Proposed new personal insolvency legislation could have a serious effect on credit unions because of a provision to allow smaller borrowers to apply to have their debts written off.
The proposed law allows people who have borrowed less than €20,000 and who have relatively few assets to apply for a particular type of debt forgiveness.
Professor Eamon Walsh, Professor of Accounting at the Smurfit Business School in UCD says the proposed new legislation could squeeze out many credit unions.
This is because most smaller borrowers are more likely to have accounts there, rather than in larger financial institutions.
"It's quite possible that the credit unions could be adversely affected by this particular provision for smaller borrowers. That would really be quite unfortunate, given that the original mission of credit unions was to aid smaller borrowers and provide something that was ethically far more acceptable than loan-sharking."
Professor Walsh said it would largely depend on how the legislation was implemented, but said it was possible it would have unanticipated consequences for many financial institutions.
Commenting on a story in today's Irish Independent that up to 200 bank branches could close, Prof. Walsh said he believed that to bring Ireland in line with the UK in regard to the same number of bank branches per head as in the UK, a minimum of 280 branches would have to close.
He said credit unions could step in to provide such banking services. He also said the joint ventures recently announced by AIB and An Post, was a great solution because now there was something to "underwrite" rural post offices, which had been in danger of closing.
