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

[ClubMan]

Going by Brendan's earlier comments/advice you should just keep pushing this until they (a) explain clearly why they are refusing this request and how this refusal tallies with the quoted extract from the CU legislation or (b) they relent and accede to your request. You should keep this thread posted on your experience as others may have some useful advice/comments.

[ClubMan]

By the way - I've seen it mentioned here and in other CU related threads that it is illegal for a CU to allow a member to withdraw shares so that their share balance falls below 25% of any outstanding loan. However I know at least one person and CU that did allow this. Reluctantly - but they did allow it.

[demoivre]

Having seen this thread I advised a friend of mine who, for years , has always borrowed from the credit union to change his car. Outstanding loan was €8k with shares of €4k. He was advised that his request to offset the shares against the loan would be considered at the next Board of Directors meeting scheduled for the 17th September. Prior to the meeting he received a second letter confirming that his request had been agreed by the directors. Not sure if the meeting was held earlier than planned or that someone in the Cu realised that it wasn't necessary for his request to be brought up at the meeting in the first place and that it is clear from the CU act that this offset can be done.

[Slim]

Originally Posted by ClubMan

By the way - I've seen it mentioned here and in other CU related threads that it is illegal for a CU to allow a member to withdraw shares so that their share balance falls below 25% of any outstanding loan. However I know at least one person and CU that did allow this. Reluctantly - but they did allow it.

The Credit Union Act sates:
32.—(1) & (2) not relevant to this discussion...
(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 an outstanding liability (including a contingent liability) to the credit union, whether as borrower, guarantor or otherwise , 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) "Regulator may change this percentage"
(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).

Sub section 5 is key here. If a member consents in writing the credit union may offset any savings against a liability.

There is much confusiion and ignorance even amongst credit union personnel about this.

In addition , every credit union is obliged to have a board meeting at least once a month so the member above may be unlucky that the September meeting has been held already. There is nothing stopping a board convening for the sole purpose of discussing an urgent issue.

[CU Manager]

I think most/all CU's are aware that they CAN apply the savings against the loan but many choose not to (for reasons outlined in my previous post).
All CU's have their own internal policies & procedures which require Board approval by some while in others the Manager has the authority to make a transfer.

Just a word of caution however. The CU model inviolves lending on the security of your shares. If you seek a share to loan transfer you may(probably will) affect your relationship with the CU for future loans. I would advise that this course of action only be considered where future loans are not an issue i.e. you do not foresee the need to borrow from the CU again in the near to medium term.

s

Originally Posted by Slim

The Credit Union Act sates:
32.—(1) & (2) not relevant to this discussion...
(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 an outstanding liability (including a contingent liability) to the credit union, whether as borrower, guarantor or otherwise , 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) "Regulator may change this percentage"
(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).

Sub section 5 is key here. If a member consents in writing the credit union may offset any savings against a liability.

There is much confusiion and ignorance even amongst credit union personnel about this.

In addition , every credit union is obliged to have a board meeting at least once a month so the member above may be unlucky that the September meeting has been held already. There is nothing stopping a board convening for the sole purpose of discussing an urgent issue.

[CU Manager]

Originally Posted by ClubMan

By the way - I've seen it mentioned here and in other CU related threads that it is illegal for a CU to allow a member to withdraw shares so that their share balance falls below 25% of any outstanding loan. However I know at least one person and CU that did allow this. Reluctantly - but they did allow it.

If this is true then they broke the law (perhaps out of ignorance)

[ClubMan]

Originally Posted by CU Manager

If this is true then they broke the law (perhaps out of ignorance)

Well they were initially adamant that it was not possible and that they would not do it but eventually relented and said that it was a once off so I don't think that it was ignorance (which would be no excuse anyway in my opinion).

[ClubMan]

Is there a fixed amount of shares that need to be held to remain a member and qualify for members' loan/savings/etc. insurance or does it vary from CU to CU? Figures like "about €100/€200" have been mentioned but I was looking for something more definite/precise. Thanks.

