Credit unions champing under controls
An international link-up between New Zealand and Canadian credit unions has produced a white paper showing how hamstrung by red tape the movement is in this country.
Credit unions offer banking services, but they are mutually owned by their depositors rather than by shareholders seeking to turn as big a profit as possible from customers.
That makes them cheaper to deal with as there are no shareholders to keep sweet with ever-growing dividends, but a comparison by credit unions here and in Canada of the way they are regulated goes a long way to explaining why they are so much larger in Canada and have successfully won customers from banks.
In Canada, especially in British Columbia, the credit unions are a force to be reckoned with and occupy a central place in the banking landscape with more than 10 million of Canada's 34.5 million citizens banking with them.
But here in New Zealand, despite having over 200,000 members banking with them, the credit unions are encumbered with archaic laws restricting their ability to grow.
These laws seem to be a throwback to days of yore when there were many more, far smaller, credit unions.
The regulatory comparison shows New Zealand credit unions have to cope with unusual levels of scrutiny and costs compared with Canada.
The most important of these extra levels of red tape are:
They must have both an "internal" trustee and an "external" trustee. Not even finance companies have to have two trustees. This adds significant cost.
Credit unions have no legal identity unlike a company or a person. Instead, their assets and their security is held by the trustees. That is a huge hindrance. A credit union cannot even buy office furniture without the say-so of the trustees who will own it.
No business can be a member of a credit union, so it cannot lend to them or take their deposits, although this is routine overseas .
Credit unions have been limited to growing from retained earnings, which means they have been stifled in their growth ambitions.
The Reserve Bank created a kind of interest-bearing preference share they could issue to investors, but the credit unions deem them unissuable because they would require the credit unions to write down their value in any year the issuer made a loss, but appear not to allow them to be revalued up again in subsequent years when profits return.
They can only offer services prescribed in legislation, limiting their ability to respond to changes in society.
They have to provide investment statements and prospectuses to people wanting to open deposit accounts, unlike banks which only have to provide terms and conditions sheets and make available, if requested, quarterly disclosure statements.
The credit unions would also like the Reserve Bank to be given the power to appoint the three independent directors on Payments NZ Limited, a private company set up by the big banks to control the payments system of New Zealand - a system which the credit unions, despite being the sixth-largest originator of transactions, are not allowed to join. That results in them having to pay Westpac to access the payments system.
There are other differences, but they are minor by comparison with the seven roadblocks set out above to serving more New Zealanders, NZACU chief executive Henry Lynch said.
It was not as if the credit unions have not earned trust, he said. "We went through the GFC and not one credit union asked for any money.
"In the last budget, Kiwibank got $200m more from the Government. All we want is a few laws changed."
The comparison with the treatment of Kiwibank, which is owned by state-owned enterprise NZ Post, is apt.
Lynch believes the credit unions are capable of emulating Kiwibank, which has assets of approximately five times those of the credit unions, in taking the fight more squarely to the banks.
The good news is there is political interest from each of the three biggest parliamentary parties - National, Labour and the Greens - but none as yet have stepped up as outright champions of credit unions with policies that could result in the credit unions being freer to extend their services to more individuals.
The current government has already passed laws easing some of the restrictions credit unions face.
- Sunday Star Times