Key Post How to set your Credit Union shares against your loan

[Brendan Burgess]

Moderator's note:
This important issue has been copied from another thread.

The Problem

Credit Union Loan	€12,000	interest rate 9%
Credit Union Shares	€6,000	interest rate 0%
Net borrowing	€6,000

Annual interest: €1,080

if the shares were set off against the loan, the reduced loan would be €6,000 and the annual interest would be €540

The Credit Union is refusing to set the shares against the loan.

What are the borrower's options?

Brendan

[Crugers]

Originally Posted by Slim

... write to the Board of the CU and ask them to reduce your shares to 25% of the loan and pay the difference off your loan. This is the maximum they can allow you to reduce your savings by ...

As you say, it would be possible to reduce the shares to 25% of the loan.
Here's a link to the section of the act
http://www.irishstatutebook.ie/1997/...032.html#sec32

32.—(1) …
(2) … a credit union may require not less than 21 days' notice from a member of his intention to withdraw a deposit.

(3) If a member of a credit union seeks to withdraw a share in or deposit with the credit union at a time when he has [a loan outstanding], that withdrawal shall not be permitted unless—
(a) were the withdrawal to be permitted, the value of the member's savings immediately after the withdrawal would be not less than the amount of his outstanding liability; or
(b) the withdrawal is approved, in accordance with the registered rules, by a majority of the members of the board of directors voting at a meeting of the board;
but no approval may be given under paragraph (b) if, were the withdrawal to be approved, the value of the member's savings immediately after the withdrawal would be less than 25 per cent. of his outstanding liability.

(4) If the Registrar sees fit to do so in the circumstances of a credit union, he may, on such terms as he thinks proper, by notice in writing addressed to the credit union provide that subsection (3) shall apply in relation to the credit union with the substitution of a higher or lower percentage than [25%]

(5) Where a member of a credit union is indebted to the credit union and consents in writing to the credit union acting under this subsection, the credit union may, by way of set-off against the indebtedness, withdraw any of the member's shares or deposits; and such a withdrawal may be made notwithstanding anything in subsections (2) and (3).

The 25% limit is subsection 3

I've just re-read it and I think subsection 5 is interesting...

My reading of it is that in cases of indebtedness, subsections 2 and 3 can be ignored ('notwithstanding') and any(which could include ALL) of the shares/deposits can be applied against the indebtedness.

Maybe some of our legal eagles could comment on my interpretation of 'notwithstanding' and the subsection as a whole?

[Brendan Burgess]

Crugers

I think that we have been misinterpreting this section all the years. It's very clear and does not need a legal eagle.

Case A
I have a loan of €10,000 and a deposit of €2,500.

I am not allowed to withdraw the deposit under any circumstances.

Case B
I have a loan of €10,000 and a deposit of €4,000.

If the board approves, I can withdraw up to €1,500.

Case C
I have a loan of €10,000 and a share balance of €6,000. I can give my Credit Union consent to set the shares against the loan, and reduce the loan to €4,000

(5) Where a member of a credit union is indebted to the credit union and consents in writing to the credit union acting under this subsection, the credit union may, by way of set-off against the indebtedness, withdraw any of the member's shares or deposits;

The only issue here is the word "may". I suppose this could be interpeted as allowing the Credit Union to do so, but not obliging them to do so.

[Brendan Burgess]

I suggest the following draft letter to the Credit Union

Dear Sirs

I hereby give consent and request that you set off all my shares and accrued interest in excess of €100 against my loan.

You are permitted to do so under Section 32 (5) of the Credit Union Act, 1997 as detailed below:

32.(5) Where a member of a credit union is indebted to the credit union and consents in writing to the credit union acting under this subsection, the credit union may, by way of set-off against the indebtedness, withdraw any of the member's shares or deposits; and such a withdrawal may be made notwithstanding anything in subsections (2) and (3).

