§ 8 p.m.
§ Lord Lyell
My Lords, I beg to move that the Credit Unions (Northern Ireland) Order 1985, the draft of which was laid before your Lordships' House on 19th June, be approved.
Credit unions are a unique form of co-operative enterprise whose primary object is the custody of members' savings and the making of loans to them. Credit unions are administered and controlled by their members in accordance with rules which closely resemble those of other mutual societies. They have been defined as mutual self help financial cooperatives which aim to promote thrift among their members by accumulating their savings, represented as shares in their credit union, from which loans are made to members, at a modest rate of interest, for a provident or a productive purpose. In the large credit unions managers and employees are engaged to carry out the work under the supervision of the voluntary board of directors but in the rest they are run by means of the voluntary effort of their members.
Credit unions are relatively new to Great Britain, where the first legal framework for them was enacted in 1979. In Ireland, however, credit unions have been in existence and flourishing since the late 'fifties and early 'sixties. A legal framework for the operation and supervision of credit unions came into existence in Northern Ireland in 1969 when the Government gave credit unions a separate legal status within the Industrial and Provident Societies Act (Northern Ireland) 1969. There are now 98 credit unions registered in Northern Ireland with a membership in excess of 110,000 people and assets of about £40 million—a truly remarkable voluntary effort in a community of some 1.7 million people. The equivalent figures for Great Britain are 80 credit unions with a membership of 16,000 people and assets of about £3 million.
The order before your Lordships extracts the credit unions from within the scope of the Industrial and Provident Societies (Northern Ireland) Act 1969 and provides them with their own separate legal code. Over 90 per cent. of the order re-enacts provisions of the Act of 1969 covering credit unions and less than 10 per cent. of the order contains amendments of the law made in the light of some 16 years' experience in the operation of the 1969 Act and as a result of consultations with the movement in Northern Ireland. I shall say more later about those parts of the order which contain amendments.
688 In order to understand the difference between this unique type of financial co-operative and other financial organisations it is necessary to take cognisance of the underlying special requirement which is essential for a credit union and is known as the "common bond". Such a bond must exist between members or intended members over and above their association or proposed association together within a credit union. This common association or bond could, for example, be one of living or working in a particular locality, or being employed by a particular employer, or having other associations as set out in the order.
In all cases a common feature identifies the potential members before they form a credit union. There is therefore a mutuality—a trust among members—which reduces to a minimum the possibility of a member defaulting in the repayment of money borrowed. To default in such circumstances lets down those who are known to you, your neighbour, fellow worker, and so on. The borrower is not dealing with an institution, because I stress that only individuals may be members of a credit union, but with those who include relations, neighbours, fellow workers and others with whom one is associating. All the time there is this mutual and common bond, far more so than in any other type of institution.
At present a member may hold £3,000 in shares—that is pounds sterling, just in case noble Lords think that we may be straying across with "their money", as we put it in Ulster; that is, money in the Republic; I think they call them punts—and may borrow up to £2,000 in excess of the shares held. These limits may be changed by subordinate legislation made by the Department of Economic Development when the need for change arises. At maximum, therefore, a member could obtain £5,000 if he had ££3,000 in shares. But let us not talk of figures of quite that size. The credit unions may believe that they need that capacity. In practice the average shareholding in Northern Ireland is about £300 and the average loan some £25 less at £275.
Membership of credit unions tends to be drawn from sections of the community in Northern Ireland whose credit rating in purely financial terms might not make them eligible for a normal commercial loan from institutions such as banks, finance houses, discount companies, loan companies, and so on. In addition, if they borrowed from sources such as banks or finance houses, the interest repayment would most likely exceed the 1 per cent. per month paid on a declining balance to their credit union over a period of time tailored to their home needs. With the established record of savings and repayment of a member, a credit union is in the best position to assist a borrower not only with money but with advice in managing financial affairs, which many of us may need when seeking to borrow from a bank.
