Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome Colin Jack, Laurence Rogers and Chris Denvir. I am happy to hand over to you.

Mr Colin Jack (Department for the Economy): Thank you, Chair and members, for the opportunity to brief the Committee on the Department's proposals for credit union reform and a proposed credit union modernisation and reform Bill. I am the director of the business and employment regulation division in the Department. I am joined by my colleagues Chris Denvir, the policy lead on credit unions, and Laurence Rogers, the head of the better business branch, which covers credit unions.

Over the past year, the Department has completed an extensive programme of work on credit unions, including a public consultation on reform proposals, a detailed analysis of responses and a paper on proposed next steps. We shared that, in draft, with the Committee in advance of today.
That work reflects sustained engagement with the sector regulators and other stakeholders, and it provides a robust and considered foundation for reform.

The underlying driver for reform is that the policy and legal framework is no longer fully fit for purpose. The core credit union legislation — the Credit Unions (Northern Ireland) Order 1985 — is now more than 40 years old. It has not kept pace with changes in financial services, digital expectations, regulatory practice or the expanding contribution that credit unions are making to financial inclusion, community resilience and regional balance.

That constraint was acknowledged consistently across consultation responses and subsequent policy engagement that the Department has undertaken. The Department's proposed response is therefore intended to be a balanced programme of legislative and non-legislative reform rather than a single, one-size-fits-all intervention.

We propose to bring forward a Bill focused on priority areas where primary legislation is required, including enabling a broader range of financial services where credit unions have the capacity and governance to do so, increasing flexibility to support lending to businesses, charities and community organisations within clear prudential limits, facilitating collaboration, shared services and pooled activity across the sector and modernising a range of technical governance and operational provisions that currently create unnecessary burdens.

The proposed Bill will be intentionally targeted and proportionate. It will make available additional activities for credit unions to adopt, but uptake will be voluntary, and it will preserve the distinct, not-for-profit and community-owned nature of credit unions.

Alongside the Bill, a parallel element of reform will be delivered through policy and partnership rather than statute. We also propose the establishment of a permanent credit union advisory group to guide implementation, support sector readiness and take forward exploration of complex areas such as digital transformation, green finance, insolvency considerations and financial inclusion initiatives, which are all areas where flexibility, evidence and co-design are essential.

I want to emphasise why the proposals matter. Credit unions are deeply embedded in local communities. They provide trusted, ethical finance, particularly for people in places that are sometimes underserved by mainstream banking. They play a critical role in tackling financial exclusion, reducing reliance on high-cost and exploitative credit. They support saving and improve financial resilience, particularly in rural areas and for lower-income households.

In the context of the Minister's wider economic vision, which includes good jobs, productivity and regional balance, credit unions are not marginal actors; they are part of the economic and social infrastructure. Strengthening the framework in which they operate will support inclusive growth, community wealth building and long-term resilience, while retaining local accountability and trust.

In developing the proposals, the Department has been clear about safeguards. Reform is predicated on proportional regulation, protection of member savings, democratic governance and phased implementation that reflects differences in size, risk and capacity across the sector. Engagement with regulators and other Departments is and will remain ongoing to ensure that reform is credible, coherent and deliverable.

The Department believes that there is a strong mandate for reform, supported by extensive evidence and stakeholder engagement. Committee scrutiny is an important part of that process, and the Minister would welcome the Committee's views as proposals are refined and taken forward before she takes final decisions on the way forward.

Thank you. We welcome any questions that the Committee might have.

The Chairperson (Mr Brett): Colin, thank you very much for that. I warmly welcome the progress that has been made on the issue. As I have said before, credit unions are a force for good here in Northern Ireland, and I am very lucky in my constituency to have the Irish league and the Ulster league. As with everything in North Belfast, we have to have two of everything. They both play really important roles and are some of the most important anywhere in the Province.

I want to check a couple of things. Are all the proposals within the devolved competency of the Department for the Economy?

Mr Jack: Yes, they are. We have been engaging with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), which do the regulatory role for us. We transferred the role of maintaining the register of credit unions from the Department to the FCA in 2018, so it is fair to say that our role in relation to the sector has changed in recent years. The role was quite an operational one in respect of maintaining the register, and it has moved to being more of a policy and strategic one, with the detailed regulation in the sector being taken forward along with regulation of the rest of the financial services sector.

