Too-tough regulation will squeeze the life out of local lenders
REGULATORS are hard on credit unions, and with good reason. The movement has been hit hard by the downturn. Loan arrears, although falling, remain high. Demand for loans is muted, and lending is the main income source for the unions.
And dividends are low. This means the argument for keeping money in a credit union, as opposed to the post office or a bank, is easy to question.
Then there is the fact that each of the State's 392 credit unions are individually owned and operated, which means that large numbers of them are small and inefficient.
Poor governance and poor lending has been a feature of some credit unions.
All of this means the registrar for credit unions, Sharon Donnery, who is part of the Central Bank, takes a no-nonsense approach to the regulation of the sector. But then it is easy to be tough on credit unions. Less so with banks.
Ms Donnery has revealed that the Central Bank has told half the country's credit unions to restrict the lending they do.
The problem with extensive restrictions like these is that they deny credit unions the ability to make money.
It is the equivalent of telling a person: "We think you will go mad and spend too much if we let you earn what you want, so we are limiting the amount of work you can do."
Demand for loans is already low due to the squeeze on households incomes.
Regulators imposing restrictions on top of that makes it even more difficult for credit unions to earn a crust.
Cynics argue that all of this is pushing more credit unions to merge, something that makes life easier for regulators.
Credit unions complain that there is no clearly set-out criteria communicated by the regulator on what the member-owned lenders need to do to throw off the lending restrictions.
This is one of the reasons the League of Credit Unions and Maynooth Credit Union are challenging how the movement is regulated in a High Court action.
Tough regulation is certainly needed, but not at the cost of squeezing the life out of credit unions.