Official Report (Hansard)

COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT

OFFICIAL REPORT
(Hansard)

Inquiry into Credit Unions

23 October 2008

Members present for all or part of the proceedings: 
Mr Mark Durkan (Chairperson) 
Ms Jennifer McCann (Deputy Chairperson) 
Mr Simon Hamilton 
Mr Alan McFarland 
Mr Sean Neeson 
Mr Robin Newton 
Mr Jim Wells

Witnesses:
Mr Chris Hibben ) Financial Services Authority 
Mr Paul Sharma ) 
Ms Carol Edwards ) Consumer Council 
Ms Julie Megrath

The Chairperson (Mr Durkan):
I welcome Chris Hibben and Paul Sharma from the Financial Services Agency (FSA). Thank you very much for attending. I am sure that you are aware of the Committee’s inquiry into credit unions here, the services they offer and how those compare with the services offered by credit unions in Great Britain and in the South. The Committee is examining issues such as regulation and whether they create opportunities or barriers. We are grateful for your assistance with the inquiry.

Mr Paul Sharma (Financial Services Authority):
Thank you inviting us to address the Committee.

The FSA does not regulate credit unions in Northern Ireland; it regulates only those in Great Britain. The activities that FSA regulates are set out in a piece of secondary legislation under the Financial Services and Markets Act 2000, which defines the boundary of what is covered by the regime.

We are aware of the discussions on whether Northern Ireland credit unions should be brought within the scope of FSA regulation. We are also aware that there are questions about whether a form of dual regulation — or sharing of regulatory responsibilities — could be put in place in respect of Northern Ireland credit unions.

Our position is simple: we are not seeking to change the present arrangements whereby we have responsibility for credit unions in Great Britain and the Northern Ireland authorities have responsibility for credit unions here. In saying that, if such a change were to happen, we would not oppose it. However, we are clear that it would need to be a case of bringing Northern Ireland credit unions within the scope of FSA regulation. We are not in favour of sharing, or dividing, the regulation of Northern Ireland credit unions between ourselves and the relevant Department here. I can suggest some reasons for that.

The Chairperson:
Are you in favour of delegating responsibility?

Mr Sharma:
No. There are several reasons for our position: first, the simplicity and clarity of the message to consumers would be open to question. Consumers would need to know who the regulator would be and what standards their credit unions would be required to meet. Our experience is that it is of the utmost importance to have a clear, straightforward message.

Secondly, we are jealous of the FSA brand. Institutions that come within the scope of our regulation must reach a certain standard, and when determining whether institutions meet that standard we apply a methodology, which is continually evolving and improving. Therefore, it is very important that any institution carrying the FSA brand is regulated in the same way as other comparable institutions on our register. I am not saying that we regulate small credit unions in the same way as large banks; rather that small credit unions here would be regulated in broadly the same way as those in GB.

Thirdly, the FSA believes that some methods for sharing responsibility could create significant problems within the Northern Ireland market. For example, were we to regulate the large credit unions here while the small credit unions remained within Northern Ireland regulation, or were we to take responsibility for some credit union activities while others were taken on by the relevant Department here, that would send out a confusing message and could lead to competitive inequality within the Northern Ireland market.

For those broad reasons, and several other technical reasons on which I could expand, we are not keen on — in fact, we would be opposed to — the middle way that would involve sharing or delegating responsibility.

We are not against a continuation of the current clear-cut arrangements, and we would not be against Northern Ireland credit unions no longer being exempt from the provisions of the Financial Services and Markets Act 2000 and being brought under our scope on the same basis as GB credit unions. Although we are not bidding for such an arrangement, if it was to come our way, we would not say no.

Another possible way forward that has been mooted has been to extend the exemption for Northern Ireland credit unions so that they can carry out other types of regulated activity without being regulated by the FSA. As I understand it, the two main types of regulated activity that they appear to be interested in are insurance intermediation and mortgage intermediation — there may be others.

