Are Credit Unions the banking model that people, rather than bankers, want?

The differences between banks and credit unions are that

• Credit unions are owned by all their members. One Member One Vote.
  
• Every Credit Union is a ‘not-for-profit’ financial co-operative.
  
• Surplus income generated is returned to the members as a dividend to savers and interest-rebate to borrowers or it may be directed to improved or additional services for members.
  
• Membership of a Credit Union is open to people who have, in relation to all other members, a unique ‘common bond’.
  
• There are no transaction charges on loans or saving accounts.
  
• Loans are insured at no direct cost to the eligible member.
  
• Savings are insured at no direct cost to the eligible member.
  
• Flexibility -you can repay a credit union loan earlier or make larger repayments than agreed with no penalty.
  
• Additional lump sum repayments are accepted with no penalty.
  
• The Credit Union also works in co-operation with the local community.
  
• There is also a wide-range of insurance services for members.
  

At €700 million Credit Unions are the leading provider of Social Finance in Ireland, the provision of finance that responds as much, and very often more, to the environment and social returns as to the financial return. The benefits to the community of this type of lending are enormous. These include employment, community, education and environmental enhancement but there are also economic advantages that the credit union may reap.
As Irish credit unions have progressed over the past 50 years, they have also begun to play a growing role in fighting poverty in some of the most deprived and needy places in the world…. by expanding the credit union self-help concept and supporting young credit unions and credit union start-ups and developments… in places like Ethiopia, The Gambia, Sri Lanka, Peru, Kenya, Malawi, Guatemala, Nigeria, The Caribbean, Albania and even Russia. [

Currently Irish credit unions are sending over €1m a year overseas in support of deprived local communities through the ILCU Foundation; Irish micro-finance at work overseas!

Credit Unions say they now have a double protection compared to the Banks

— They have the €100,000 savings guarantee announced by the Minister for Finance

— They also have the backing of their own unique €110 million fund

Average Credit Union savings are between €4,000 and €5,000 euro.

http://www.business2000.ie/cases/cases_6th/case1.htm

http://www.ilcu.ie/publisher/index.jsp?re=0&pID=93&nID=603&aID=2367

In principle, it looks like the credit union might be the way to go, even though they are not set up to provide larger business loans and don't operate cheque books or credit cards off their accounts.

There is also a very big question in my mind as to where they are holding their funds and how safe and wisely invested they are - there was a very worrying incident recently in which a Stock Broking firm had to reimburse the Credit Unions because they were sold very inappropriate Bonds that appeared to be unsaleable.

The Credit Union models seems excellent, but can it be insulated from the madness of the rest of the Finance Sector?

I credit unions!

It is an excellent movement, and banking model. One which responds to the needs of small communities and low/medium earners.

I'd like to see more young people borrow from credit unions and getting involved, as the age profile is quite high.

On the point of credit cards and cheque books.. The EU is hoping to phase out cheque books over the next decade. This is something small businesses support and the Greens are pushing it at a national level. It makes sense to move to electronic payments.

On credit cards, perhaps it is no bad thing that credit unions don't offer them?

Some now offer ATM cards, and I expect laser cards will be offered within 3 years (perhaps in partnership with BNP Paribas).

I'm also delighted to see the League of Credit Unions finally advertising on TV. This is something I've argued for, for years, but got nowhere.

eoinmn wrote:

I credit unions!

It is an excellent movement, and banking model. One which responds to the needs of small communities and low/medium earners.

I'd like to see more young people borrow from credit unions and getting involved, as the age profile is quite high.

On the point of credit cards and cheque books.. The EU is hoping to phase out cheque books over the next decade. This is something small businesses support and the Greens are pushing it at a national level. It makes sense to move to electronic payments.

On credit cards, perhaps it is no bad thing that credit unions don't offer them?

Some now offer ATM cards, and I expect laser cards will be offered within 3 years (perhaps in partnership with BNP Paribas).

I'm also delighted to see the League of Credit Unions finally advertising on TV. This is something I've argued for, for years, but got nowhere.

In some European countries Credit Unions are used by small businesses, not only personal borrowing and saving. Could that happen in Ireland too?
I'd say a lot of small businesses would move to the CUs if the services were there.

It was always one of Devalera's great aims that the Credit Union should be the centre of banking in Ireland.

Bump indeed. My financial hopes are pinned on the Credit Unions, though I become suspicious when I read such uncritical eulogies as seen above. Is there not some small discreditable thing they do? I like that Dev liked them, now that he's been re-habilitated.

905 wrote:

Bump indeed. My financial hopes are pinned on the Credit Unions, though I become suspicious when I read such uncritical eulogies as seen above. Is there not some small discreditable thing they do? I like that Dev liked them, now that he's been re-habilitated.

