Credit unions want freedom

Canadian Bobby McVeigh has been angling for law changes to help New Zealand credit unions. Picture / Paul Estcourt

Credit unions, the minnows of the financial services world, are hoping a rejig of legislation this year will give them the ability to take on their adversaries in the lower end of the lending market.

Canadian Bobby McVeigh, who has just stepped down as president of the World Council of Credit Unions, has been in New Zealand for the second time in three months to talk to politicians and officials about "levelling the playing field" for credit unions.

New Zealand's 53 credit unions have more than 200,000 members and $500 million in assets and, according to the New Zealand Association of Credit Unions (NZACU), membership is growing by close to 5 per cent a year and assets by about 11 per cent.

But the organisation is hoping a loosening of restrictions on who can join, what services credit unions can offer, how they set fees and charges and how much clients can deposit will accelerate their growth.

Other proposed changes have been deferred so they can be looked at as part of the wider review under way of non-bank financial products and providers.

They include allowing credit unions to own land and buildings, giving them the ability to raise capital, and giving them a more workable legal status.

With one in three Canadians, almost half the US population and a third of Ireland's population belonging to a credit union, McVeigh (who remains vice-president of Credit Union Central of Canada) sees plenty of growth potential in New Zealand.

"This movement could grow in leaps and bounds if Government officials would level the playing field and take some of the restraints off that financial sector."

NZACU chief executive Doug McLaren said the financial services sector in New Zealand is highly competitive, "and we're expected to punch above our weight in that market place with our hands tied".

Relaxing the common bond requirement would be a big boost for the NZACU's members.

"We'll be able to double, treble the size of the credit union movement year on year because we'll be able to reach communities we can't get to at the moment."

McVeigh and McLaren believe that's important because it will better allow the organisations to make lower interest loans available to more people at the bottom end of the market.

"Financial services from the banks are not available to them," said McVeigh. "If we have restrictions on our bond and we can't service some of these then the only alternative they have are the loan sharks."

McLaren said credit unions were able to offer better deals because making a profit was not their main objective.

"We're banking entities that work on a co-operative or mutual basis. We don't have to satisfy stakeholders and others with huge returns."

But despite providing banking services, McLaren said the NZACU is particularly frustrated by the fact its members are legally prevented from using the words banking, banker or bank without a disclaimer.

"How do you describe - without using those words - the business you're in. It's the most ludicrous thing."

McVeigh, who last week met the Securities Commission chairwoman Jane Diplock and Ministry of Economic Development officials, says the world body has strong templates for credit union supervision from 50 countries around the world.

"Our expertise is in assisting credit union movements develop and when we see shortcomings we want to meet Government officials and politicians to say these are some of the things you can do to enhance the ability of the credit union system to compete and in turn improve the lives of New Zealanders."