October 2007 / Issue 2
Great Britain: Credit Union Legislation Headed for First Update in 30 Years
On September 12, HM Treasury closed its consultation period on a revised Credit Union Act. The consultation document establishes an expanded set of services and larger membership base that credit unions may serve.
The Association of British Credit Unions Limited's (ABCUL) 45-page response stated that credit unions should be able to:
- Choose to whom they will provide services within defined membership criteria;
- Develop new products to meet the changing needs of members and attract new members and
- Attract inward investment and raise credibility through provision of services to social housing providers, employers and other corporate members.
ABCUL consulted its member credit unions and drew on best practice information from World Council of Credit Unions in the development of its response.
For HM Treasury's consultation document, click here.
For ABCUL's response, click here.
Canada: Ontario Modernizes Regulatory Structure
The province of Ontario, Canada, has recently introduced amendments to its Credit Unions and Caisses Populaires Act and accompanying regulations to modernize the regulatory structure and business powers governing financial cooperatives there.
If the amendments are passed, most credit unions and caisses populaires will be able to take advantage of a Basel II capital test and move to a prudent person regime for lending and investing. These new powers will enhance credit unions' and caisses populaires' ability to compete in a fiercely competitive financial services marketplace and will reduce their regulatory burden.
In addition, responsibility for solvency regulation has been added to the mandate of the deposit insurer, the Deposit Insurance Corporation of Ontario, in an effort to streamline the regulatory system.
For more information, see www.dico.com or
Australia: Credit Unions Achieve Major Win on Register Access
Following a strong industry campaign, Australian credit unions and mutuals have won important changes to the Corporations Law that will enable them to better protect the privacy of members and deter opportunistic takeover bids.
The new law stipulates that lawful contact with members will occur only through a trusted third party of the credit union or mutual's choice (e.g., their mailing house), at the applicant's cost. Boards of credit unions and mutuals will also now be able to review all material before it is sent to members to ensure it is legal and not misleading.
These rules change earlier laws that required credit unions and mutuals to hand over member registers to third parties without advance legal review-especially important in 'hostile demutualisation' proposals.
Abacus is also working with the Australian regulator as ‘B-Day'-the start of the full Basel II framework-approaches. Greater focus on risk, reporting and new securitization rules are priority issues. Credit reforms are also a hot topic, with credit unions and mutuals forming a new coalition with consumer groups to try and stamp out predatory lending practices and promote responsible lending.
Source: Abacus Australian Mutuals, www.abacus.org.au
European Union: Consumer Credit Directive Advances in the European Parliament
The European Union's draft consumer credit directive has advanced to second reading in the European Parliament. The directive was initially adopted by the European Commission in 2002 to propose disclosure rules for cross-border consumer credits.
The initial version of the directive was considerably burdensome for credit unions. During the first reading, WOCCU lobbied in the European Council and the European Parliament to advocate for a lighter regime for credit unions. The Council has taken WOCCU members' concerns into account and has now come to an agreement that allows European Member States to decide which provisions of the directive should apply to credit unions.
The Parliament is not expected to amend the rule in its second reading. An agreement by the Parliament on the directive is not expected until early 2008.
United States: Credit Unions Largely Unaffected by Subprime Problems
Despite the widely reported turmoil in mortgage and credit markets in the United States, credit union loan quality remained near historic highs. Overall 60+ day dollar delinquencies increased marginally, from 0.69% in June to 0.71% at the end of July; delinquencies related to mortgages remain low at 0.49%.
Although no broad federal anti-predatory lending legislation exists in the United States, Congress recently passed legislation for military personnel and their families to protect them against predatory lenders. The law describes an annual percentage rate (APR) which includes interest, fees, credit service charges, credit renewal charges, credit insurance premiums including charges for single premium credit insurance, fees for debt cancellation or debt suspension agreements and fees for credit-related products sold in connection with the credit. Loans subject to this legislation have a cap of 36% APR.
The Credit Union Regulatory Improvements Act (CURIA), which would modernize capital requirements in credit unions, allows for increased business lending and improve various governance related issues for credit unions, was introduced in the House of representative in March 2007. The Bill has already gained more supporters than in the previous session of Congress, but bankers continue to oppose it.
Source: Credit Union National Association, www.cuna.coop.
Brazil: Credit Union Movement Celebrates New Regulations
At the end of February, the National Monetary Council in Brazil passed a new law affecting credit unions. The regulations related to this law have just been published. They allow credit unions to expand services and remove obstacles so that credit unions can have greater participation in Brazil's national financial system.
Key provisions of the regulation include:
- An increase in the service area for a credit union from 750,000 to 2 million people.