The Chairperson (Mr Brett): Responsibility for financial services is not devolved to Northern Ireland. Does any of that require a partnership with the UK Government (UKG) or their approval?

Mr Jack: The legislation for the credit union sector is a devolved matter. Some legislative change for credit unions in GB has been taken forward by the Treasury. We have good relationships and regular contact with the Treasury and the regulatory bodies: the FCA and the PRA.

The Chairperson (Mr Brett): So, Westminster will not require any legislative change or legislative consent motions (LCMs).

Mr Jack: Not for these specific proposals.

The Chairperson (Mr Brett): OK, perfect. It was one of the important announcements that then Minister Murphy made as part of his wider economic vision. Minister Archibald outlined her proposals and launched the consultation at the credit union sector conference last year. I am conscious of the time constraints in the Department and the mandate. The Minister has not taken a final policy decision. When do we expect her to do so, and when will a Bill be drafted and with her Executive colleagues for approval?

Mr Jack: The policy decisions will probably be taken shortly. The Minister has seen all the documents that we have shared with the Committee, and she will be interested in any feedback from the Committee, but, subject to that not taking too long, she should be able to make policy decisions relatively shortly.

The Bill still needs to be drafted. The Department has a large legislative programme. We expect the Bill to be modestly sized in comparison with some of the other legislation that the Department is bringing forward. We anticipate its introduction, certainly not before the summer recess but probably towards the end of the mandate.

The Chairperson (Mr Brett): Do you think that it might be introduced in the Assembly in this calendar year?

Mr Jack: Yes, I think so. It would probably need to be introduced by then if it is to complete its passage in the current mandate.

The Chairperson (Mr Brett): No problem. Thank you very much for that and for all your work on this. As I said, the legislation is really important, and you have my full support in getting it introduced as soon as possible.

Ms McLaughlin: Thank you, Colin, for your work to date on the legislation. I declare an interest as a member of the credit union in Derry. I believe that Derry and Strabane have more credit union members than anywhere else in Northern Ireland, so I am not alone.

It is good to see the Bill being brought forward to update the legislation and bring it into line with that in the rest of the UK. Colin, will you go into a wee bit more detail on the changes that are being proposed to allow credit unions to pool surplus funds to enable them to invest collectively in social projects such as housing? What research has been undertaken to examine the difference that such funds could make?

Mr Jack: Laurence, do you want to take that one?

Mr Laurence Rogers (Department for the Economy): Sinéad, that will be achieved primarily through the credit union service organisation that is proposed as part of the legislative change. The credit union sector in Northern Ireland is one of the most successful globally. Part of that success is in the number of credit union members. There are approximately 600,000 members in Northern Ireland, which is 25% of the population.

Our difficulty is that the loan:asset ratio is low, at about 30% to 35%. The changes that we propose, including the provision for surplus assets to be invested more readily, will increase the ratio above the present level of 35% to 40%.

We would like to see that ratio become approximately 70% to 80%. That way, credit union assets would work harder and have more of an impact across the economy. One way to achieve that increase is to enable investments through credit union service organisations and collective loan arrangements among credit unions in areas such as social housing.

Mr Jack: That ambition to make better use of the asset base of the credit union movement is very much shared by the credit union umbrella movements, the Irish League of Credit Unions and the Ulster Federation of Credit Unions. There are £2 billion worth of assets there. The current and previous Ministers have also been keen to see that being put to best use.

Mr Rogers: At present, there is £700 million in loans. That is what we would like, from a policy perspective, to see increasing.

Ms McLaughlin: It would be really powerful for us to be able to sweat those assets for the common good and the social good. Whilst this policy probably does not interact with other Departments, and the legislation is solely for the Department for the Economy, its impact on other Departments, such as the Department for Communities, would be significant if social housing could be funded as a result of that type of change in the legislation, which is all to the betterment. Are there examples other than social housing?

Mr Rogers: We want the credit union advisory group to focus on increased small-business lending, which is another opportunity to, as you said, sweat assets. All that is predicated on the credit union sector itself. We partner with the credit union sector. It is up to the credit union sector to move forward. We are creating the environment that will enable it to do that. The credit union sector is very ambitious, and our partnership with it is strong. We have very much worked in partnership with the credit union sector, and the changes that we are proposing are the changes that it is asking for.

