Credit unions and building societies are pushing for legislative reform so they can make a tilt for the lucrative small to medium business (SME) market.

The first major revision of the Friendly Societies and Credit Union Act 1982 passed into law last week.

The most notable change lifts a cap on deposits, which were previously limited to $250,000 per owner member.

Henry Lynch, chief executive of the New Zealand Association of Credit Unions, said the previous legislation was truly out of date for its 200,000-plus membership.

"It's been a long, hard-fought battle around something that to our average member-owner sounds a bit silly.

"Like when you sell your house for $400,000 and you can't put all your funds into your credit union account to pay off your mortgage."

But the association wants more reform, including an end to the ban on credit unions lending to commercial entities.

Lynch said the ban was not imposed in other countries, and dated back to a time when no one could foresee that credit unions and banking societies would be dealing with $80 million in transactions a year.

Credit unions considered they were part of the community, which was where small businesses operated, he said.

"A lot of New Zealand is small to medium enterprise, and so we cannot make a loan to someone who wants simple working capital of say, $10,000 for their lawn mowing round.

"We can make that loan but it has to go to them individually who then put it into their business."

Credit unions also want to peel back some of their compliance costs.

They want the option to leave the Reserve Bank's non-bank deposit takers scheme and to get rid of their external trustees.

Credit unions are required to have a statutory trustee in addition to two internal trustees and a trustee committee.

Lynch said the sector would rather save about $9 million a year on external trustee fees and report directly to the Reserve Bank, as banks do.

"There is no other financial services organisation in New Zealand that has that many layers and complexity."

He said the association would be making its voice heard when the non-bank deposit takers scheme comes up for review in September next year.

- © Fairfax NZ News