[Slim]

Originally Posted by ClubMan

Is there a fixed amount of shares that need to be held to remain a member and qualify for members' loan/savings/etc. insurance or does it vary from CU to CU? Figures like "about €100/€200" have been mentioned but I was looking for something more definite/precise. Thanks.

Minimum shareholding to remain a member is €10.

[ClubMan]

Thanks Slim. For all CUs? And do all members automatically qualify for "free" members' insurances or could a higher shareholding be required for this?

[ClubMan]

Originally Posted by CU Manager

I think most/all CU's are aware that they CAN apply the savings against the loan but many choose not to (for reasons outlined in my previous post).
All CU's have their own internal policies & procedures which require Board approval by some while in others the Manager has the authority to make a transfer.

A friend who has, on my suggestion on foot of seeing this thread, inquired with their CU about the possibility of offsetting shares against an outstanding loan has been told that it will require a board decision but they cannot tell when the next board meeting will be. I don't really understand why a board decision is needed given the seeming clarity of the CU legislation cited above. Before instructing them to offset I have advised that all implications and options for the loan (e.g. term, repayments, rate etc.) are clarified. Ideally in this case the same repayment schedule should be adhered to but at a lower monthly repayment. Cashflow is the critical factor at the moment here. I have also suggested that they stop making their monthly nominal €10 contribution (via salary deduction) to shares since that could also be used more efficiently.

Just a word of caution however. The CU model inviolves lending on the security of your shares. If you seek a share to loan transfer you may(probably will) affect your relationship with the CU for future loans. I would advise that this course of action only be considered where future loans are not an issue i.e. you do not foresee the need to borrow from the CU again in the near to medium term.

Most or all CU's seem to allow for lending up to four times the amount of shares that have been on deposit for 3 months or more. Don't mean to be offensive but the above looks to me suspiciously like typical CU style scaremongering dissuading members from doing something in their own financial interest for fear of what might happen further down the line. On the other hand when it comes to the CU and questionable advice and policies I tend to err on the side of applying Hanlon's Razor...

http://en.wikipedia.org/wiki/Hanlon%27s_razor

Apart from the offsetting query the email that I drafted on this person's behalf was very concise and clear and yet the CU seems to be prevaricating in actually addressing/answering any of the questions which is quite irritating...

[CU Manager]

A Board decision is needed in your friends specific case presumably because that is the policy in that credit union. It is not the case in my CU as the Board have delegated that authority to me as manager to make such decisions but it remains the right of any Board to retain that authority and require such share to loan transfer requested to come to the Board.

There is no requirement to continue savings and that aspect of a members payment can be stopped at any time without seeking permission.

There was no scaremongering intent with my last post. Simply put, a member applies for a loan in good faith and pledges their savings as security for the loan. The savings pledge serves a number of purposes:
1. a strong savings pattern helps to prove a members ability to make loan payments
2. The savings provides a buffer in times of hardship and can be used to assist clearing arrears and getting a loan back on track
3. In the event of legal action, legal costs can be charged against savings

If a member seeks a share to loan transfer, it is at the discretion of the CU to grant such a transfer (rather than a right of the member).
A share to loan transfer will usually only be granted if the member demonstrates a change in circumstances which justifies such a transfer.
With that in mind, it would certainly taint the members history profile for future loans if a share to laon transfer was required on the account.

You have referred to Hanlons razor a few times in relation to CU's - maybe that razor is double edged?

[ClubMan]

Originally Posted by CU Manager

A Board decision is needed in your friends specific case presumably because that is the policy in that credit union. It is not the case in my CU as the Board have delegated that authority to me as manager to make such decisions but it remains the right of any Board to retain that authority and require such share to loan transfer requested to come to the Board.

...

If a member seeks a share to loan transfer, it is at the discretion of the CU to grant such a transfer (rather than a right of the member).
A share to loan transfer will usually only be granted if the member demonstrates a change in circumstances which justifies such a transfer.