The FSA is not in favour of that proposal for a couple of reasons. First, we regulate such forms of intermediation when carried out by other organisations in Northern Ireland. Therefore, if two regulators are carrying out the same activity, issues would immediately arise. For example, would an independent broker here be held to a different standard to a Northern Ireland credit union? When two separate regulators start to regulate the same activity — especially within a relatively small market such as the Northern Ireland market — there is the real possibility of creating regulatory differences that would seriously place one of the two entities at a competitive disadvantage to the other.

Secondly, insurance intermediation is an aspect of financial services regulation for which there is a relevant European directive, and implementing that directive is a non-trivial matter. It would, in effect, have to be legislatively re-implemented by the Northern Ireland Assembly and the relevant Department. I suspect that that would not be wholly helpful to the clarity of regulation on those matters in Northern Ireland. Those are the basic themes that I wanted to mention by way of an introduction.

I also draw the Committee’s attention to the third possibility that has been mentioned; that the Northern Ireland credit unions, collectively, establish a separate company that is FSA regulated and that performs extra services such as mortgage intermediation, insurance intermediation, and various other services. The FSA is not against that; it sounds like an idea that could be made to work. Problems with that are likely to be problems with local Northern Ireland credit-union legislation — on which I do not profess to be an expert — rather than problems with the Financial Services and Markets Act 2000.

There will be potential issues concerning what a credit union is, or is not, allowed to do, and is, or is not, allowed to invest in under Northern Ireland legislation. The whole point of credit unions becoming involved in those activities is so that local employees and volunteers in credit unions can deliver services on the ground rather than a separate company with a separate employee base and sales force delivering the services. A lot of difficult legal work will need to be completed so that, when credit union employees or volunteers carry out mortgage or brokering intermediation, they are acting for the FSA-regulated company rather than the credit union. It is not an impossible situation, I hasten to add. It has arisen elsewhere in the regulatory landscape in the UK, but the problems that need to be worked through are not trivial.

If credit unions in Northern Ireland want to go down that route, either collectively or individually, the FSA would work with them constructively.

Mr Hamilton:
Thank you for your presentation and for the papers that you have submitted to the Committee. They are very informative if not entirely helpful in providing an easy and simple way to solve the problem that we face. What you have outlined to the Committee in writing, and in evidence today, illustrates our difficulty. On the face of it, this seems like a fairly simple problem to solve, but things are seldom simple in reality, particularly when one is dealing with financial services. I was interested in your last option; the establishment of a separate company. The Committee has discussed the “middle way”, as you described it, of split regulation, and I can see the merits in what you are saying and can understand that it would not be a simple or straightforward way to proceed.

Northern Ireland is no different from GB in that we have some major credit unions and some extremely small ones. Do you accept the point that, for credit unions here, there is a fear factor involved whenever the FSA is mentioned? There is also the physical distance between Northern Ireland, and what is seen as a London-based organisation that regulates the big financial houses of London, to be considered — even though the FSA regulates across the UK.

Has your experience with smaller credit unions been, by and large, good or difficult? If it is the latter, what difficulties have there been? If credit unions in Northern Ireland were to buy in to be regulated by the FSA, would establishing some sort of small-scale permanent FSA presence in Northern Ireland go some way towards overcoming some of the fear and distance problems that might arise?

Mr Sharma:
I will answer that question by giving two comparisons: the first is the small credit unions in Great Britain, and the second is the small independent financial advisors and, indeed, friendly societies in Northern Ireland. Those latter-category firms are FSA relegated. In fact, all financial services in Northern Ireland, except for credit unions, are FSA regulated.

We are conscious that there is a physical distance between London and Northern Ireland. We make a considerable effort to not only send people to visit individual institutions but to speak at industry events. We consult with local industry in Northern Ireland and with industries throughout the United Kingdom, given that many parts of the UK are some distance from London.

We have an office in London and a much smaller one in Edinburgh, and we have no plans to change that arrangement. Indeed, we are not giving any commitment to change that arrangement. We want that situation to be within our operational control so that, from time to time, we can make judgements as to the best place to site people.

With respect to credit unions, what really matters is that we have a small number of highly knowledgeable and experienced people who can offer a high-quality service to institutions such as credit unions or friendly societies. Basically, that means having three, four or five individuals for the entire UK who have acquired expertise and who can effortlessly answer questions from those entities. For example, a friendly society in Northern Ireland would rather talk to a specialist who, despite being located some distance away, knows about every aspect of friendly societies since 1870 than a local generalist who knows nothing about friendly societies’ legislation.

