Credit unions will be allowed to raise interest rates to compete with banks – The Irish Times


Credit unions will be allowed to raise interest rates to compete with banks with products like credit cards and overdrafts under proposals to be presented to Cabinet in a few weeks.

The move is part of a major push to grow the credit union movement along with other measures to support collaboration between different credit unions to encourage more lending in areas such as mortgages and small business loans.

Minister of State for Finance Seán Fleming outlined the plans in an interview with The Irish Times.

The government program sets the ambition to enable the credit union movement to grow as a key provider of community banking services.

There have been concerns that the majority of credit union members save and do not take out loans, with the average loan to asset ratio standing at 26% – which is not considered sustainable.

Mr Fleming said he told the industry: ‘You are credit unions, not just savings unions.’

Credit unions must currently limit their monthly interest rate on loans to 1%. This limit would be doubled to 2% under plans being developed by the Minister of State.

The Credit Union Advisory Board has recommended a move to minority government led by Fine Gael, fearing that keeping the cap at such a low limit would reduce competition and could discriminate against high-risk borrowers.

Finance Minister Paschal Donohoe’s proposals to raise the monthly interest rate to 2% did not break the limit before the 2020 general election.

Mr Fleming said he hoped plans to overhaul the credit union sector – which stem from a consultative process – would be presented to Cabinet before the summer recess and passed by the Oireachtas in the autumn .

On the proposal to allow credit unions to raise their interest rates by up to 2% per month, Mr Fleming said some would not want to charge more.

“But for those who want to compete with people who do overdrafts and credit cards, these credit unions will be able to compete.”

He said he would expect some credit unions to offer credit cards “down the road,” but not as early as this year.

Fianna Fáil’s Minister of State said encouraging collaboration between credit unions was the “big area”. He pointed to the Cultivate Farmer Loan Program operated in 38 credit unions as the type of collaboration he wanted to see more of in the sector.

He had met with the larger credit unions and they “find it difficult to fend for themselves on the mortgage issue” due to staffing needs and risk assessment reasons, he added.

“They would be much happier if they could have a group collaborating on a particular mortgage product” with a credit union service provider doing the “work behind the scenes.”

Mr Fleming said these service providers currently had no status in the legislation and would be recognized in the new plans.

In the future, credit unions would also be allowed to refer their members to other credit unions if they don’t offer a particular product, he said.

Other plans include changes to the role of volunteer boards of directors aimed at reducing their workload and transferring day-to-day operations to management, while retaining their oversight role.


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