Ms McLaughlin: It is important that we get this legislation through in this mandate to modernise the credit union sector in Northern Ireland. The time frame is tight, so it is important that we see the legislation as soon as possible after summer recess.

Mr Jack: We will certainly bring it forward as quickly as we can. The credit union advisory group is an exciting part of the package in that it will be a standing mechanism with which we will be able to engage. We have not had such a formal arrangement: we have had good, regular engagement with the credit union sector, but that group will facilitate a more strategic approach. It is important to note that there is the legislative aspect of what we are proposing but also the non-legislative aspect. Part of this will be about moving to the future and having a better mechanism to take advantage of the opportunities that exist.

Ms McLaughlin: Thank you very much.

Mr Honeyford: I really support this. What work is being done to promote credit unions more widely to the public? You mentioned people taking high-interest loans and fast payday loans. What is the Department doing to make sure that credit unions are highlighted to the public as an alternative to those?

Mr Jack: I will probably ask Laurence, or Chris, to come in and speak on the work that the credit union movement itself does, as they are engaged centrally in some wider work with it. For example, within DFE, the Consumer Council does a lot of work on financial inclusion. It has some funding from the Treasury to look at those issues, and it has worked with credit unions on making sure that there are affordable loans available and that people are steered away from very high-interest payday loans and so on towards the type of loans that the credit unions can offer. Chris, would you like to speak on the credit union movement itself?

Mr Chris Denvir (Department for the Economy): That was part of the consultation on credit unions — their being accessible and visible. The Department's objective is to help credit unions become more inclusive, accessible and responsive to diverse local needs. That will also be a part of the proposed advisory group's work. Its findings, along with supporting findings from affiliated organisations, will guide us to enhance accessibility.

Mr Honeyford: Lastly from me, Chair, I want to pick up on the timelines for this. The Department told us at the end of 2024 that we would see a different bit of legislation early in the new year. We still have not seen it. Is the current timeline realistic — are we really going to see it this time from the Department?

Mr Jack: We have done some scoping work with the Office of the Legislative Council (OLC) in terms of the scale of this particular Bill. It has, obviously, been focused on some of the larger pieces of legislation that the Department is bringing forward. Its work is coming towards an end on some of those, and there are a number of other Bills to come forward. We have engaged with OLC, and this Bill will not come as a surprise to it.

Mr Honeyford: Nothing should ever be a surprise to it. I think that you said that will see it pre-Christmas.

Mr Jack: This Bill is included in the Executive's overall legislative programme, albeit towards the end of that programme. The final year of it.

Mr Honeyford: Will we see it pre-Christmas?

Mr Jack: That is certainly our aim.

Ms Kate Nicholl: I declare an interest, as a member of the Ormeau Credit Union. I think that credit unions are amazing and have social value behind them. David McWilliams spoke at one of the credit union conferences, and he said that no one really appreciates the extent to which credit unions have transformed the country and that access to credit is as important as access to housing and education. I agree with that.

To pick up on Sinéad's point on cross-departmental working. I am really interested in the credit union advisory group that has not been set up yet but will be. Have you looked at what other Department strategies or work will feed into that? Are you at that stage yet?

Mr Rogers: We have already engaged with other Departments. For example, we have a meeting next month with the Department for Communities, who are bringing forward —

Mr Denvir: The eligible deduction scheme.

Mr Rogers: — the eligible deduction scheme, in which people in receipt of benefits will be able to access loans, not necessarily through credit unions, but credit unions could certainly take advantage of that. Part of the risk management of those loans is that, if people in receipt of benefits are in default of their loan, the lender can access their benefits to repay the loan. It is all part of the overall regime across Departments to improve access to credit. We will work with DFC to see what contribution we can make to that scheme, and we recognise the aspects of that scheme that can lend itself especially to credit unions.

Ms Nicholl: Fascinating. OK. Thank you so much. We touched on scrutiny time. I also have concerns with the OLC timeline. Is there a list? Do you know what number this Bill is on it? How does it operate?