Mr Hamilton:
I am sure that that would be a riveting conversation.

Mr Sharma:
Friendly societies have a long tradition in Northern Ireland; longer, even, than that of credit unions.

The Chairperson:
There are many long traditions in Northern Ireland.

Mr McFarland:
Representatives from credit unions have already given evidence to the Committee. Those who represented the larger credit unions said that they are keen to start the process. I think that the larger credit unions believe that they will evolve into banks. However, representatives from the smaller credit unions are fearful. If the remit of the FSA were extended to include Northern Ireland credit unions, what impact would that have, in cost and training, for a small credit union located in a village in west Tyrone and run by volunteers?

Mr Sharma:
Your question has two parts, but I can answer only one. We have not drawn up a comparison between our requirements and the current requirements for credit unions in Northern Ireland: we are not bidding for Northern Ireland credit unions. If we were to bid for them, or if it looked as though things were moving in that direction, we would draw up a comparison.

Mr McFarland:
Is that difficult, and would it take you long to do? It would be of help to the Committee and the credit unions in understanding the consequences of the FSA having a role in the regulation of credit unions here.

Mr Sharma:
It would involve a few weeks’ of joint work between us and the relevant Department in Northern Ireland, because it would require experts on Northern Ireland arrangements and experts on the GB arrangements. However, we are about to consult on a review and modernisation of the GB regime, so —

Mr McFarland:
It would be a good time to draw up such a comparison. [Laughter.]

The Chairperson:
What are the issues behind the review and modernisation?

Mr Sharma:
I will finish answering Mr McFarland’s question, after which I will mention some of the issues behind modernisation.

We have some experience from when the regulatory powers for GB credit unions were transferred from the Registrar of Credit Unions to the FSA in 2001. The main cost for credit unions was not so much the permanent regime to which they moved; it was the one-off cost of acquainting themselves with the new regime. That was a significant one-off burden on credit-union volunteers, those who worked part time and those who worked full time and had a full-time job in servicing their customers. Although the cost can be reduced by making information available through seminars and literature, I do not want to minimise its importance when a regime is changed, regardless of why that change is taking place.

The reason why we are re-examining regulation is, in part, due to what the FSA did when it first took on the regulation of credit unions. We limited some of the changes that we made when we took over, because we did not want the changes for GB credit unions to be too sharp, both in workload and in the substantive content of the regime.

Some GB credit unions, like those in Northern Ireland, are keen to expand the scope and extent of their business. Some of them have asked HM Treasury to re-examine some of the legislative restraints on credit unions in GB. Any relaxation of those legislative restraints raises the issue of whether the prudential — capital and liquidity — requirements that are in place for them are appropriate for companies that might broaden their scope. That is the change that we are examining.

Ms J McCann:
The Committee has heard evidence from various people who spoke about the benefits that credit unions and their members receive. In your paper, you state that credit unions in England, Scotland and Wales have access to public funding and that local people who would not be able to borrow from banks are able to save and borrow using credit unions.

What are your views on the investment powers that credit unions might have if they came under new regulation? Some credit-union representatives who gave evidence to the Committee said that they wanted to be able to invest in local community enterprises that would enhance areas, particularly in areas of disadvantage and need. How do you feel about credit unions investing in those types of projects?

Mr Sharma:
In our work on GB credit unions, one issue that we will examine is the extent of investment powers. However, we adhere to Warren Buffett’s advice not to invest in anything that one does not understand. Any extension by a regulated institution to invest in something that it has not traditionally invested in requires an increase in financial understanding and particularly in understanding of the financial risks.

There are some non-trivial financial risks in the type of investing that you have just described. Any institution wishing to engage in that type of investing must understand those risks and weigh them against the safety and security of their depositors and members. That is the framework within which the FSA is examining the question of GB credit unions.

The Chairperson:
I would like to clarify your position. You say that you have an aversion to the “middle way” — that there could be a lot of muddle with the middle — and that you do not want credit unions here to have different regulators for different services: is that correct?

Mr Sharma:
That is correct.

