Finance Minister Jack Chambers is among those calling on the regulator to relax the tough limits it has imposed on each credit union.
Credit unions already offer the cheapest mortgage rates in the market, but many end up having to turn away customers because they quickly exhaust what they are allowed to lend to members.
The Irish League of Credit Unions (ILCU) has in the past said its members were “handcuffed” by the restrictive lending limits for mortgages prescribed by the Central Bank.
Now it has emerged that Mr Chambers has joined calls from a prestigious international network of credit union regulators in calling for the Central Bank here to allow credit unions to expand this type of lending.
The US-based International Credit Union Regulators’ Network (Icurn) carried out a peer review of how the Irish Central Bank regulates credit unions here.
It concluded that recent changes to credit union legislation would be nullified if the mortgage restrictions are not changed.
The Icurn report concluded: “Without some liberalisation of the limits and flexibility, the Amendment Bill may not have the anticipated positive impact.”
It also urged the Central Bank to complete a long-promised review of mortgage lending by credit unions.
Mr Chambers implied to Independent TD Marian Harkin in a Dáil reply that he agrees with this conclusion.
“The Central Bank are currently conducting a review of the changes to the lending framework introduced in January 2020, with an initial analysis expected by H2 2024,” Mr Chambers said.
“I trust the Central Bank will reflect on the views of the credit union stakeholders and the Icurn report when considering any potential amendments to the regulations.”
Ms Harkin described the restrictions as anti-competitive.
Under the Central Bank regulations, credit unions are restricted in the amount they can loan out for mortgages, but banks are not subject to the same strict lending limits.
The limit on lending for mortgages and small businesses combined is 7.5pc of total assets for most credit unions.
The limit can be raised to 10pc, and up to 15pc, for larger credit unions that present a business case to the Central Bank and get permission for a higher amount of mortgage and SME (small and medium-sized enterprises) lending.
Assets of the sector are around €21bn, but only €615m was loaned out in mortgages last year. The assets of a credit union include the value of its loans, shares and investments.
The limits mean a credit union with assets of €200m, taking an average mortgage of €350,000, can only offer 43 mortgages under the regulations, exclusive of any SME lending.
David Malone, chief executive of the ILCU, described the lending limits as a “crisis-era” measure.
He said the league was engaging with the Central Bank and all politicians on the issue.
Asked whether the league had lobbied Taoiseach Simon Harris on the issue when it met him lately, Mr Malone would say only: “We have engaged with all stakeholders across the political spectrum and the Central Bank.”
It is understood the Taoiseach is anxious to see the member-owned lenders play a bigger role in the mortgage market.
The pressure on regulators comes as 77 credit unions have come together to form a joint venture to offer a national credit union mortgage rate. At the moment, each credit union has its own rates, which is confusing for borrowers.
Such a centralised services company would enable the sector to have common mortgage rates, a centralised underwriting facility and shared marketing.
This could lead to €1bn worth of mortgages being issued over the next seven years, as proposed by the sector. Mortgages would become a core offering of credit unions, according to the plans for the new mortgages credit union services organisation (CUSO).
The Central Bank, where credit union registrar Elaine Byrne is based, said it put the lending measures in place in January 2020.
“Since then, we have seen growth in this area of lending. However, significant capacity still exists within the existing concentration limits for further home and business lending,” it said.
It said there was capacity for another €2bn in credit union business and mortgage lending.
This is on the basis that larger credit unions seek higher lending limits.
But up to now just 21 of the 68 larger credit unions having applied for the increased lending limits, the Central Bank said.
“Individual credit unions should continue to develop appropriate strategies to grow their loan books prudently,” the regulator said.
The Central Bank welcomed the Icurn review.