I should now like to turn from the general to the particular in order to examine not the re-enactment of the existing legislative position but the changes contained in the order. Northern Ireland has decided to follow the Great Britain 1979 Act and set a general maximum limit of 5,000 on the membership of a credit union. Your Lordships will find that in Article 13. Exceptions from this limit can be made where, for example, a second credit union serving the same bond 689 area would not be practicable but there was a potential for over 5,000 members. At the other end a lower limit of 21 members for the formation and running of a credit union replaces the present figure of seven members. Under 21 members was not considered by the movement to be a sufficient number to form or operate a credit union. I understand that there are three credit unions in Northern Ireland which already exeed 5,000 but not by much, and the movement is content that they are not colossus institutions and remain within the ambit of the order.
The existing legislation does not permit persons under the age of 16 to be members of a credit union, and as the taking of deposits is prohibited there exists no means of introducing young people to the movement until they reach 16 years of age. Article 26 of the order provides for an exception to this general prohibition on deposit taking in respect of savings of up to £250 by persons under 16 years of age.
I am very interested, and I am sure your Lordships will be very interested, in the young tycoons of Northern Ireland who are no doubt involved in paper rounds, raspberry picking, fruit picking and all the other kinds of things that youngsters get up to in rural areas. However, clearly this is a very valuable provision.
The limit of £250 can be changed by subordinate legislation; but there is an important proviso: the credit union must hold all such savings in trust separate from its other funds, and it must account for them separately. The younger members of the family may now take part in the activities of a credit union, especially the educational functions on saving and on the use of financial resources, but I am afraid they cannot vote at meetings or borrow money until they become full members at 16 years of age. I am advised that no person may hold office in the union until the age of 18 years is reached.
Perhaps we may look at the provisions of Article 32, in which persons dealing with credit unions in transactions involving land are given statutory protection. These are also new. Persons may now assume that credit unions have authority to purchase land and need not inquire that the purchase is indeed for the sole purpose of carrying on its business, which is the only purpose for which a credit union may acquire land. Also the receipt of a credit union for money received for land is a full discharge for money paid. The same article, Article 32, also deals with the one exception to the rule that credit unions can only hold land for the purpose of carrying on their business—that is, they may accept an interest in land as a means of securing a loan. If the loan is not repaid, credit unions may possess the land but should dispose of it as quickly as possible. I turn to Article 37. This requires for the first time that a credit union must carry insurance against fraud and other dishonesty as a condition of registration. The limits on the insurance required may be amended by subordinate legislation but this is an inbuilt prudential measure which should not affect existing credit unions since they all have in operation insurance cover of the kind which we envisage.
Article 57 clarifies the right of the registrar to receive information which he requires from credit unions in 690 order to carry out his statutory and prudential supervisory role. The existing practice of the registrar requesting information from a credit union is likely to continue, but the article puts beyond doubt his right to receive such information from a credit union.
The last change, and one which is regarded as important and major by both the movement and the department, appears in Article 28. It is now possible for a credit union to give loans to a member who has moved outside the common bond on the same conditions as the loan would have been given when he was within that bond. There is this proviso: that is, provided the loan is made within one year of the occurrence of the event which took the member outside the common bond. Perhaps we may take a simple example. If some credit union member went to work or live in another part of the country, perhaps even if he did go into the Republic or perhaps let us say he stayed in Northern Ireland but moved from one credit union to another, this bridging operation is what is intended: that certainly he gets one year of grace so that he does not have to completely tie up all his financial arrangements when he moves, perhaps to work, to live or to marry. If he moves from one area to another he at least gets some chance of continuity.
At present, once a member ceases to fulfil the common bond requirements, then that member becomes what we call a non-qualifying member. This will occur when a person changes homes from one locality to another. However, up to 10 per cent. of the membership of a credit union may be non-qualifying members, and they can save and receive loans but such loans must not exceed the value of the shares held by the member. Under the new provision, the member may be given a loan of up to £2,000 above the value of shares held provided the loan is made within one year of the event leading to the non-qualifying membership status occurring. This period of one year can be amended downwards if it is not operating satisfactorily or upwards if it is.
These changes that I have mentioned to your Lordships are the main proposed changes to the existing law brought about by the order. Other changes include a standardised modern style in which the subordinate legislation powers are vested in the department in place of a shared responsibility with the registrar and the wording of all subordinate legislation has been brought into line with modern drafting practice, so that I hope at least those of your Lordships who are acquainted with the law and with credit unions will understand it.