The Chairperson:

You have also said that do not want to delegate your powers of regulation to the Department and the Registrar of Credit Unions here: is that correct?

Mr Sharma:
That is correct.

The Chairperson:
Therefore, your position is that if a local credit union were to come under FSA regulation, it would be regulated in all aspects of its business: is that correct?

Mr Sharma:
Yes. That is our view.

The Chairperson:
Would you be uncomfortable if some credit unions here were regulated by the FSA alone, while other credit unions — fearful, perhaps, of the scale of requirements that would be involved, given their own scale of operation — remained, with a smaller range of services, under the regulation of the registrar here?

Mr Sharma:
That would not be a good outcome for consumers in Northern Ireland. There would, inevitably, be a bifurcation in the safety and soundness of institutions, which would not be obvious or visible to consumers. For example, it would not be easy to explain to consumers what is available under FSA regulation and the other things that go with FSA regulation compared with what would be available on the other side of the fence.

The Chairperson:
If the Committee, in response to the interests of quite a number of credit unions that wished to offer a wider range of services, concluded that FSA regulation were required, would it still be the case that regulation could not be offered to credit unions on a voluntary basis; it could only happen if all credit unions were obliged to be regulated by the FSA?

Mr Sharma:
That would be our view. However, we must be careful with the words “could not”. The various legislatures involved are sovereign, and, subject to EU law, they can do whatever they want. From our perspective it would be undesirable for it to happen.

The Chairperson:
Would the FSA refuse to co-operate in such a situation?

Mr Sharma:
We would oppose it. Ultimately, the FSA regulates what Parliament instructs it to regulate. We would oppose an arrangement whereby some credit unions were regulated and some were not.

The Chairperson:
They would all be regulated.

Mr Sharma:
I take your point that they would all be regulated. However, some would be FSA-regulated and some would not. We would oppose the situation in which some were regulated by us and some by another agency. Of course, nothing I am saying implies that, a priori, our regulation is better or worse than the regulation currently in place and governed by the Northern Ireland authorities. We have not made such a comparison.

Mr McFarland:
It is different.

Mr Sharma:
Yes, it is.

The Chairperson:
How much does it cost for a credit union to be regulated by the FSA? Your organisation regulates individual credit unions in Britain, rather than ABCUL, for example. If credit unions here formed a company, would the FSA regulate the individual credit unions or would it regulate the federated company?

Mr Sharma:
We have not carried out a study on ascertaining the costs of regulating credit unions in Northern Ireland. The one-off transition cost would dominate, and it is not to be underestimated. If credit unions were collectively to set up a company that sought FSA regulation, the company would be regulated by the FSA, but the credit unions themselves would be regulated under existing arrangements.

The Chairperson:
Nevertheless, you would not want such a company to cover some services and not others; if it were set up, it would have to operate all the services that all its member credit unions provide.

Mr Sharma:
Such a company could be authorised for any FSA-regulated activities that it wanted; however, credit unions cannot carry out the non-deposit-taking FSA-regulated activities. Setting up a company is a solution that does not need legislative change — at least not to the Financial Services and Markets Act 2000.

Mr McFarland:
A company could be set up by credit unions to carry out specific functions, but that company would not be able to take money from the credit unions, presumably because credit unions not regulated by the FSA would be giving money to a company that is regulated by the FSA to do business that only that company can do.

Mr Sharma:
We are not advocating setting up a company; others have asked the question, and we are responding to it. In the legislation that governs the FSA, there is no problem with Northern Ireland credit unions providing financial resources to such a company. If credit unions were to set up a company —

Mr McFarland:
And getting money back from it.

Mr Sharma:
Under the Financial Services and Markets Act 2000, there is no difficulty with credit unions setting up a company and getting money back from that company.

The Chairperson:
Credit unions could set up a company called, for example, credit union financial services Ltd.

Mr Sharma:
Yes. There may or may not be problems under the Northern Ireland legislation that relates to the activities that are permissible for credit unions, including what they can invest in; but I cannot speak about that. However, I do not perceive problems under the legislation that governs the FSA, as it is normal for regulated companies to be owned by unregulated companies.

