MILLIONS of credit union members will be hit by plans to impose a fresh levy on the lenders.
The Government has set up proposals to force the country's 392 credit unions to pay millions of euro – €5m a year for six years – in order to build up a fund to bail out credit unions that get into financial trouble.
There are about three million members of credit unions throughout the country.
The Department of Finance has proposed a new levy to be used when credit unions run short of reserves.
About €30m would be needed for this 'stabilisation fund', the department said.
The proposal is set out in a consultation paper published by the department.
The views of credit unions are being sought before a final decision is made at the end of April.
Credit union souces said the money for the funds would reduce the dividends paid to members, as most of the profits go back to them.
Sources within the sector said a €30m fund was not big enough and questioned if the department was being serious.
It cost €54m to wind up Newbridge Credit Union, with the figure rising to €57m when other costs were added.
One credit union official said: "A €30m fund is just not enough."
It would be the third levy imposed on the state's 392 credit unions.
There is already a levy to provide funds when a credit union is being shut down under orders of the Central Bank.
This is known as the resolution fund.
And credit unions have to pay for the deposit guarantee scheme that protects members' savings.
The move to propose the levy comes a mere four months after credit unions were told to comply with a raft of fresh regulations.
These include new lending limits, the requirement to appoint a compliance officer, risk manager and an internal auditor.
And the Central Bank's fitness and probity regime now applies to the credit unions, many of which are run by volunteers.
It emerged recently that half of all credit unions have been told by regulators to restrict the lending they can do, over fears that reserves of credit unions are not sufficient.
Other changes on the way include the mandatory reduction in the size of a credit union board and the setting out of training and standards policy by December.
Under the proposals for the latest levy, the funds would be applied to credit unions which have a level of reserves below the statutory minimum level of 10pc of overall assets but above 7.5pc of their assets.
About 20 credit unions have reserves below 10pc of their assets at the moment.
The Irish League of Credit Union has its own rescue fund but there is concern that this is not statutory, and is not open to all credit unions.
In a statement, it said it has operated its own internal stabilisation fund for affiliated credit unions called the Savings Protection Scheme (SPS) since 1989.
"The SPS has provided stabilisation support to a number of member credit unions over the intervening years and continues to operate successfully for this purpose," the league said.
It is expected that the SPS, which is a €130m fund, would continue to operate.