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Credit unions seek higher cap

By Chris Hutching

Friday 12th May 2000

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Credit unions want the government to approve lifting the cap on members' deposits from $40,000 to $250,000 when the matter comes before the cabinet in the next fortnight.

Association of Credit Unions chief executive Doug McLaren said he understood it was on the agenda and could be achieved by an order in council rather than a change to legislation.

Ideally, credit unions would like the cap removed altogether now that they have fallen into line with a Securities Commission directive issued last year that they set up trust deeds with a requirement to maintain a reserve asset ratio of 10%.

Credit unions were given until April 2001 to comply but many smaller ones may only be able to meet the requirements by expanding deposits for new and existing members or by merging.

The Ministry of Economic Development is seeking industry views about whether the exemption on income tax enjoyed by credit unions would give them unfair advantage against other product providers or whether they are equally constrained by other legislative requirements. These include issues such as the common bond requirement of membership, statutory limits on borrowing and the size of loans in order to minimise risk.

The ministry favours an order in council lifting the deposit rate to $250,000 to facilitate credit union growth ahead of the May 2001 deadline for complying with the trust deed requirements of the Securities Act 1978.

Mr McLaren said the $250,000 was less than ideal but a lot better than $40,000. He hoped there would be further changes during a legislative review at the end of the year.

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