Mr Jack: There is a legislative programme for the Executive that the Executive Office coordinates. This Bill has been flagged on that programme, and it is included in the final year of it. So, yes, there is a schedule.

Ms Nicholl: OK. Fingers crossed. Finally, I am really interested in cybersecurity. Has there been much discussion around how the expansion of services increases risk?

Mr Rogers: That is going to be the second phase of this process. The Department's initial focus has been on changing the legislation. Hopefully, if we have the legislation in place, most likely in the next mandate, we will have an advisory group in place. At that point, we will be working with the advisory group to understand some of the implications for expanded services and IT risk. That is where we can start considering what investment and expertise is required in the credit union sector. That is all part of what is coming next.

Ms Nicholl: OK. Thank you.

Mr Delargy: Thank you for your presentation. There is a lot of information there already. I welcome this hugely important Bill. I have a few questions. I always ask questions like this about legislation because I am keen to understand the metrics. How will you measure success? What are the relevant metrics that you look at, particularly to reduce reliance on high-cost credit? How are you going to measure the success of that?

Mr Rogers: I mentioned the loan:asset ratio earlier. At the moment, that is between 35% and 40%. We might see that ratio increase to 60% or 70%. America, which has the most successful loan:asset ratio, hits 85%. The Republic of Ireland's loan:asset ratio is also relatively low, at 40%. Once we see the loan:asset ratio increase beyond 40%, we will know that we are achieving our policy objective of increasing the use and the financial impact of credit union assets. That will be the key.

Mr Delargy: Do you do that incrementally? How often do you do that?

Mr Rogers: The credit union sector itself provides that information. Information is also provided by the Treasury, which monitors those types of environments. Prudential oversight also captures that type of information.

Mr Jack: We would expect to get any data like that on an annual basis to allow tracking of progress.

Mr Delargy: You get that on an annual basis. Would you not get it quarterly? Does it have to be on an annual basis?

Mr Rogers: Yes. There is not an awful lot that you can influence from one quarter to the next. This happens over a much longer term. For example, the credit union service organisations are an important vehicle through which some of the larger loans may materialise. Those will not be established until the legislation is in place. The credit union sector itself has to take the next step, whereby it feels comfortable in investing its members' assets in a credit union service organisation.

Mr Delargy: That is useful to understand. My second question is about the support that smaller credit unions will receive. There will be enhanced governance around all of this. What support is going to be offered, and how can those smaller credit unions be supported?

Mr Rogers: We do not have any concrete proposals at the moment. However, we appreciate the fact that the credit union sector is very diverse. There are some huge credit unions, with fantastic resources behind them, while some other credit unions involve a few people on a Friday evening in a church hall. We need to be able to cater for all of those credit unions. There are some proposals for loan referral. At the moment, it is difficult for one credit union to refer a member to another credit union for a loan or a service. As the expansion of services progresses, one of our proposals is that loan referrals will be possible. While some of the smaller credit unions can maintain a very local footprint, they could, perhaps, tap into some other services that are provided by larger credit unions without losing their membership or community focus.

Mr Delargy: That is definitely a hugely important element of it. The governance around this is going to increase for each credit union. What will the Department do to support that delivery?

Mr Rogers: Part of the initial discussions around the advisory group is that it will be made up of experts who understand the governance and education requirements. The credit union representative bodies — the Irish League of Credit Unions and the Ulster Federation of Credit Unions — are already very good at representing the interests of their members and providing training for oversight. Since we are working so closely with both of those umbrella bodies, which represent the majority of credit unions in Northern Ireland, we are confident that the changes will be managed in a straightforward way.

Mr Delargy: That is good. The feedback that I have been getting is positive. Are you receiving any feedback that is not so positive? Are you receiving anything that concerns you or that you can adapt to reflect what is coming back? What I have heard, from speaking to credit unions, has been overwhelmingly positive.

Mr Rogers: It is a matter of perspective, but there is only one negative. Since the credit union sector is so cherished, as has been evidenced in this room, some of the feedback that we have received is, "Leave well alone". The feeling is that it has done its job up to now. We are conscious of the fact that it is the credit union sector that we are facilitating to move forward. We are simply facilitating the changes that the credit union sector wants to make.

