Savings and loan associations say new rules are a death knell to the sector
Companies see amendments to savings and loan rules meant to protect depositors and clarify rules as a final nail.
Chair of the Riigikogu Finance Committee Annely Akkermann (Reform) said in parliament that amendments passed on Wednesday to the Savings and Loan Associations Act will help protect depositors' property rights more effectively and ensure that financial supervision over businesses accepting deposits is more robust.
"Many savings and loan associations currently operate essentially like banks — they take in deposits and pay interest — but without the oversight and guarantees that apply to banks. This has created a situation where many well-meaning depositors may not realize that, unlike in banks, deposits held in savings and loan associations are not government-backed," Akkermann said.
If a bank goes bankrupt, depositors can recover their money up to €100,000. But if a credit cooperative collapses, depositors could lose all their funds. The aim of the amendments is to address this problem.
Going forward, any association wishing to accept deposits must operate either as a bank or cooperative bank and fall under the supervision of the Financial Supervision Authority.
"This will also ensure state protection for deposits. Savings and loan associations that are unwilling or unable to comply may continue offering other financial services, such as lending or payment services, but without accepting deposits," Akkermann added.
The associations must decide how to proceed no later than January 1, 2027.
Aivar Kokk (Isamaa) recommended voting against the bill in the Riigikogu. He acknowledged the problems facing associations but argued the changes would only create more.
Kokk pointed out that since October 1, savings and loan associations have no longer been allowed to sign new deposit or loan agreements or extend existing ones, leading many depositors to seek early withdrawals all at once — creating the risk of a so-called bank run.
Varro Vooglaid of the EKRE parliamentary group questioned whether the proposed restriction on economic freedom was constitutional or even necessary. He argued that depositor interests could be protected through less intrusive measures, including stricter oversight.
Finance Committee member Mart Võrklaev (Reform) said the law was needed to protect depositors' money.
"The new law requires savings and loan associations to become cooperative banks or banks if they want to take in deposits. The idea is that in a bank, deposits are protected by the Guarantee Fund up to €100,000, so if the bank goes bankrupt, that money is secured for the depositor. That protection doesn't exist in savings and loan associations right now and we've seen several unfortunate cases where people have lost money," Võrklaev said.
The Social Democrats and the Center Party abstained from the vote. Center Party MP Andrei Korobeinik said that if these entities were allowed to continue operating as they currently do, the associated risks would remain high.
"The reputational damage this entire model has suffered is so great that the whole sector is paying the price for a few dishonest market players. The current regulation provides a transition period during which these associations can adopt a framework similar to that of banks," said Korobeinik, who is also deputy chair of the Finance Committee.
The bill passed with 52 votes in favor, 20 against and no abstentions.
There are more than 12,000 savings and loan members in Estonia, with deposits totaling nearly €100 million.
Associations: No realistic way to become banks and say doors must close
Annely Ojamets, head of the Tallinn Savings and Loan Association, said that around 10 credit cooperatives currently operate in Estonia and the new legislation will mean that most of them will have to shut down.
"Starting October 1, no new deposits can be accepted, no new members can be taken on and no new loans can be issued. Only repayments of existing deposits and loans can be made using the capital already on hand — no new capital is coming in," she said.
When asked what would happen to clients, she replied: "They'll close their accounts, get their money back, and will have to go find somewhere else to put it."
"Basically, under the current regulations, we'll be closing our doors," she added.
In recent years, several savings and loan associations have gone bankrupt. Trusting depositors lost tens of millions of euros with the collapses of ERIAL and the Estonian Development Savings and Loan Association whose executives were eventually brought to court.
These developments have hurt business, acknowledged Raigo Sõlg, head of the Tartu Savings and Loan Association, which is currently experiencing liquidity issues.
"There's been a constant smear campaign in the media led by the state, portraying credit cooperatives as suspicious fraudsters and swindlers. That kind of messaging has shaped public opinion and convinced people they need to pull their money out," Sõlg said.
Deputy Secretary General at the Ministry of Finance Evelyn Liivamägi emphasized that there can be no situation in which people's money is collected without meaningful financial oversight.
"When you look at how loan associations have actually operated in practice, it's hard to just stand by and let it continue," she said.
Going forward, credit cooperatives will be supervised by the Financial Supervision Authority.
"We'll monitor their capital, assess the suitability of their leadership and evaluate the adequacy of their internal processes. These institutions need to be in order. If they act like banks, then the rules that apply to banks should apply to them as well," said Kerstin Pilt, head of the Financial Supervision Authority.
The sector has spent years trying to convince the Riigikogu that credit unions have no desire to become banks.
"Transforming into cooperative banks simply isn't realistic. That's more or less self-deception by those who drafted this bill," said Raigo Sõlg of the Tartu Savings and Loan Association.
Annely Ojamets of the Tallinn Savings and Loan Association pointed out that they are no longer receiving new capital. "Liquidity is declining, so by the time we'd need to apply for a license and start building a bank, the capital just won't be there," she said.
Even so, Deputy Secretary General Liivamägi said that instead of the current dozen credit unions, a few cooperative banks could emerge.
"Realistically speaking, if we look at how many of them could actually become banks, we're probably talking about just a couple of unions, which doesn't mean smaller ones couldn't merge. How many of today's unions will completely shut down and how many will find a new form to operate in remains to be seen," Liivamägi said.
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Editor: Marcus Turovski, Vlaner Väino