There may be an issue for employees, because one would want the volunteer or the employee of a credit union to deliver those services. Significant legal work would have to be done to ensure that in delivering services they acted as employees of the regulated company and not of the credit union. That issue does fall under the legislation that governs the FSA, but the issue of Northern Ireland credit unions investing in such a company and receiving a flow of dividends from it is not an issue for our legislation.

The Chairperson:
Chris, can you help us through the twilight zone that we have entered?

Mr Chris Hibben (Financial Services Authority):
I have nothing to add to what Paul has said.

The Chairperson:
Did any of the public funding to credit unions in GB help with the significant transition costs?

Mr Sharma:
I am not sure whether I know the answer.

Mr Hibben:
I do not think that public funding —

The Chairperson:
Perhaps public funding was provided only for the capital element.

Mr Hibben:
One example of funding available is the Department for Work and Pensions growth fund. However, as I understand it, its purpose is not to help with the costs of a credit union; it is to lend money to the financially excluded in the community so that they can join a credit union, although they would not necessarily have to be existing shareholders in it. The funding does not exist, principally, to cover the operating costs of a society.

The Chairperson:
Mark Lyonette of the Financial Inclusion Taskforce and the Association of British Credit Unions Limited (ABCUL), when he attended last week’s Committee meeting, was, perhaps you may be surprised to hear, fairly complimentary about FSA regulation in the quality of engagement and interface with individual credit unions. What are the direct annual costs to a credit union of being FSA-regulated?

Mr Sharma:
Shall we write to the Committee with the schedule of fees for GB credit unions?

The Chairperson:
Yes; that would be helpful.

You are familiar with the difference in the range of services that credit unions here and those in Great Britain provide; many credit unions here have a much stronger membership base and scale of savings than those in GB. Can credit unions here provide services that those in GB cannot; or do you have a health warning about credit unions here moving into other services, perhaps distracting from those that they already provide?

Mr Sharma:
The attraction is obvious and has been commented on by others: most financial institutions want to offer their customers a one-stop shop for their core financial services needs — to save; to borrow unsecured; to borrow secured; and to obtain insurance. Those are the two pieces of extension that I understand that Northern Ireland credit unions are most interested in.

The Chairperson:
There are additional services, such as the child trust fund.

Mr Sharma:
Yes. I understand that there are issues with the stance taken by HM Revenue and Customs on the child trust fund that may be solved by FSA regulation.

Offering a wider range of services would attract those sections of the population that do not normally interact with financial institutions. There is a benefit for the consumer. I cannot claim to be up to speed with that element of the Northern Ireland market; however, at various times, I have considered the relative lack of competition in Northern Ireland in other types of financial services — for example, the cost of motor insurance here compared with that in GB and the problems of being a small market. The more supply that we can get into the Northern Ireland market, the more efficient we can make it. That will benefit consumers.

However, the history of financial service regulations stretches back some 150 years, and the first lesson that it teaches is that problems occur when someone who does something particularly well expands into another area. The expansion of any specialist sector into an area in which it was not previously involved carries a heightened risk.

The Chairperson:
During such a period of heightened risk do you encourage credit unions to show diligence or do you assign even more regulatory attention?

Mr Sharma:
We do both. Institutions manage themselves; we do not manage them. Therefore if they wish to do something, they must acquire the expertise to do so. Simultaneously, we adjust our scrutiny relative to the risk that they pose to consumers and to financial stability.

The Chairperson:
Do banks in GB have issues about credit unions going too far into banking?

Mr Sharma:
Occasionally banks in GB mention competitiveness. However, the presence of credit unions is much less significant in GB than it is in Northern Ireland. It is difficult to anticipate what the banks might say about Northern Ireland, but the credit unions are a more serious competitor to them.

The Chairperson:
Thank you for your helpful evidence to the Committee today and previously. You have pre-empted some of our questions; however, that is the nature of such an exercise as this. I am grateful for the direct and helpful manner in which you answered the Committee’s questions.

The Chairperson:
I welcome the witnesses from the Consumer Council and thank them for their submission. The Committee meeting is a chance for the council to highlight whatever points it wants the Committee to bear in mind and for members to ask questions. Another member will join the meeting soon, at which time the Committee will be quorate. An evidence session such as this does not require a full quorum; therefore, with four members present, the witnesses may proceed.