[the optimist]

Great stuff Brendan and Crugers
Will be copying this letter.....

[Brendan Burgess]

I find it hard to believe that this has not been publicised before. I have searched extensively and can't find any mention of this section anywhere.

Surely there must be procedures for CUs to follow? A manual or legal textbook that could give a definitive answer?

Brendan

[Complainer]

Can I just explore the mechanics of this?

When a person is in this position, are they prevented from withdrawing any/all of their shares? What happens if they go to the counter and ask to withdraw? Can they do an online withdrawal?

[the optimist]

copied from the other thread and edited by Brendan Burgess

This morning we had our meeting with credit union manager.

I asked about the shares being put off the loan and he said NO we are not going there. There is no way that credit unions can do that.

So I showed him the letter and when he read it he said yes but because of section 2 and 3 it can only be the 25% of the loan balance and they wouldnt entertain it.

He then agreed to put it forward to the meeting and that it should be no problem.

So the credit union can transfer shares to the value of 25% of the loan. They dont like doing it but they can.......

[Brendan Burgess]

Hi Optimist

Go back to them and tell them that you want the entire share balance set off against the loan balance. They do not need the approval of the board.

That refers to withdrawals only.

(5) Where a member of a credit union ... consents in writing to the credit union a... the credit union may, by way of set-off against the indebtedness, withdraw any of the member's shares or deposits; and such a withdrawal may be made notwithstanding anything in subsections (2) and (3).

It's absolutely clear. "such a withdrawal may be made notwithstanding anything in subsection (2) and (3)"

Brendan

[Brendan Burgess]

I got this email from the Manager of a progressive Credit Union

.Members are charged interest on the gross loan balance outstanding.

If shares are transferred against a loan balance then interest is calculated on the reduced amount.

In many cases loan repayments are recalculated based on the reduced amount. In some cases members opt to continue repaying original amount as it will clear their loan quicker.

So it's very clear. Section 32(5) allows this.

[Brendan Burgess]

Originally Posted by Complainer

Can I just explore the mechanics of this?

When a person is in this position, are they prevented from withdrawing any/all of their shares? What happens if they go to the counter and ask to withdraw? Can they do an online withdrawal?

Not sure of the mechanics. But the Act prevents them from withdrawing money out of the Credit Union. Presumably they can't do it online either, although I suspect that some Credit Unions have set up online accounts where the savings in excess of 25% can be withdrawn.

Brendan

[the optimist]

Originally Posted by Brendan Burgess

Hi Optimist

Go back to them and tell them that you want the entire share balance set off against the loan balance. They do not need the approval of the board.

That refers to withdrawals only.



It's absolutely clear. "such a withdrawal may be made notwithstanding anything in subsection (2) and (3)"

Brendan

I did ask and I was very assertive and I was told that in no circumstances would this be possible. He also wants us to bring in our wage slips. I would prefer the whole lot to go off the loan. I don't ever want to borrow again. He said that credit unions cannot do this. Maybe I should contact a solicitor to send a letter.

[Brendan Burgess]

Originally Posted by the optimist

Maybe I should contact a solicitor to send a letter.

Hi Optimist

No. Don't do that.

No need. This is either correct or incorrect. I intend getting this clarified formally, by the League or by the Financial Regulator.

Brendan

[Slim]

Originally Posted by Brendan Burgess

Hi Optimist

Go back to them and tell them that you want the entire share balance set off against the loan balance. They do not need the approval of the board.

That refers to withdrawals only.



It's absolutely clear. "such a withdrawal may be made notwithstanding anything in subsection (2) and (3)"

Brendan

Brendan - where the Act says 'the credit union may...' that means the Board may at its discretion... CU manager cannot do this without express consent of Board. In Optimist's case the Manager was citing CU practice. Most cUs do not want to relinquish the security of the shares.

Slim

[Brendan Burgess]

CU manager cannot do this without express consent of Board.

