Irish Competition Authority Decisions

1. This decision concerns the Rules of the Irish League of Credit Unions (ILCU) which were notified to the Competition Authority on 28 September, 1992. The Rules set out the requirements for membership of the ILCU. The notification requested a certificate under Section 4(4) or, in the event of a refusal by the Authority to grant a certificate, a licence under Section 4(2) of the Competition Act, 1991. Notice of intention to take a favourable decision was published on 13 October, 1995 and no submissions were received.

2. The notification concerns the Rules of the ILCU as amended at June 1992. Individual credit unions which belong to the ILCU must abide by these rules. Membership of the ILCU is open to every credit union which accepts the rules as agreed by the members of the ILCU at their AGM.

3. The parties involved in the arrangements are the ILCU and its members which are individual credit unions. A credit union is an individual autonomous savings and credit cooperative established by individuals who have a common bond. The most usual type of common bond is that of living or working within a particular community, with over 90% of all credit unions being based in a particular local community. The main objectives of credit unions are:

- the promotion of thrift;

- helping members accumulate savings;

- providing loans at reasonable rates of interest; and

- the control of members' finances for their own benefit,

All credit unions must be registered by the Registrar of Friendly Societies under the terms of the Credit Unions Act 1966 and no entity may use the term credit union unless it is registered. As at 30 September 1994 there were 427 registered credit unions operating within the State. Total membership as at 30 September 1993 was 1.22m. Total shares and deposits at that date were £1087m with loans outstanding to members of £576m.

4. The ILCU is a voluntary unincorporated association which represents and provides certain support services to its member credit unions. The ILCU was established in 1960. It currently has 516 affiliated credit union members throughout the whole of Ireland. The ILCU wholly owned subsidiary ECCU is an authorised insurance company which provides various insurance services to ILCU members.

5. The arrangements involve the rules of the ILCU and in particular a requirement for ILCU members to obtain certain insurance services from ECCU. These relate to life assurance cover in respect of the credit unions' individual members' loans and savings. Thus the relevant product market is the market for such insurance services. Although the insurance cover provided by ECCU is specifically linked to savings and deposits with credit unions, the Authority does not believe that this can be deemed to be a separate product market from that for life assurance generally. This point is returned to below. According to the Insurance Annual Report for 1993 [1] there were 34 undertakings, including ECCU, authorised to carry on life assurance business in Ireland. 20 of these had their head offices in Ireland with the remainder having head offices elsewhere. Total life assurance premium income amounted to £1644m. ECCU's total premium income was £9.6m.

6. The arrangements involve the ILCU rules as amended at June 1992. These rules include inter alia the following provisions. Section 2 of the rules set out the requirements for membership of which the relevant provisions are

´1. Membership shall be limited to and consist of such credit unions registered in Ireland as have been elected members of the League in accordance with the provisions of these rules and comply with such other rules as relate to membership.'

Para 2(2) provides that each application for membership must be sponsored by the chapter in which the applicant credit union is situated. Chapters are dealt with in section 9, para 1 of which provides that member unions are organised into chapters on the basis of areas and/or districts. Para 4 provides that each member shall have as its registered rules the model rules approved by the ILCU or amended to such an extent as shall be approved by the board of directors of the ILCU. Para 5 sets the requirements for admission of members which provide that applicants may only be admitted if they are determined to be eligible for membership, have submitted a copy of their registered rules and have had their application approved by the affirmative vote of a majority of the board of directors.

7. Para 3(1) states that:

´Each member shall carry such insurances in respect of itself and for and on behalf of its own members with such insurers as may be laid down from time to time by the members in general meeting.'

Pursuant to this rule league members are required to take out life savings and loan protection insurance in respect of the savings and loans of their individual members with ECCU. Virtually all member credit unions do so and in their submission the ILCU indicated that any member failing to comply would be open to disaffiliation proceedings. In the event of an individual credit union member's death the insurance wipes out any loan outstanding, while the amount of their savings is increased by up to 100% for the benefit of the next of kin. No specific charge is levied on the individual for this insurance cover. Previously this cover was provided by another insurance company but the ILCU decided that it would be cheaper to establish its own insurance company to provide this insurance. As a result ECCU was established in 1980. The ILCU acts as agent to ECCU under the terms of a separate agreement which is not covered by this decision.

