultation paper on its proposed changes to the framework will be published “within the coming weeks”, adding that it was “encouraged” by the level of feedback from credit unions during a pre-consultation period on the matter.

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The small number of credit unions that have moved into the mortgage market in recent times are bound by a general ban on firms in the sector having more than 15 per cent of their loans at more 10 years to final payment.

Current caps

St Raphael's Garda Credit Union, the State's largest credit union, entered the home loans business in March 2016 but was forced by the current caps to stop such lending within three months, having issuing about €22.5 million of mortgages. The second largest player, Savvi, formerly St Patrick's Credit Union, which also has a mortgage product, revealed in January that it had breached long-term lending limits last year.

While the credit union movement escaped forecasts at the height of the financial crisis that it would need a €1 billion bailout, its loans have slumped from almost 50 per cent of assets in 2007 to 26 per cent in 2016, as borrowers focused on repaying loans and the sector went through massive restructuring. A ratio of about 50 per cent is seen as sustainable.

The number of credit unions in Ireland fell from 399 to 269 between 2012 and last year, with many smaller lenders merging with larger players under the watch of regulators.

Credit unions were ranked as the most highly regarded organisations in the State by a Reptrack 2018 study released earlier this year by the Reputations Agency, as mainstream banks languished towards the bottom of the scale.

Controversies

Still, the sector has not been without its controversies, including a Central Bank report published earlier this year which uncovered that staff and directors have won a prize in 30 per cent of credit unions that operated draws.

Last month, the regulator issued a prohibition notice against a former director of Citybus Employees' Credit Union Limited, David Stamper, after he was found to have misappropriated "a significant sum of money" in his management of a members' prize draw.

Two top managers of the now-defunct Rush Credit Union, Anne Butterly and Geraldine Harford, have been barred in the past year from carrying out senior functions at a regulated entity for an indefinite period, following an investigation into their involvement in "unauthorised" transactions at the former lender.

Supervisory review

While a supervisory review of credit unions offering mortgages, published in January, found that some lenders had well developed business plans and practices, others displayed evidence of poor underwriting, inadequate assessment of repayment capacity and governance issues.

The Irish League of Credit Unions said the organisation has worked with its members to develop a shared-service solution for mortgages to meet regulators’ requirements. This service, which addresses the administrative burden associated with home loans, has been implemented in a number of credit unions “with a national roll-out to follow”, it said.