Commerce Minister Craig Foss says law governing credit unions to be updated

Legislation to update the laws overseeing credit unions will soon be introduced to Parliament, Commerce Minister Craig Foss says, which among other things will allow them to lend money directly to small and medium sized businesses related to their members.

Foss says the changes will give credit unions improved legal status and promote innovation, efficiency and accountability in the industry. He says the legislation will contain a number of amendments to give credit unions legal status and reduce operating and compliance costs.

“Better regulation is a top priority for this Government. We will soon introduce legislation to update the Friendly Societies and Credit Unions Act 1982,” Foss says.

“Credit unions are currently unincorporated associations rather than bodies corporate. The New Zealand Association of Credit Unions (NZACU) has been calling for legal status as bodies corporate to enable credit unions to have limited liability, own property, have perpetual succession and sue and be sued in their own name," says Foss.

“Credit Unions will also be able to offer loans directly to small and medium enterprises related to members of the credit union. This will avoid the current law’s cumbersome process of making the loan to a member of the credit union who then on-lends it to the organisation."

The NZACU says it's cooperatively owned by 17 member credit unions. These, plus five associate members, represent some 200,000 people, with total assets of around $1.3 billion.

Not surprisingly the NZACU, currently embroiled in a legal dispute with the Co-operative Bank over plans to change its name to Co-op Money, welcomed Foss' announcement.

“The Friendly Societies and Credit Unions Act 1982 had simply not kept up with the way the financial services industry operates today, and these changes are welcome recognition by the Government of the valuable role that our member credit unions already play in their local communities," Henry Lynch, CEO of the NZACU says.

"A number of those proposed changes will see regulatory compliance costs reduced."

Lynch says the NZACU has been seeking the changes for several years.

“Allowing credit unions to offer loans directly to small businesses owned by their members is an important step in supporting growth in local economies. Credit unions are open to lending to encourage local businesses, particularly because they often already have a long-standing relationship with the business owner as a member of their credit union,” says Lynch. 

“But in the past the current law has meant a very complicated process of making the loan to members personally, who then have to ‘on-lend’ it to their business.  The change will not only simplify things for everyone, it will open up a lot more opportunity for both credit unions and small business owners to encourage investment in local economic growth.”