IANAL but that's not my reading of the CU legislation and I fail to see where it provides for discretionary powers on the part of the CU/board in this context. Can you clarify why you or other CUs/boards believe this to be the case?

There is no requirement to continue savings and that aspect of a members payment can be stopped at any time without seeking permission.

OK - thanks.

2. The savings provides a buffer in times of hardship and can be used to assist clearing arrears and getting a loan back on track

But only if the board deign to allow the member/borrower to do this!?

3. In the event of legal action, legal costs can be charged against savings

How common are legal proceedings by a CU against members?

With that in mind, it would certainly taint the members history profile for future loans if a share to laon transfer was required on the account.

Makes no sense to me. Especially if keeping money in shares while carrying a loan make little financial sense to the member/borrower (e.g. increases the effective cost of borrowing - sometimes significantly) while offsetting doesn't change the CU's overall exposure at all.

You have referred to Hanlons razor a few times in relation to CU's - maybe that razor is double edged?

Care to clarify where exactly my posts or my friend's case betray any signs of either malice or stupidity?

[Slim]

Originally Posted by ClubMan

IANAL but that's not my reading of the CU legislation and I fail to see where it provides for discretionary powers on the part of the CU/board in this context. Can you clarify why you or other CUs/boards believe this to be the case?

This sets out the law in this case....

"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)."

Some Credit Unions charge individual accounts for the insurance and others charge it as a general expense.

Many credit unions are taking actions against their members these days.

[ClubMan]

Originally Posted by Slim

This sets out the law in this case....

...

(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)."

This is the key clause in the "offsetting" case and I can't see where it gives the CU/board discretion to refuse such a request. Am I missing something here?

Some Credit Unions charge individual accounts for the insurance and others charge it as a general expense.

According to the ILCU certain insurance cover is automatically available "for free" to members:

http://www.creditunion.ie/whatweoffe...ance/#d.en.153

Are there CUs not affiliated to the ILCU who maybe charge for the otherwise "free" cover?

Many credit unions are taking actions against their members these days.

Are there any stats available on this issue?

[Slim]

Originally Posted by ClubMan

This is the key clause in the "offsetting" case and I can't see where it gives the CU/board discretion to refuse such a request. Am I missing something here?
According to the ILCU certain insurance cover is automatically available "for free" to members:

http://www.creditunion.ie/whatweoffe...ance/#d.en.153

Are there CUs not affiliated to the ILCU who maybe charge for the otherwise "free" cover?
Are there any stats available on this issue?

The key phrase is "...the credit union may...". This implies some discretion on the matter but I am not legally qualified.

In relation to insurances, I may have mixed up my insurances, apologies.

In relation to court actions, this item was covered on 6.01 News the other evening. A company called 'Vision..'something or other was quoted. A quick Google threw up this link..,.http://www.businesspro.ie/press-arti...id-loans-soar/

[ClubMan]

He said:”I can quote one particular example where someone with an outstanding loan in excess of €30,000 was ordered to pay back €25 per week. Realistically, we cannot hope to recoup even a fraction or the original loan.” .

Couldn't they firstly offset the members shares against the outstanding loan balance and thereby recoup at least 25% of the outstanding amount?

[Slim]

Originally Posted by ClubMan

Couldn't they firstly offset the members shares against the outstanding loan balance and thereby recoup at least 25% of the outstanding amount?

In most cases, they would set off the savings all bar €10 before it gets to court. A loan that is 52 weeks in arrears must be provided for 100% and should be written off - at that point the savings are set against the outstanding debt. Credit unions are very slow usually to go to court, last resort and all that. MABS are currently causing havoc with ridiculous and unrealistic expenses assessments and the courts hold them in high regard.

[ClubMan]

Originally Posted by Slim

MABS are currently causing havoc with ridiculous and unrealistic expenses assessments

Not sure what this means in this context - can you clarify?

[kaplan]

@slim - if MABS is excessive on what basis is it excessive? Are you saying that it's allowing too much for people to live on? Perhaps the real underlying problem is that affordability wasn't factored into the loan assessment when loans were being issued?