New voluntary rules could lead to 'shoddy' treatment (Irish Independent)

04 November 2011

Banks have criticised the fact that a new code being introduced for credit unions is voluntary, and suggested this could expose vulnerable consumers to shoddy treatment.

The Irish Banking Federation (IBF) said it was disappointed that a new Consumer Protection Code for Credit Unions was not underpinned by law.

Banks were responding to a consultation process run by the Financial Regulator on the new rules for the State's 420 credit unions.

In its submission, the IBF said credit unions provide financial products to all sectors of the community, but particularly to marginalised and disadvantaged people.

The proposed code, which is not expected to be in force until the end of the year, will require credit unions to provide a written statement to members setting out why a particular product being offered to them is suitable for their needs.

However, the IBF noted: "But as the code is voluntary, the application of the suitability requirements of CPC (Consumer Protection Code), for example, may not apply to those customers that most require this."

The IBF questioned why the code was voluntary and added that if a credit union breaches it, the regulator will not be able to impose sanctions. Because of this, the IBF recommended that breaches of the code be highlighted to credit union members.

In contrast, the Irish League of Credit Unions recommended that the regulator and the Financial Services Ombudsman include a statement in the code making it clear no sanctions will be imposed on credit unions that do not adopt the code or fully meet its provisions.

The league also said that implementing the code would result in an "excessive" amount of paperwork having to be provided to members.

A full regulatory impact analysis should be conducted on the code, the league recommended.

The breakaway credit union body, the Credit Union Development Association (CUDA), maintained the code would constrain the ability of credit unions to meet the borrowing needs of members. The fact that the code is voluntary will create confusion, it added.

CUDA also questioned the "one size fits all" approach of the code, and called for a delay in implementing it until a review of credit union legislation is undertaken.

The Credit Union Advisory Committee, set up to advise the Department of Finance and the regulator on credit union issues, broadly welcomed the proposed voluntary code.

The code proposes that credit unions rigorously check that a member taking out a loan can repay it.

Two million people in the Republic are credit union members, with €12.3bn on deposit.