- Greater flexibility in membership requirements, especially in the case of entrepreneurs and small businesses.
- Relaxation of accounting rules for an independent company.
- Streamlining of operational relationships between credit unions and cooperative banks.
- The elimination of restrictions for investments in non-credit union entities.
- Updating of allowable risk management systems.
- Modification of capital requirements.
- Change in the eligibility requirements for directors to be more in sync with the local community profiles.
Source: SICREDI, www.sicredi.com.br
Ireland: Supreme Court Reverses Decision on Share Protection Scheme
The Supreme Court in Ireland recently overturned an earlier High Court decision in a case brought by the Irish Competition Authority against the Irish League of Credit Unions (ILCU).
The Supreme Court's decision is significant for a number of reasons:
- It is the first appeal to come before the Supreme Court which involves the application of substantive competition law;
- It is the first time that the Competition Authority has been overturned on appeal to the Supreme Court; and
- The judgment states that the main object of competition law is consumer welfare, a statement that will have significant consequences for competition law in Ireland into the future.
In 2001, a complaint was made to the Competition Authority regarding the requirement of ILCU members to purchase Loan Protection and Life Savings (LP/LS) insurance from ECCU Assurance Company Limited-an insurance company wholly owned by ILCU. The complaint was made by a small number of credit unions, including some faced with loss of ILCU membership for failure to purchase the LP/LS product from the movement's own insurance provider. ILCU was acting in compliance with its own rules in taking such action-rules that were adopted by all member credit unions in a general meeting.
The Competition Authority did not dispute the right of ILCU to expel its members for breach of rules, but ultimately alleged that the consequential loss of access to the share protection scheme (SPS) amounted to an abuse by ILCU of a dominant position in an alleged market for the provision of savings protection, since the SPS is available only to members of the ILCU. The Competition Authority also alleged a dominant position in the alleged market for the representation of credit unions.
Under section 14 of the Competition Act, the Competition Authority may issue proceedings against a person if it identifies market conduct that it considers to be anti-competitive and invites the courts to condemn it. The burden of proof rests upon the Competition Authority. To discharge the burden of proof, the Competition Authority is required to produce sufficient evidence to the Court to prove its case. It did not happen in this matter.
The Supreme Court stated that the Competition Authority "failed to provide a convincing analysis of ILCU's activities as being anti-competitive."
Source: Irish League of Credit Unions, www.creditunion.ie
Caribbean: Regional Trend Toward Prudential Supervision Continues
Credit union movements in Barbados, the Dominican Republic, Jamaica and Trinidad and Tobago may be following the lead of the Belize movement, which came under direct supervision of the Central Bank of Belize in 2006.
In the Dominican Republic, a new far reaching monetary law has been introduced calling for all financial intermediaries, including credit unions, to be supervised by the Superintendent of Banks. If passed, the new law would lead to the first changes in credit union legal framework since 1964. It would allow credit unions to modernize and expand services as well as offer government-backed deposit insurance.
Earlier this year, WOCCU completed a detailed diagnostic of five credit unions in the Dominican Republic. The results of the diagnostic indicated a great need for credit union inclusion in the Superintendency of Banks' new legislation and supervision framework.
The government of Trinidad and Tobago has agreed on a regulatory framework that proposes the Central Bank as the regulator for credit unions, assuming responsibility for prudential supervision and licensing. According to the proposal, the Commissioner for Cooperative Development would be responsible for registration of credit unions and for promoting the development of the sector.
To date, the Central Bank has produced two policy proposal documents for the Credit Union Act and held two rounds of consultations with stakeholders.
The policy proposal document will form the basis of draft legislation, which will also be discussed with stakeholders before being finalized.
In Jamaica and Barbados, debates continue regarding the scope and framework for supervision, but it appears that credit unions in both countries will be directly supervised by their respective central banks.
Global: WOCCU Presents Draft Model Regulations for Credit Unions
The Model Regulations for Credit Unions is a guide for policymakers, regulators and others who implement or revise credit union regulations. WOCCU staff, credit union supervisors and WOCCU's Legislative and Regulatory Committee jointly prepared the guide as a companion piece to the Model Law for Credit Unions.
Since the Model Law for Credit Unions was first developed 15 years ago, it has been used by dozens of countries to help modify credit union legislation. In an integrated way, the Model Regulations for Credit Unions will help policymakers and credit unions with the next step of reforms.
A summary of the guide is available on WOCCU's website at www.woccu.org/functions/view_document.php?id=ModelRegsSummary. Check back in December for the full document.