They are vulnerable to mismanagement and and being scammed the same as everyone. They seem to have bought a gigantic litter of puppies from Davy Stockbrokers without reading the small print.
Any institution is only as good as its management and oversight.

As an user of their services, I'd have nothing but praise.

Good thread now - don't know how I missed it so far. Lots of information there eoinmn and cactus - great stuff with the connectivity wrt getting paid. Be no harm to get even more connectivity - can an international transaction happen there - an IBAN transaction?

Great news about the Laser Card - credit cards are from The Devil although a Debit VISA isn't so bad - people need to be able to buy from the internet but it's important for a customer to have some money in their account. I was sold a credit card in a shopping centre once on the spot - the dealer just trusted me on my salary then and even asked me what limit I wanted. I was paying for it for ages afterwards though. If you don't work for it you don't appreciate it.

As regards operating in the community, do they sometimes know a bit too much - i.e. is discretion an issue with them?

Auditor #9 wrote:

can an international transaction happen there - an IBAN transaction?

I've heard that the EU is going to force an IBAN style transaction capability on all financial institutions, including the credit unions. I don't know when. The transaction will have to be completed within 3 days. So when that comes in your credit union in Ireland will have to be able provide a giro which hits your bank in Poland within 3 days.

Auditor #9 wrote:

As regards operating in the community, do they sometimes know a bit too much - i.e. is discretion an issue with them?

A good question! The data protection commissoner has been keeping a closer eye on credit unions, but my feeling is that not all staff in credit unions are aware of the issues. A lot more training is needed here.
Also, individual members are not aware and get quite upset when you tell them that you can't be told how much money is in your son's account, for example.
Another tricky example is when a woman lodges money to her husband's account. Is she entitled to see his balance? No. Because they may be going through a divorce, and she might by lodging the money just to find out how much money he has. To try explaining this to a member at the counter, can't be easy.

905 wrote:

Bump indeed. My financial hopes are pinned on the Credit Unions, though I become suspicious when I read such uncritical eulogies as seen above. Is there not some small discreditable thing they do? I like that Dev liked them, now that he's been re-habilitated.

I went into one of the credit unions in Galway to ask their investment manager how safe they were. They invest 60% of funds in the banks!

floatingingalway wrote:

905 wrote:

Bump indeed. My financial hopes are pinned on the Credit Unions, though I become suspicious when I read such uncritical eulogies as seen above. Is there not some small discreditable thing they do? I like that Dev liked them, now that he's been re-habilitated.

I went into one of the credit unions in Galway to ask their investment manager how safe they were. They invest 60% of funds in the banks!

And what about the other 40%?

I presume that is used for turnover. I had a long conversation with the investment manager about the danger of having 60% in one basket. I wonder is she re-running that conversation over in her head now..
Incidentally, I went into Ulster Bank the same day and met their investment manager who tried seriously to talk up RBS until I produced a graph of their performance over the last year. His face was priceless

Dan Boyle has asked the Regulator to make it easier for credit unions to lend to SMEs.
http://www.greenparty.ie/news/latest_news/credit_unions_could_provide_greater_finance_to_small_businesses

eoinmn wrote:

Dan Boyle has asked the Regulator to make it easier for credit unions to lend to SMEs.
http://www.greenparty.ie/news/latest_news/credit_unions_could_provide_greater_finance_to_small_businesses

We could begin to see a remarkable rise in their importance now especially with 6 ailing banks potentially going to loan sharks. Technically I don't know how the CUs are fitted out - anyone have any insights into how well they can provide services ? I believe it's very limited at the moment.

No harm having some low tech as long as it's useful. The CUs have plenty of experienced staff ... could it be a thing the government could do, invest some of that pension fund in the upgrade of a certain tier of CUs and distributing some body parts of the sick 6 among them ?

The Community Farm project in Cloughjordan opened a credit union account. The plan was that members pay their subscription into the account, weekly or monthly or whatever.

Hit a snag - the CU had absolutely NO facility for recording who was making a deposit - so in effect it was impossible to tell who had paid up and who hadn't. They've had to switch to a bank instead.

A bit disappointing - this wasnt a tuppenny ha'penny outfit - they have nice shiny new offices, with computers and everything!!!

Bit of a let down, all in all.

I had a related issue with setting up a direct debit to my EBS account. It seems they could only accept an indirect debit, so to speak.
I had to send the money to some sort of general account , with a narritive to forward it to my a/c number.
And of course, one month they DID send the money to sent to someone elses account and they were none to gracious or helpful in sorting it out.

yehbut_nobut wrote:

The Community Farm project in Cloughjordan opened a credit union account. The plan was that members pay their subscription into the account, weekly or monthly or whatever.