Ms Carol Edwards (Consumer Council):
Thank you. The Consumer Council is delighted to speak to the Committee on why credit unions must increase their range of services to members in Northern Ireland. The council has attached importance to that issue for the past four years and it believes that changes aimed at providing consumers with a better choice of credit union products and services cannot come soon enough.

The council is concerned that the credit union concept began here, but now we are so far behind — not in support for credit unions but in their legislative footing. Therefore the council welcomes the focus placed on credit unions by the Committee, the Department of Enterprise, Trade and Investment, and the Minister.

The council is speaking for consumers when it asks for the law to be changed to enable credit unions to provide more and better services, particularly during the present cost-of-living crisis. A change in the law by the Assembly will allow consumers to have benefits paid into a credit union, pay their bills, set up direct debits, pay their home insurance and open child trust funds — all through their credit union.

All those services are available in GB credit unions, which offer members five times as many services than are available to credit union members in Northern Ireland. Yet the first credit union in the UK was set up in Derry in 1960.

The law prevents credit unions here from offering the same services to their consumers. It is shameful that England, Scotland and Wales have advanced so far ahead of us in the range of products that their credit unions can offer their members while our consumers’ choices are severely restricted.

Our research shows that 17% of households in Northern Ireland do not have a current account, compared to 10% in the UK. People are unbanked for various reasons: a lack of knowledge or confidence, no bank in their area, or they cannot get to a bank because of a lack of transport facilities. It is not just because they are on a low income or that they have been abandoned by the banks.

Credit unions often provide those who have been abandoned by big banks the facility to save and borrow sustainably. One in four people in Northern Ireland is a member of a credit union, and some of them will never have had a bank account. Each credit union branch has stories to tell of members who have been empowered to get out of poverty and unmanageable debt by developing regular habits of saving and responsible borrowing.

We know that trust in banks has been eroded by recent events, and as a result of the credit crunch, banks have tightened their lending criteria. Those who are considered a credit risk and who are refused a bank loan find it more difficult to access affordable loans and, increasingly, credit unions are an option for those people.

The Consumer Council wants the law amended to allow credit unions to extend their services and to develop their contribution to the economic and social framework in Northern Ireland. It is vital that the law be changed so that parents can open child trust funds in credit unions in Northern Ireland, which will enable the £11 million unopened to earn interest for their children.

The Consumer Council also wants the common bond restrictions amended to improve access for consumers and to allow community groups and societies to join credit unions. That is not allowed at present and it disadvantages small community groups, such as mothers and toddlers groups and drama groups. Allowing group membership would help to pump-prime local community development and contribute to the economic, social and cultural well-being of Northern Ireland.

The Consumer Council has delivered fruitful work with the credit unions as a responsible and connected social partner. It finds them easy to deal with, fleet of foot and quick to respond, no more so than in their response to the development of Easy Shares and Christmas savings accounts. When Farepak Food and Gifts Ltd went bust two years ago, 1,200 people in Northern Ireland lost nearly £500,000. We worked with credit unions to develop safer ways to save. Since then, 7,500 people have opened credit union savings accounts to put money aside for Christmas. Those people have also contributed to our focus groups during the recent cost-of-living crisis.

The Consumer Council recognises that extending the powers of credit unions will bring challenges as well as opportunities. They need to find a balance between attracting larger savers and borrowers and maintaining the best services for their existing members. That can be done by maintaining and increasing their work on financial inclusion, financial capability and debt management across Northern Ireland. The council is working with credit unions, banks and building societies to promote money management and budgeting skills through its Northern Ireland financial capability partnership.

The Consumer Council has stepped up to the plate during this unprecedented time for consumers and the economy; it is providing practical help for consumers to make the most of their money and it is lobbying for businesses to share the pain by reducing prices where they can. The Assembly must help consumers, and there is a real opportunity to allow credit unions to offer a twenty-first century service to their members. We respect the need for the inquiry, but we also expect urgent action as the cost of living is putting families under extreme pressure.