I should stress to your Lordships that there has been the widest possible consultation on this order and the limits imposed in the order have been agreed on the basis that flexibility exists for amendment by subordinate legislation once the need for change has been identified and quantified.
This speech has been of necessity rather hop, skip and jump. I have been taking your Lordships from one article to another. However, I hope that there has been a fairly consistent thread in what we propose to do and why we want to make some changes. With that, I commend the order.
§ Moved, That the draft order laid before the House on 19th June be approved.—(Lord Lyell.)691
§ 8.15 p.m.
§ Lord Prys-Davies
My Lords, we are particularly grateful to the Minister for that interesting review of the credit union movement, the principal features of the movement and its history. We are also particularly grateful for the detailed explanation of the various provisions of the order.
The Minister explained how the credit union movement has, since 1958, flourished in the Republic and in Northern Ireland. The appeal of this mutual self-help financial co-operative in Ireland has not yet been satisfactorily explained. It has been suggested—and I believe that there was a trace of this suggestion in the Minister's speech—that the kind of financial services provided by credit unions, certainly in Northern Ireland and the Republic, appeal to the less affluent members of the community whose credit ratings may not be as high as ours or, in the words of the assistant secretary in the department, to people who would not normally save a lot.
Does this explanation allow us to conclude that there are many less affluent people living on the island of Ireland? We have been told, or we have read, that there are 85 articles and six schedules. Although this has been the subject of very lengthy consultations extending over three or four years, about 95 per cent. of the law, as I understand it, is unchanged. So essentially it is a consolidation measure. Henceforth, as the Minister has told the House, all the law affecting credit unions in Northern Ireland will be found within the covers of this order.
I read in the report of the appropriate committee of the Assembly that there had been some differences between the Irish League of Credit Unions and the department. I propose to touch upon only two of those differences. The two bodies were not agreed about the need to disqualify an undischarged bankrupt or a person convicted on indictment of an offence involving fraud or dishonesty from holding office in a credit union. I am sure the department must have been right in insisting on disqualification in such circumstances. The appointment of such persons to hold office in an organisation responsible for other people's money could inevitably lead to widespread disquiet. It could also be a temptation for such a person to cook the books (if my words are not too hard).
Again it seems to me that the league and the department appear to be pulling in opposite directions on one aspect of investment policy. As a layman, I found myself in some sympathy with the argument which has been advanced by the league and by some members of credit unions. I notice that Mr. Mulhern of the Hannahstown Credit Union, in his evidence to the Assembly Committee, summarised the position in these two sentences:At the moment surplus funds are kept in trustee areas such as the recognised banks or building societies. But we think that our members would get greater satisfaction out of their money being used in their own local areas and for their own local projects".Of course, the Registrar of Friendly Societies would have none of this. It was he who replied that the investment must be a "gold bond type investment". I can understand the registrar being very cautious. But I wonder whether the department, for its part, could have been more flexible and whether it could have 692 allowed a credit union, acting on a favourable report by an independent adviser and with the consent of the general meeting of members, to invest a small proportion—a prescribed proportion—of its surplus funds for the benefit of the community of the common bond. Without the community, at the end of the day, there will be no common bond.
There are other differences, some of detail, some of emphasis. My noble friend Lord Gallacher, who speaks with great experience of the co-operative movement, will have something to say about the rate of interest payable on loans and payable on share capital. My noble friend will intervene, I think, to make those points. I should be interested to know what is the relationship between the Department of Economic Development and the Registry of Friendly Societies. Are they distinct and separate bodies? Or is the registry an office within the department, accountable and answerable to the department?
The penultimate article gives effect to reciprocal arrangements in relation to Great Britain credit unions. That is fine. But, as the Minister has explained, credit unions in Great Britain are in their infancy. In their operational experience, credit unions in Northern Ireland are far closer to those in the South. It occurs to me that this may be one area of economic activity where the two Governments could work together to harmonise some of the provisions of the present legislation in the two countries in the spirit of co-operation which we seek to encourage nowadays and which is probably in the interests of credit union members throughout Ireland. I wonder whether this possibility has been the subject of any discussions with the appropriate Minister in the Republic.
