This is a consumer protection issue and not a trade body political issue.
Tadghin, you make a very good point. Most credit union boards are completely unaware of the difference between a League owned and run stabilisation fund and state backed deposit insurance. The former is a type of benevolent fund for credit unions the latter statutory consumer protection for savers, a basic consumer right in a modern society.
The difference between stabilisation and deposit insurance is this. If I say that I will take care of your family if you die this is a promise - something I might do. This is stabilisation. However if I guarantee to pay your family an amount when you die, this is deposit insurance. Deposit insurance may include for stabilisation assistance but stabilisation can never include for deposit insurance.
Under stabilisation, credit unions club together, creating a fund to support a credit union in trouble. Originally these funds were used in the US to provide non-repayable grants to credit unions to strengthen their balance sheets (reserves). It’s a promise to provide help which was always discretionary and with no legal obligation on the fund manager typically a credit union League to provide assistance. At best they only ever provided for the possibility of assistance. The key point is the credit union is the client and not the saver.
The ILCU created a similar fund here in the 80’s some time after they disappeared in the US. They disappeared in the US in the early 70’s after credit unions succeeded in persuading the US government to provide deposit insurance protection similar to banking coverage. At the time this led to a split in the credit union League. (sound familiar)
Later still in Ireland the ILCU considered establishing the stabilisation fund as a type of deposit insurance scheme but balked as this would have meant it would have lost control as it would have to establish it as stand alone company leading to it being regulated and taxed. This was despite consistent advice over time from its advisors to establish the fund as a separate company.
It decided to bolt on a promise that it might in the case of a credit union failing pay up to €12700 to savers. It called the fund Savings Protection and in sleight of hand promoted the scheme as a deposit insurance scheme. Most of its members thought it guaranteed savings – many still do. It maintained the subterfuge until the Competition Authority case during which it changed its stance maintaining its scheme was only ever a discretionary stabilisation fund.
In 1997 the new credit union act obliged credit unions as a condition of their authorisation to participate in an approved and regulated savings protection scheme to protect savers in the event of the failure of a credit union, in other words deposit insurance. The relevant section was enacted in 2001. However since then the Regulator has refused to approve the ILCU scheme. It appears then that every credit union in the state has not complied with the law since 2001 by not participating in an approved scheme. Technically this would appear to expose every credit union director to the possibility of legal sanction. Of course the ILCU hasn’t informed its members of this. Instead in 2001, in a subterfuge, it led them to believe their scheme had been approved. Even the Ministerial press release in 2001 implied that its scheme was approved under the act. Such was its influence at the time.
What’s really of concern is that ILCU policy is to provide assistance to a credit union no matter what for the good of the Movement. Its stated policy is:
“In the event of a credit union not complying with procedures, the Administration Committee is given the power to recommend to the League Board its disaffiliation. The Committee also has the power to propose the amalgamation of any member credit union, which is considered to be in default with procedures, with another credit union. This, however, will be a discretion since in many cases it might be necessary to provide temporary support to a particular credit union for the good of the Movement even though compliance was not being secured or had not been secured in the past.””.
Now what’s going on is an attempt by ILCU to establish a private stand alone stabilisation fund including a guarantee of compensation to savers. One that can be approved by the Regulator.
It has cobbled together a solution arguing that there must be an all Ireland solution. But it only represents about 104 of 170 or so credit unions in the North. Funny thing is credit unions in the UK are covered under the FSCS. This scheme could be extended to credit unions in Northern Ireland by British authorities but of course the quid pro quo would require regulation by the FSA which is something the ILCU certainly doesn’t want. In effect it is saying that it wants to deny savers statutory consumer protection both here and in Northern Ireland.
Of course Fianna Fail have pretty bad memories of ILCU when its lobbying for DIRT free status nearly threatened its re-election prospects. (Recall the McCreevy affair). Politically they have funked the issue and kicked for touch. Minister Cowen told the Regulator to find a solution within the current legislative framework – shorthand for “do a deal with the ILCU ”.
Throughout the ILCU has never been called on to justify its position nor has it ever cogently argued why the state should not provide a statutory scheme. Why? Because, its position has always been to retain control and dominance as a trade body. If it controls the only approved scheme and every credit union is legally obliged to be a member of the scheme then it copper fastens its dominance and control. This was what it thought it achieved in 1997 but the regulator then and the new Financial Regulator (2003) refused to approve its scheme. Initial refusal had probably something to so with the way in which it dipped into the fund to finance its IT ISIS failure, its head office building and provide loans to its credit unions to do up their buildings.
The ILCU position remains a vested interest. It can only represent credit unions as regulated financial service firms (credit institutions). It cannot and does not represent a citizens right to legal protection for their savings although it claims to do so. What’s missing is proper informed public debate on this important consumer protection issue.
Kaplan