The Committee can lighten the load for consumers by recommending that the law be changed to benefit hard-pressed consumers to avail of credit union services in Northern Ireland and to bring those services up to match those in GB.

Mr Wells:
You are keen on the idea of group membership for credit unions, and you referred to drama clubs, etc. However, surely a representative can open an account on behalf of such a club. I am involved with various groups and I know how complex and bureaucratic it is to open such accounts. Is there a need for group accounts?

Ms Edwards:
The Consumer Council believes that there is. Community groups, such as mothers and toddlers groups or drama societies, should be allowed to open credit union accounts as a group in order to share the opportunities and challenges of shared financial responsibility. Such experience brings economic and social benefits to the community. Being part of a group dealing with a credit union account can encourage entrepreneurial spirit and business enterprise; an individual opening a credit union account on behalf of a group would not have the same effect.

The Chairperson:
Moreover, if a group received funding from a local council, the funder might not think it appropriate for the group’s account to be in the name of an individual. That might be handy for a small group that is dealing with its own resources; however, seeking funding, doing business and making transactions at other levels through a personal account could be an issue. Furthermore, if a personal account is in the name of a member of the credit union, there is a question of personal gain.

Mr Wells:
Like all female witnesses, you have cleverly anticipated many of our questions. Debt will be a big issue in the next couple of years, and many credit union members will be in financial difficulty. Do credit unions work closely with debt-management services, the Consumer Council or the Citizens Advice Bureaux?

Ms Julie Megrath (Consumer Council):
The Irish League of Credit Unions and the Ulster Federation of Credit Unions have been working with Advice NI to provide money-advice training for credit union staff. The training involves detecting the early signs of debt and directing people to the appropriate advice services.

Mr Wells:
Will that training be cranked up to meet the huge needs predicted in the next 18 months?

Ms Megrath:
More could be done. The NI financial capability partnership shows that Government, financial institutions and the community sector can work together to benefit consumers. Perhaps that could be examined to facilitate early debt detection and signposting. The only way for that to happen is for Government, the community sector and financial institutions such as credit unions to work together.

Mr Newton:
Your submission paper asks smaller credit unions to take a major step forward with regard to their vision for the future. How will credit unions react to that since most of them are run by volunteers; and what will they have to do to take that step forward?

Ms Edwards:
Several small credit unions in Northern Ireland are run entirely by volunteers; however, most of them can offer a professional service to their members. Allowing credit unions to offer an extended range of services is a great opportunity for them, and they need to step up to the mark to meet that challenge. Regulatory changes would create tremendous opportunities for credit unions.

There will be challenges. However, the way in which credit unions work together and support one another is a good way of attaining a professional standard and of taking on extra services incrementally. Not all credit unions may want to open Monday to Friday and offer all the extended services at once. However, bit by bit, they can take on the services that are appropriate for them; that is how it has been done in GB.

Every credit union need not offer all 17 services; they could be taken in stages, which would be the right way to undertake such a transition.

Mr Hamilton:
I agree with the incremental approach to offering the optimal level of services, and you have identified scope for credit unions to extend service provision by opting to be regulated by the FSA. Robin Newton spoke about small-scale credit unions, and we recognise their fears about being regulated by the FSA. Given your experience with credit unions, what do you think about Northern Ireland credit unions being regulated exclusively by the FSA?

Ms Edwards:
Credit unions have not indicated to the Consumer Council about how they wish to proceed. In our experience, they have always been flexible, adaptable and positive when embracing change; I mentioned the examples of their Christmas savings accounts and the tremendously successful easy shares account, which they offered following the collapse of Farepak. Larger financial services institutions did not offer any comparable products; so we are confident that credit unions here can step up forward and meet whatever challenges different regulation brings. In our experience, credit unions here have been good to deal with and quick to respond to any challenges put before them.

Mr Butler:
I am sorry for being late this morning. The submission mentions post offices and credit unions working together to offer a range of services. Given that many post offices have recently closed, particularly in rural areas, how do you envisage that proposal proceeding?