The order has been warmly welcomed by the credit unions in Northern Ireland, notwithstanding one or two reservations or differences of emphasis on points of detail. We, too, from these Benches, welcome the order.
§ Lord Hampton
My Lords, I understand that the credit union movement is a worthwhile movement which, in Northern Ireland, in recent years, has had definite success. I thank the Minister for his full introduction of the order, and I have listened to the noble Lord, Lord Prys-Davies, with interest. This is a somewhat technical document that I do not propose to analyse now. It is encouraging that it provides for regulations to give effect to reciprocal arrangements in relation to credit unions in Great Britain. Quite simply, I believe that this is a sensible order and it is one which we support.
§ Lord Gallacher
My Lords, we must thank the noble Lord the Minister not merely for introducing the order, but also for the comprehensive speech that he made in explaining the role and function of credit unions which, in Northern Ireland, are highly developed and which, in the rest of mainland Britain, regrettably, have yet to make any impact following the passing of the 1979 Act in this country. Just as the 1979 Act in mainland Britain was based largely on Northern Ireland custom and practice at the time, going back to the legal format that was given in 1969, so, too, the order before us tonight is of considerable importance. Inevitably, although it restates largely 693 what is already custom and practice, the newer provisions contained in the Act will have their influence in mainland Britain. It is to that aspect that I wish to address a few remarks.
There is a complaint so far as the 1979 Act is concerned that the rate of interest on loans of 1 per cent. per annum is now too low having regard to the high price of money and that, in consequence of that fact, many credit unions are unable to lend effectively at such a low rate of interest. The order gives power to change this rate of interest to such other rate as an order may specify. My first question is to ask the Minister whether, in Northern Ireland, there has been any suggestion that a 1 per cent. per annum rate of interest is too low and that already the highly developed credit union movement in that country would wish to see a higher rate. If they do, I should like to ask whether the Minister is considering sympathetically an application to that effect.
Linked with this is the rate of interest payable on shares which, for the purposes of credit unions, is always described as dividend on capital but in reality is a form of share interest. Here, too, the draft before us this evening specifies a maximum 8 per cent. with, again, the proviso that if a higher rate is necessary, then there is power to increase the 8 per cent. by order. Undoubtedly, an 8 per cent. rate of interest under modern market conditions is totally inadequate to attract funds on any large scale. It may attract very small amounts of money, which, of course, are costly to manage and require a great deal in aggregate to allow a credit union to be particularly active in the field of lending. My question to the Minister is whether in Northern Ireland the 8 per cent. dividend rate has been found to be too low and if so, whether there is any immediate intention on the part of the department to increase it in line with present rates of interest to lenders.
The situation, as the Minister will know, has been exacerbated because 1985 has been an unhappy year for credit unions in Northern Ireland and in mainland Britain in the sense that this is the year in which they have lost the concession given to them almost at the last gasp when the 1979 Act was going through Parliament whereby dividend on capital was treated as tax free in the hands of members until this year. From this year, the dividend of 8 per cent., or whatever figure may be decided upon, becomes liable to income tax in the hands of the member at the standard rate of 30 per cent. We can therefore abate whatever rate of interest may be payable by that sum. It will be seen at once, I believe, that in comparison, say, with building societies, the rate of interest is totally out of line and is an inhibiting factor, certainly so far as mainland Britain is concerned.
The reference to building societies is apposite because the Government have already declared their intention of introducing in the next Session of Parliament a major reform of building society legislation which will give building societies in this country the power for the first time to make unsecured loans. That will, of necessity, bring them into direct competition with the credit union movement both in Northern Ireland and in mainland Britain. For that reason, it is important that the rates of interest that 694 credit unions may pay to lenders on the one hand, and may charge to borrowers on the other, should be adjusted in anticipation of the Act and that this should not be left until such time that they have lost a great deal of influence and strength as a result of an incursion by the powerful building societies movement into their field with a detrimental effect on their efficacy in Northern Ireland and prospects for growth in mainland Britain.