Hit a snag - the CU had absolutely NO facility for recording who was making a deposit - so in effect it was impossible to tell who had paid up and who hadn't. They've had to switch to a bank instead.

That's unfortunate.

yehbut_nobut wrote:

A bit disappointing - this wasnt a tuppenny ha'penny outfit - they have nice shiny new offices, with computers and everything!!!

Bit of a let down, all in all.

I had a related issue with setting up a direct debit to my EBS account. It seems they could only accept an indirect debit, so to speak.
I had to send the money to some sort of general account , with a narritive to forward it to my a/c number.
And of course, one month they DID send the money to sent to someone elses account and they were none to gracious or helpful in sorting it out.

The two issues, I'm guessing, are related.


Bank Account A -> DD -> CU Bank Account -> Internal transfer -> Member's account
Bank Account B -> DD -> CU Bank Account -> Internal transfer -> Member's account

In the transfer the original narrative of the direct debit is lost.

It all goes back to the fact that credit unions don't yet have sort codes. But they are working on that.
Of course if you ask some people, they will say the banks have actively tried to prevent the credit unions getting sort codes.

http://www.irishcuvoice.com/2009/02/regulator-warns-credit-unions.html
The Regulator has warned credit unions not to lend to SMEs.

Quote :

To those boards which have been engaged in the provision of loans for purposes and for amounts which would never have been regarded as normal for the business of a credit union, I have this to say. Please stop trying to be banks. Borrowers have a choice of banks from which they can borrow. Lending for commercial property, project finance or main line business activity is not the business of credit unions and is not in the interests of members.

Also, he has reminded them that cash is king.

Credit union lending under threat
by Conor Keane, Business Editor

http://www.examiner.ie/ireland/idojeykfcw/

CREDIT UNIONS could be forced to curtail their lending after loan arrears soared by 22% to €515 million.

The office of the Registrar of Credit Unions suggested as many as one in 10 of the country’s 410 credit unions may be ordered to curb their lending practices unless they were able to get their houses in order.

Irish credit unions — which have three million members with savings of e11.9 billion — were forced to write off e284m in bad debts last year.

It has also emerged that 115 individual credit unions — almost one in three — are running at a loss.

The office of the registrar was anxious, however, to point out that the vast majority of these credit unions have healthy reserves to call on and are not in any immediate danger of failure.

...

It is understood that as many as 10% of the credit unions regulated by the registrar are in a "stressed" state and while a handful have already been told to restrict lending the remaining troubled branches may face similar strictures.

As credit union members face difficulties paying off loans, a further e272m in loans are expected to be rescheduled this year.


The Examiner article ends with eoin's quoted piece above.

On the one hand, some credit unions got caught up in the fever of the boom and lent a little recklessly, for example lending young people the deposit for a house.
Some credit unions also "invested" in fancy new office buildings, in some cases, buying the former bank buildings in town centres, as banks moved online and to the shopping centres. Some of this was vanity and did nothing for the credit union.

On the other hand..

Auditor #9 wrote:

Irish credit unions — which have three million members with savings of e11.9 billion — were forced to write off e284m in bad debts last year.

The office of the registrar was anxious, however, to point out that the vast majority of these credit unions have healthy reserves to call on and are not in any immediate danger of failure.

If 248m was written off, but there is still 11.9Bn in savings, you can see that the shares-to-loan ration within the movement is still very healthy. What little was lent may have be done recklessly, but little was lent.

They're completely transparent eoin - is that why you love them ?

Do you know if any Government Ministers bank with the credit unions or is that information that we can't speak about now?

Auditor #9 wrote:

They're completely transparent eoin - is that why you love them ?

More the co-operative spirit, the community feeling, the voluntary ethos of the board members, etc.

Auditor #9 wrote:

Do you know if any Government Ministers bank with the credit unions or is that information that we can't speak about now?

I could tell you a story about a credit union which was ripped off by the spouse of a govt minister (over a decade ago). The spouse took out a loan and never attempted to pay it back, despite being wealthy (independently of the ministerial salary). But I won't name names.

Do you think the word 'bank' will become like the word 'hoover' i.e. "vacuum" for you Americans (and non-culchies)

There was a report last week that said credit unions were taking in more deposits as people lost confidence in the banks.

Is this a counterattack?

cactus flower wrote:

There was a report last week that said credit unions were taking in more deposits as people lost confidence in the banks.

From what I've heard, deposits are volatile right now.
So some people are lodging all their money in the CU, while their neighbour's are pulling their money out and putting it in banks, particularly Anglo.