8. Section 11 deals with the rules for expulsion and withdrawal from membership. Para 1 provides that a member may be expelled by a vote of the majority of the board of directors for any grave and sufficient reason including wilful and/or persistent breach of or refusal to comply with any of the rules. The member must be given 90 days notice of any meeting to consider its expulsion and be given an opportunity to be heard at such meeting. The para also provides a right of appeal to an independent arbitrator.

9. The ILCU advanced a number of arguments justifying the requirement that member credit unions secure insurance cover in respect of their members' savings and loans from ECCU. They argued that the specific nature of the relevant insurance meant that there was no commercial market and the arrangements could not therefore be said to be anti-competitive. They argued that it would be more expensive to obtain such cover from another insurer. The ILCU submitted that the purpose of the rule was not to prevent other insurers providing such insurance but to provide it more cheaply and on attractive terms. They also stated that no credit union was obliged to be a member of the ILCU but if they wished to be members they had to comply with the rules. The ILCU also submitted a number of arguments in support of their request for a licence but these are not considered here.

10. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

11. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the present arrangement are the ILCU and its members. In the Authority's opinion individual credit unions are undertakings. They are engaged in the provision of certain types of financial services to their members for which there is a charge or payment. Even though such charges may only be sufficient to cover their operating expenses, this makes them an undertaking within the meaning of the Act in the light of the Supreme Court decision in Mary Deane & ors. v. VHI. The ILCU is therefore an association of undertakings. The ILCU rules constitute an agreement between undertakings, since they are agreed by the members at the AGM, and a decision of an association of undertakings.

12. Section 1 of the Rules deals with the criteria for membership. It provides inter alia that applicants must be sponsored by a regional chapter and must be accepted by an affirmative vote of a majority of the board of directors. The Authority has previously considered rules governing admission to membership of an association in the case of Optometrists. [2] It noted the view expressed by Van Bael and Bellis that under EC competition law membership of a trade association should be open to any interested party in that sector on the grounds that an association normally serves to represent the interests of an entire industry. [3] EC decisions under Article 85(1) indicate that membership rules must be based on reasonable and objective standards. Membership of the ILCU is not compulsory in order to operate as a credit union. Instead there is a statutory requirement that credit unions be registered by the Registrar of Friendly Societies. The Rules do not appear to have been used to prevent credit unions joining the ILCU and so, in the Authority's opinion these provisions do not offend against Section 4(1). Similarly the procedures for expulsion provide parties with a right to be heard and with a right of appeal to an independent arbitrator and again do not offend.

13. Section 1 para 3 requires each credit union to carry such insurances in respect of itself and for and on behalf of its own members with such insurers as may be laid down from time to time by the members in general meeting. Under this rule each credit union is obliged to have savings and loan insurance in respect of each of its individual members with ECCU. Such a restriction prevents the individual unions from arranging such insurance themselves with an insurance company of their choice. However, it is more akin to a joint buying arrangement than an exclusive purchase arrangement, since the member credit unions have agreed to purchase insurance jointly and indeed have decided to set up their own company to provide such insurance services.

14. Any credit union which did not want to participate in such arrangements could leave the ILCU and could continue its operations. The arrangement prevents other insurance companies competing for this particular business but, in reality, this only applies to 0.6% of total life assurance premiums. The Authority does not believe, given the tiny proportion of the market involved, and the fact that credit unions can opt out of these arrangements, that this provision can be said to prevent, restrict or distort competition.

15. In the Authority's opinion the ILCU is an association of undertakings since its members, which are individual credit unions, are undertakings within the meaning of Section 3(1) of the Competition Act, and the ILCU rules constitute an agreement between undertakings. The rules also constitute a decision by an association of undertakings. In the Authority's opinion the Irish League of Credit Unions Rules dated April 1992, notified on 28 September 1992 under Section 7, do not offend against Section 4(1) of the Competition Act.

17. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, the Rules of the Irish League of Credit Unions dated April 1992, notification no. CA/153/92E, which were notified to the Competition Authority on 28 September, 1992 under section 7, do not offend against section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

20 November 1995.