My plea therefore is for the Minister to consider this question sympathetically. I shall not disguise from him by failing to declare my interest that I am endeavouring to persuade Ministers in this Government to have a sympathetic look at the position so far as mainland Britain is concerned. And, as I say, because Northern Ireland has been a pacemaker in the past, I hope that the Minister will consider sympathetically the points that I have raised this evening.
§ 8.30 p.m.
§ Lord Blease
My Lords, in regard to the Credit Unions (Northern Ireland) Order and the Local Government (Miscellaneous Provisions) Order, I wish to indicate to the House my support for the views expressed by my noble friend the Opposition Front Bench spokesman, Lord Prys-Davies.
The Minister has already mentioned the wide range of consultations which have taken place in Northern Ireland, and I think that this is an opportunity for me to draw to the attention of this House that the debate on these two orders clearly demonstrates and confirms the importance of the Northern Ireland Assembly in providing an effective and vital input to the legislative processes in dealing with the particular political needs of the Northern Ireland community within the context of the Government of the United Kingdom.
Those Members of this House who have read the Northern Ireland Assembly reports on these two orders will, I am sure, join with me in commending the fair and thorough way in which the members and officials of the Assembly undertook the wide consultations, and the effective way in which they deliberated and compiled their reports and recommendations on these two items of legislation.
In paying this tribute to the Northern Ireland Assembly, I am mindful of the difficult, and one could almost say the ad hoc, constitutional arrangements in which they must conduct their deliberations on relevant devolved matters and issues.
However, as is evident from even a casual examination of the procedural arrangements of this Parliament for debate on these two orders, first there is a debate in another place; and, allowing for the more subordinate role of this House, there is the limited scope for informed debate here this evening at this so-termed dinner break in our proceedings. Already I see evidence of the Whips trying to put on pressure because the hour for this particular debate has almost passed.
§ Lord Blease
My Lords, it may not be from this side of the House, but I can see evidence from other quarters. The arrangements in this Parliament for the debate on these two Northern Ireland orders, and especially the debate on the local government order which I believe could have been a helpful and positive debate at this particular stage in the affairs of Northern Ireland, are further evidence which pronounces clearly on the restrictions and the denial of the democratic parliamentary rights and processes to the citizens of Northern Ireland.
Already we have had mention that almost a ritual is taking place in debating these orders in council. It is even more dangerous than that—dangerous in the processes of democracy, including parliamentary democracy. There is disenchantment and disillusionment, and I am concerned about what is taking place as it affects Northern Ireland affairs. This is an opportunity that we should seize upon to lift morale and to support democratic processes and democratic discussion and debate in the affairs of Northern Ireland. Therefore it is my view—and I believe that it is a view shared by many politicians and by many others in Northern Ireland—that there is an urgent need for a Government review of the parliamentary procedures and arrangements to meet the present political needs of the people of Northern Ireland.
Having made those few remarks, I want to say firmly—and this has already been stated in the House—that these two orders have been warmly welcomed in Northern Ireland. They are a very positive contribution to the affairs of the people of Northern Ireland. I certainly welcome and support the orders.
§ Lord Lyell
My Lords, perhaps I may deal with the points raised by the noble Lord, Lord Blease, at the conclusion of my remarks, though perhaps I should say that I must not become too much involved in the constitutional affairs, nor indeed in the more turbulent affairs, of your Lordships' House. If I may, I shall compose my thoughts on that particular issue. Nevertheless, I was more than grateful for the noble Lord's support and, indeed, for the support of all your Lordships for credit unions—all the more for the expertise that came, quite unexpectedly (at least to me; but I am all the more grateful for it), from the noble Lord, Lord Gallacher.
The noble Lord, Lord Prys-Davies, raised one or two of the matters mentioned by Mr. Mulhern in evidence to the Northern Ireland Assembly, and he asked me several questions. Perhaps I may begin by making one particular observation which I think is the thread that runs through the discussion which has taken place between noble Lords on this particular subject. Credit union seem to me to be a unique but, above all, a very successful form of institution which is attuned to the needs of its members. I appreciate what the noble Lord, Lord Gallacher, said, and indeed what the noble Lord, Lord Prys-Davies, mentioned about interest and the more commercial activities of the credit unions.