Global: Credit Union Regulators' Network Formed in Calgary
A group of 48 regulators from 15 countries formed the first-ever Credit Union Regulators Network during the 5th annual Regulators' Roundtable at WOCCU's 2007 World Credit Union Conference in Calgary, Canada.
Andy Poprawa, President and CEO of Deposit Insurance Corporation of Ontario, Canada, proposed forming a credit union regulatory network to facilitate the exchange of information and ideas and undertake research on specific issues or topics of common interest to regulators worldwide.
Membership in the Credit Union Regulators' Network is open to all entities that have statutory supervisory authority for credit unions in their respective jurisdictions. Each organizational member of the network will contribute US$200 to join and pay a nominal conference fee to help cover the cost of hosting the annual Regulator Roundtable meeting. The membership fee may be adjusted based on the size of the country's credit union system.
A steering committee of representatives from seven regions across the world will lead the network and WOCCU will serve as the secretariat. The steering committee's role is to help coordinate the network and to assist WOCCU in organizing the annual Regulators' Roundtable. The steering committee representatives serving the 2007-2008 term are:
- Africa: Fredrick Odhiamba, Kenyan Ministry of Co-operative Development and Marketing
- Asia/Pacific: Lyndon Kingston, Australian Prudential Regulatory Authority
- Canada: Andy Poprawa, Deposit Insurance Corporation of Ontario
- Eastern Europe: Wictor Kaminski, NACSCU, Poland
- Latin America/Caribbean: Neri Matus, Central Bank of Belize
- United States: Dave Marquis, National Credit Union Administration
- Western Europe: James O'Brien, Financial Regulator, Ireland
The Credit Union Regulators' Network will convene next at the World Credit Union Conference in Hong Kong, July 12-13, 2008.
Source: WOCCU, http://www.woccu.org/hongkong08
Africa: Credit Union Regulators from Seven Countries Convene in Nairobi, Kenya
The invitation-only workshop brought together for the first time senior officials from ministries of finance, central banks, ministries of cooperatives and the savings and credit cooperative (SACCO, or credit union) industry in Africa to discuss pressing legislative, regulatory and supervisory issues.
Representatives from Ghana, Kenya, Malawi, Rwanda, Tanzania, South Africa and Uganda, who regulate a total of 7,000 credit unions with 5.3 million members and US$2.4 billion in assets, attended the meeting. They discussed topics such as key differences in legislation between microfinance institutions and credit unions, access to clearing and settlement systems, transparency in reporting, strategies for supervising large numbers of small credit unions, prudential and operational standards for credit unions and service to non-members.
Participants also reviewed new credit union bills being introduced in Kenya, Malawi and South Africa.
Representatives from the Consultative Group to Assist the Poor (CGAP), International Cooperative Alliance (ICA) and the National Credit Union Administration (NCUA) participated in the meeting. The meeting was organized and facilitated by WOCCU and the Canadian Cooperative Association.
South Africa: New Credit Union-Specific Law on the Horizon
The South African Parliament has completed its review of a new cooperative bank bill that would convert supervision of credit unions into a three-tier structure.
- Credit unions with less than 200 members or US$140,000 in savings are not considered coop banks and would have no supervision.
- Credit unions larger than the above threshold but with less than US$2.8 million in savings would be supervised by a development agency, which is part of the Ministry of Finance.
- Any credit union with more than US$2.8 million in savings would be directly supervised by the Reserve Bank of South Africa.
The bill would provide credit unions access to deposit insurance and to the national payment system. With Parliamentary debate concluded and no apparent opposition, the bill is expected to pass in early October, making it the first credit-union specific law in English-speaking Africa.
Source: SACCOL, www.saccol.org.za
Kenya: New Credit Union-Specific Bill Published
With the largest credit union movement in Africa, Kenya's Ministry of Justice recently published in the National Gazette a credit union-specific bill that WOCCU helped author. The bill would create an independent prudential regulatory authority and deposit insurance agency specifically for credit unions in Kenya. The proposed system is modeled after the National Credit Union Administration in the United States.The bill is not likely to be introduced into Parliament until after the presidential elections in December.
Malawi: Draft Law and Regulations Would Strengthen Credit Union Framework
WOCCU is coordinating with the Reserve Bank of Malawi, the Ministry of Trade, Industry and Marketing, the local credit union movement and the Canadian Co-operative Association to draft a credit union-specific law and regulations that would strengthen the framework in which credit unions operate in Malawi.
The new framework includes: provisions to clean up the register, direct supervision of all credit unions by the Central Bank, the creation of wholesale or second-tier credit unions, tighter requirements for starting a credit union, prudential standards, allowance of services to non-natural persons, increased range of services and direct participation in the national payments system for second-tier credit unions.