Hi Slim. The Act says that the Credit Union may do it. That means that the board may decide a policy of doing this for all customers. If it sets that policy, then they don't need to go to the board.

In Optimist's case the Manager was citing CU practice.

This is interesting. In the past, the CUs have quoted the Act for claiming that they were not allowed to set the shares against the loan. Of course, they can and they should. Has the ILCU issued a Guidance Note suggesting to their members not to do this?

Most cUs do not want to relinquish the security of the shares.

They also use this non argument. I full understand that a CU would not allow a save to withdraw cash where they have a big loan. But setting the shares against the loan is actually not increasing the CU's exposure or affecting their security in any way.

[Slim]

Hi Brendan. I think it is a default policy in each CU not to do this unless there is a wrirte off. THerefore each case currently has to come to the Board in the absence of a policy stating otherwise. Old fashioned people imposing old fashioned rules in many cases. Slim

[Brendan Burgess]

Originally Posted by Slim

Hi Brendan. I think it is a default policy in each CU not to do this unless there is a wrirte off. THerefore each case currently has to come to the Board in the absence of a policy stating otherwise. Old fashioned people imposing old fashioned rules in many cases. Slim

Thanks Slim

So they all understand that there is nothing in the CU Act to stop them doing this?

If they wished, they could change the policy to allow borrowers set their shares or deposits against their outstanding loan just by simply requesting it in writing? The 25% is not relevant. There would be no need to go to the board.

[Bronte]

Originally Posted by the optimist

I did ask and I was very assertive and I was told that in no circumstances would this be possible. .

You should write him a letter asking for the shares to be taken off the loan and quote the subsection 5 in full. You could also ask in writing whether this is not allowed by the Credit Union League and where is this in writing from the League. No need for you to go to the further expense of hiring a solicitor.

By doing this you force him to prove to you in writing why he is not allowed to do what you want.

As an aside was the manager sympathetic to you and your circumstances?

[Crugers]

Originally Posted by Bronte

You should write him a letter asking for the shares to be taken off the loan and quote the subsection 5 in full. You could also ask in writing whether this is not allowed by the Credit Union League and where is this in writing from the League. No need for you to go to the further expense of hiring a solicitor.

By doing this you force him to prove to you in writing why he is not allowed to do what you want.

As an aside was the manager sympathetic to you and your circumstances?

For CU's affiliated to the Irish League of Credit Unions the Standard Rules for Credit Unions (ROI) Rule 38(4) uses the exact wording that is in the CU Act. So such a set off would be allowed by the League.
In any case the Credit Union Act 1997 would have primacy over the Standard Rules!

And just for clarity:
Section 5 mentioned above is in cases where there is indebtedness i.e. the owner of the shares has a loan. Section 5 allows for a set off of shares against the loan balance. There is no change in the CU's net exposure to that member.
The other Subsections deal with withdrawals. Funds are withdrawn from the CU i.e. the CU's exposure is increased.

[Brendan Burgess]

Originally Posted by Bronte

You should write him a letter asking for the shares to be taken off the loan and quote the subsection 5 in full. You could also ask in writing whether this is not allowed by the Credit Union League and where is this in writing from the League. No need for you to go to the further expense of hiring a solicitor.

Good idea, but I don't think that the League comes into it except that it interprets the law. It is either the law or the CU rules, and if the local CU rules don't allow it, then you get those rules changed.


I suggest the following letter.

Dear ...

Following our meeting on Saturday 14th May, I note that you are going to apply to the board to set off €2,000 of my share account against my loan balance.

I would like to formally request that you set off my entire share account except for €100 against the loan balance as this is permitted by Section 32(5) of the Credit Union Act.

You said "this would not be possible under any circumstances". Please explain, in writing, whether you are refusing to do this because

1) You believe that the Act does not allow you to do so.
2) You believe that the rules of the xxx Credit Union does not allow you to so


Yours