However, without in any way suggesting that members of credit unions are different from any of us 696 dealing with banks, building societies and other financial institutions in this great metropolis of London, I would point out that credit unions are much more attuned to the needs of their members, particularly in Northern Ireland, which I have come to learn is very much a rural society. That is not to say that Belfast or the great city of Londonderry is in any way rural. Three of the largest credit unions in Portadown, Lurgan and Londonderry could in no way be said to be in rural areas. Nevertheless, the same thread runs through credit unions and provides their very great strength. It is that the success of credit unions is measured by the service which these unions give to their members and the use which the members make of them.
The noble Lord, Lord Gallacher, suggested that the interest which is charged is possibly a little uncommercial or a little too low. I am sure that the noble Lord and other noble Lords would accept that the voluntary and what I would call social character of the credit union movement in Northern Ireland is such that 1 per cent. per month on the loan covers all the costs which are engendered.
I would stress to the noble Lords, Lord Gallacher and Lord Prys-Davies, and to other noble Lords that during the consultation period there has never been any question that the 1 per cent. charge should be in any way increased or altered. Certainly there would be no increase in dividend for the same reason, and I am advised that frequently members of credit unions forgo dividends for the mutual benefit of members of their own credit union. I hope that the noble Lord, Lord Gallacher, will accept that credit unions are not commercial organisations per se, that they certainly help the saver, and that they keep saver and borrower together. However, they are an entirely unique form of institution and I think that we should regard them in that particular light.
The noble Lord, Lord Prys-Davies, started by asking me about investment. I would suggest that the legislation simply does not provide for central investment for credit unions, for the good reason that both existing Northern Ireland and Great Britain legislation and the order are drafted so as to safeguard members' savings in credit unions. But I stress to the noble Lord that there is nothing in the legislation which would in any way prohibit credit unions in Northern Ireland investing jointly, provided that the investment is that provided for by legislation and the ownership, and above all the control, of the investment remains with the individual credit unions.
I hope that the noble Lord will accept that the legislation is permissive but that each individual credit union, if it wishes to undertake a joint operation, must have liberty to pull out of the joint arrangement on reasonable notice, and individual credit unions must not place themselves in a difficult position or take any irrevocable decisions over one year, or perhaps more. The whole of this matter would be overseen, and indeed is overseen, by the registrar.
The noble Lord, Lord Prys-Davies, asked about the registrar. The registrar is what we classify as a statutory person. He is a person whose duties are set down and who, like the Registrar of Friendly Societies in Great Britain, reports to Parliament on an annual basis. His judgment is separate and distinct from that of the 697 Department of Economic Development in Northern Ireland.
The noble Lord, Lord Prys-Davies, asked a question about bankruptcy and connected persons. This is not an unusual provision in legislation, particularly as we have it this evening, especially in such bodies as credit unions, which are responsible for other people's money. This borrowing and lending is carried out without the normal form of security and collateral that we should see in bank and other institutions.
It is done very much on the basis of trust and the common bond. For that reason credit unions have a much heavier responsibility to protect the funds of members. In addition, I think the noble Lord would accept that they should not place such individuals, who may have a propensity to take other people's money, or indeed not to look after their own—these are people recently discharged from bankruptcy—in such a position.
The noble Lord, Lord Prys-Davies, had one more query. There have been discussions between Northern Ireland and the department responsible for this legislation, and the appropriate department in the Republic. I understand that we may be marching step by step so far as concerns these matters of bringing our particular legislation into line, or certainly keeping our own legislation to what is suitable in Northern Ireland, and that we have been consulting with the relevant department in the Republic.
I thank your Lordships for the attention you have paid to this order this evening. This unique form of institution, the credit union, by its success has shown that there is a need for this trust, this common bond, in Northern Ireland. I hope that this order will be of help in fining down the legislative problems, and fining down any problems which have arisen since 1969. I think we have gone on a bit from 1979 in the Great Britain legislation. I hope that the order will achieve what the credit unions want it to achieve. We certainly believe that it will be of assistance. With that, I beg to move.