Mr Jack: There is the public education dimension and informing people that credit unions offer a much more inclusive and less exploitative way of lending people money. People are used to putting money in the credit union, when they have money to save, but the loan:asset ratio, which Laurence referred to, is evidence that people do not think about going to the credit union the first time that they need to borrow money. It is about changing people's behaviour in that way.

Mr Delargy: Do you have any geographical breakdown on that? When I bought my first car, I went straight to the credit union. That is the first place that I went to, and it is the first place that most of my friends and people whom I know at home will go to. Is there a geographical difference?

Mr Rogers: Not particularly. Credit unions have very successful penetration across Northern Ireland, including in rural areas. Geographical differences will not really come into play. If anything, the proposals that we are bringing forward will benefit rural areas more.

Ms D Armstrong: Thank you very much for coming in this morning. Pádraig has just asked the question that I was going to ask about rural areas and smaller rural credit unions. We have a fantastic credit union in Irvinestown. The feedback on it is that it runs well and is part of the social fabric of Irvinestown.

I have two questions. You mentioned the credit union advisory group. What is the make-up of that group? Where is it drawn from?

Mr Rogers: There will be a representative from the Ulster Federation of Credit Unions, a representative from the Irish League of Credit Unions and subject matter experts. One area in which we want to bring in subject matter experts is small business lending. We have not fully fleshed out the make-up and membership of the advisory group, but we also envisage it having an academic member. At this stage, we have not finalised where else the membership will come from. The two really important members will be the representatives from the Ulster Federation of Credit Unions and the Irish League of Credit Unions.

Ms D Armstrong: It is about reaching further into rural areas. The boards consist of volunteers, and it is essential that they have regulatory training. It is also about whether they are prepared to take on the added responsibility and the risk that is attached. That is fundamental.

Credit unions give back and divide their profit. Does the anticipated return on bigger corporate lending filter back in at community level through a dividend to savers?

Mr Rogers: It will, because how that will most likely work is through a credit union service organisation. An individual credit union is unlikely to want to be exposed to a large one-off loan, so a number of credit unions will be able to pool their resources and perhaps invest in an investment vehicle that, in turn, should generate a return. That return will then filter its way back to each of the individual credit unions that made an initial investment in the vehicle. Ultimately, it then becomes a return and a dividend for the members of the individual credit unions. The beauty of it is that smaller credit unions can also have proportionate involvement. It has worked really well in the Republic of Ireland, where, for example, there are some fantastic loan vehicles for the farming community. As you will appreciate, a large piece of farming machinery can cost up to £2 million. No one credit union will want to lend £2 million, because it is too much of a risk, whereas an amalgamation of credit unions, through a credit union service organisation, could, quite comfortably, make that investment, which, again, is of benefit to the wider community.

Ms D Armstrong: Thank you very much.

The Chairperson (Mr Brett): Those are all the questions on this issue.

Colin, it would be remiss of me not to take the opportunity while you are here to seek an update on the employment rights Bill. The Minister, in an update to the House yesterday, said that she anticipated that drafting of the Bill would be completed next week. I just wonder whether that is still the case.

Mr Jack: Yes, that is certainly the expectation. Nothing has changed since yesterday.

The Chairperson (Mr Brett): The Minister then mentioned publication. When drafting is finished, does she plan to publish the Bill?

Mr Jack: She needs to take the Bill to the Executive.

The Chairperson (Mr Brett): Her comments seemed to indicate that, in advance of Executive approval, she would publish the Bill.

Mr Jack: We need to finalise the detailed handling arrangements with the Minister, but the process is that she will take it to the Executive.

The Chairperson (Mr Brett): OK. Finally, what is the long title of the Bill?

Mr Jack: The long title is being drafted. The Office of the Legislative Counsel has given it a short title: the employment rights Bill. That will be done at the very end of the process of drafting the Bill. The Bill will have a long title this week, but, as of now, it does not have one.

The Chairperson (Mr Brett): Perfect.

Thank you, colleagues. As always, we appreciate your time and effort.

Ms Nicholl: I found that a really detailed and useful briefing, so thank you. Sometimes, we comment on the fact that we found a session frustrating, but that was very good. Thank you.

The Chairperson (Mr Brett): Thank you very much.