Credit Union and Co-operation with Overseas Regulators Act 2012

11.

Lending.

11.— (1) The Principal Act is amended by substituting the following for section 35:

“35.— (1) ( a) In this section ‘large exposure’, in relation to loans of a credit union to a borrower or a group of borrowers who are connected, means the total exposure (including contingent liabilities) of the credit union where the total exposure to such borrower or group of borrowers would be greater than an amount (whether expressed as a monetary amount or as a percentage of some monetary amount or determinable monetary amount) prescribed by the Bank.

( b) For the purposes of this subsection—

‘control’ has the meaning assigned to it by section 432 of the Taxes Consolidation Act 1997 and the other relevant provisions of Part 13 of that Act;

‘group of borrowers who are connected’ means 2 or more persons—

(i) who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other person or persons (not being individuals); or

(ii) between whom there is no relationship of control as set out in subparagraph (i), but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, the other person or some or all of the other persons would be likely to encounter repayment difficulties.

(2) A credit union may make a loan to a member for such purpose as the credit union considers appropriate, upon such security (or without security) and terms as the rules of the credit union may provide. The ability of the loan applicant to repay shall be the primary consideration in the underwriting process of the credit union.

(3) A credit union shall manage and control lending to ensure the making of loans does not involve undue risk to members’ savings taking into account the nature, scale, complexity and risk profile of the credit union.

(4) Every application to a credit union for a loan shall be in writing and shall state the purpose for which the loan is required and the security (if any) offered for it.

(5) A credit union shall not accept from an officer of the credit union a guarantee for a loan to another member unless that other member is the officer’s spouse or civil partner, child or parent.

(6) Where the rules of a credit union so provide, the credit union may determine in accordance with those rules the total, including percentage, amount of loans (if any) that it may grant to non-qualifying members.

(7) In relation to loans to which this section relates and for the adequate protection of the savings of members of credit unions, the Bank may prescribe one or more of the following:

( a) the classes of lending a credit union may engage in whether by reference to any common characteristic of the credit unions or loans concerned, or otherwise;

( b) the limits on the total, including percentage, amount of loans generally, or unsecured loans or class or classes of loans, that may be lent by credit unions, having regard to period or periods of time for which loans concerned are made;

( c) the matters relating to large exposures of credit unions and limits relating to such exposures;

( d) the limits on the concentration of lending, including concentration limits on loan classes, including concentration limits on loans to a member of a credit union;

( e) any other limit that the Bank considers appropriate.

(8) For the adequate protection of the savings of members of credit unions the Bank may prescribe such other requirements as it considers necessary in relation to any one or more of the following matters:

( a) the lending practices of credit unions, including—

(i) loan application assessments,

(ii) the making of provision for specified matters,

(iii) reviews to assess the adequacy of provisions,

(iv) maintaining policies for the holding of provisions, for credit and for credit control,

(v) the types of security that may be accepted;

( b) reporting loans to the Bank;

( c) the holding by credit unions of provisions, reserves or capital against loans or specified classes or types of loans.

(9) In prescribing matters for the purposes of this section, the Bank shall have regard to the need to ensure that the requirements imposed by the regulations made by it are effective and proportionate having regard to the nature, scale and complexity of credit unions, or the category or categories of credit unions, to which the regulations will apply.

(10) A credit union shall ensure that it has appropriate processes, procedures, systems, controls and reporting arrangements to monitor compliance with the requirements of this section and any requirement imposed under this section.

(11) Subject to its rules, in respect of a loan, a credit union may accept, in addition to other forms of security—

( a) a guarantee by a member, or

( b) a pledge by a member of shares in or deposits with the credit union,

and, where such a guarantee or pledge is accepted, it shall be deemed to be a security for the loan.”.

(2) Where immediately before the commencement of this section, either generally or in respect of a category or categories of credit unions—

( a) there is a subsisting approval given by the Bank under subsection (2) of section 35 of the Principal Act in respect of the limits set out in that subsection,

( b) there is a subsisting approval given by the Bank under subsection (4) of section 35 of the Principal Act in respect of a larger percentage than that to which the subsection relates,

( c) there is a subsisting order made by the Minister under subsection (6) of section 35 of the Principal Act in respect of financial (including percentage) limits, or

( d) there are requirements in place for the purposes of section 35 of the Principal Act in respect of credit unions,

then that approval or order or those requirements shall continue to have effect to the extent that the matters to which such approval, order or requirements relate have not been dealt with by being prescribed by the Bank under that section of the Principal Act as amended by subsection (1).