Ms Edwards:
In June, when we submitted our written evidence to the inquiry, changes to the post office network had just been publicised. We considered the restricted range of financial services on offer, particularly in rural areas, and identified an opportunity for local credit unions, post offices and other financial services providers to get together to determine whether a joined-up method could be devised for continuing to provide the best services to consumers in those areas. That approach may not work in every area. However, creative thinking is needed when a local post office is to close; and an arrangement between credit unions and post offices may be worth considering.

Mr Butler:
How have credit unions and the Post Office reacted to that idea? Have you spoken to them?

Ms Edwards:
Given that mobile post office services might be introduced in certain areas two mornings a week, we asked whether joint post office and credit union services could be introduced to deliver both organisations’ services. We thought that rather than accepting that services are gone forever from certain villages, it would be worthwhile for the Post Office to talk to credit unions to explore whether anything might be done.

The Chairperson:
It has been suggested to the Committee that it would be a bad outcome for consumers if smaller credit unions were to remain regulated by the Registrar of Credit Unions because they do not wish to come under FSA regulation while others, that wish to expand services, opt for FSA regulation. It has been suggested that consumers may not understand the difference in regulation.

What is your a view on that?

Ms Edwards:
On the way that changes —

The Chairperson:
What are your views on the suggestion that it would be a bad outcome for consumers if some credit unions that wanted to offer a bigger range of services were regulated by the FSA while others that did not want to expand services chose to remain with the regulator here? I am not sure that I agree with the suggestion that people would not be able to understand that credit unions that provide more services would be regulated differently from those providing fewer services, which would be regulated locally. Credit union members could choose either option, and people would tune into that situation fairly quickly. Would there be a problem for consumers?

Ms Edwards:
Consumers will want to be assured that their savings are safe. Also, they will want to know what services are on offer and they will want to be communicated with openly, transparently and simply, without making things more complicated than they have to be. Those are the prime concerns of consumers, and they are unlikely to lose any sleep worrying about the intricacies of regulation, as long as they know that those basic needs are being met.

The Chairperson:
So, the obvious difference to consumers will be in the range of services, rather than in the method of regulation?

Ms Edwards:
Yes, and knowing that they are saving money in as safe a way as possible. The fact that credit unions in GB can offer a range of, I think, 17 services, whereas those in Northern Ireland can offer only three basic services represents a big difference. Credit unions here could offer a better range of services to consumers, especially to people who, for whatever reason, do not have access to other financial services providers.

The Chairperson:
What is your view on the position and attitude of banks on this issue? If credit unions were able to offer the full range of services that you mention, would banks regard it as a significant encroachment into their business?

Ms Edwards:
We obviously represent consumer interests, and consumer choice and access to services are our key principles. For example; people here cannot open child trust fund accounts in their local credit union, but they can open such accounts in banks and building societies. That is a big gap that must be addressed.

The Chairperson:
We also have poorer rates of uptake of child trust funds than other regions.

Ms Edwards:
Yes. We estimate that there are £11 million of unopened child trust funds here. If people could open child trust fund accounts at their local credit union, it would help build a savings habit for parents and children.

The Chairperson:
As regards choice, we are not talking only about consumer choice, because we are likely to be faced with the situation in which some credit unions are happy with the type of services they provide whereas others clearly reflect the same view that you have articulated in wanting to offer a wider range of services that are comparable to what their opposite numbers are able to offer elsewhere.

However, the impression being given to the Committee is that the only option available is “all-or-nothing”; that either all credit unions end up being regulated by the FSA, regardless of the services they want to provide, or they all stay as they are, and remain limited in the services that they can offer.

In that instance, credit unions are, potentially, being denied the choice of offering their present level of provision while staying within their current regulatory framework. What happens to choice if it is decided that to expand services to members, credit unions are obliged to go down the FSA route when they do not want to do so?

Ms Edwards:
We would like to see credit unions being brought through any process that the Committee decides to recommend regarding new regulation, step by step and with support and advice. Doing nothing is not an option, because credit unions are already falling behind in the range of services that they can offer to members.

We want twenty-first-century services, while retaining the best parts of the present credit-union service. The staff who manage, run and volunteer at the 170-odd credit unions throughout Northern Ireland know when their customers are out of their depth and experiencing money problems. We want the best of that system retained. Doing nothing is not an option.

The Chairperson:
Thank you very much.