The Friendly Societies and Credit Unions Amendment Act 2012 (formerly part of the Regulatory Reform Bill 2010) came into force on 31 August 2012.

The Act removes some of the existing statutory constraints on credit unions, giving credit unions greater flexibility to issue securities, accept deposits, borrow and make loans to members. Limits on such activities will be set by a credit union’s rules and trust deed, rather than by statute.

The changes introduced by the Act to the Friendly Societies and Credit Unions Act 1982 include:

  • Increased maximum limit on member’s shareholding: The removal of the $250,000 limit on the value of shares each member may hold in a credit union;

  • Ability to issue securities other than shares in a credit union: A new section to allow a credit union to issue securities other than shares (if authorised by and in accordance with its rules and trust deed). These credit union securities are transferable only between members and will not confer voting rights;

  • Removal of general prohibition on taking deposits: The removal of the prohibition on credit unions from accepting deposits from any person other than for subscription of its shares;

  • Restrictions on power of credit union to borrow money removed: The removal of restrictions to allow a credit union to borrow money if the borrowing is authorised by, and in accordance with, its rules and trust deed. Previously, a credit union could only borrow from a narrow range of lenders and only on a short term basis;

  • Removal of limits on amounts and terms of loans to members: A new section which allows a credit union to make loans to members for such purposes and upon such security (or without security) and conditions as the rules of the credit union may provide, either generally or specifically; and

  • Credit union may hold land as permitted by its rules and trust deed: The removal of restrictions on credit unions (in the names of their trustees) holding land and buildings. Instead, a credit union has the power to hold any interest in land if authorised by and in accordance with its rules and trust deed.

Now that credit unions are subject to the new prudential requirements for deposit takers under the Reserve Bank of New Zealand Act 1989, the Act has also removed some provisions which are no longer necessary. These include the oversight of the Registrar of Friendly Societies and Credit Unions in respect of the monitoring of surplus investments (section 114), the security provided by an officer of a credit union (section 117), and guarantees of funds by credit unions (section 134).

The obligation on credit unions to maintain general reserves has also been repealed. This provision was made redundant by the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 which came into force in December 2010.