Key Post Ask your Credit Union to set your shares against your loan balance

Discussion in 'Credit Union issues' started by Brendan Burgess, Dec 15, 2011.

  1. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    There is very long thread on this topic and it goes off on a few tangents.

    This thread is only about how to set your shares against your loan balance.

    Credit Union Loan| €12,000|interest rate 9%
    Credit Union Shares|€4,000|interest rate 0%
    Net borrowing|€8,000|true rate: 13.5%
    Interest|€1,080|
    If you set your shares against your loan...

    |original|reduction|new|
    Credit Union Loan|€12,000|-€4,000| €8,000|
    Credit Union Shares|€4,000|-€4,000|nil|
    Net borrowing|€8,000|no change|€8,000|
    Interest|€1,080|-€360|€720|
    Saving: €360



    This thread is not about

    • withdrawing cash when you have a loan
    • insurance
    • any other issue
    I want this thread to help people to reduce the cost of their loans to credit unions. Any posts which are off topic will be deleted. You are welcome to start off new threads on these other topics.
     
  2. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    How do I go about asking my credit union to do this?

    You must apply in writing. You should leave €10 in shares to retain your membership of the credit union.

    Draft letter to the Credit Union

     
  3. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    There are three main categories of reply you may get:

    1) Certainly. It is in your best interests as it reduces your outgoings. We are a member focussed credit union and we will act in your best financial interest.

    2) We will allow you only to set €1,300 only which will result in the following figures as it is the policy of the credit union that you must retain shares equal to 25% of the value of the loan. (They might actually claim that the Credit Union Act forbids them from reducing the shares to below 25% - it doesn't)

    |original|reduction|new|
    Credit Union Loan|€12,000|-€1,300| €10,700|
    Credit Union Shares|€4,000|-€1,300|€2,700|2,700 is 25% of 10,700
    Net borrowing|€8,000|nil|€8,000|true rate: 12%
    Interest|€1,080|-€117|€963|
    3) No, it is not our policy to allow members to set their shares against their loan under any circumstances. Tough.

    Or as user Sapling was simply told "This request is declined"

    In some cases the Manager has the authority to approve such a set-off without reference to the board.
    In some cases the board has to approve the set-off.
     
  4. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    Some credit unions base their refusal on saying that the Credit Union Act does not allow them to reduce the shares below 25% of the loan balance.

    This is not correct. They are reading the Credit Union Act incorrectly.

    This section is very clear. A Credit Union may set off any (or all) of the member's shares or deposits against the loan outstanding.

    The Credit Union is not obliged to allow such a set-off, but they should not quote the Credit Union Act as preventing them from doing so.

    Section 32 (3) of the Credit Union Act does forbid a borrower from making an actual withdrawal of cash from the Credit Union if such a withdrawal would bring the shares below 25% of the loan.

    Credit Union Loan| €12,000|interest rate 9%
    Credit Union Shares|€4,000|interest rate 0%
    Net borrowing|€8,000|
    Interest|€1,080|
    The Credit Union could actually allow this borrower to withdraw actual cash of €1,000 which would reduce the shares to €3,000 (25% of €12,000). This would increase the net indebetness of the borrower to €9,000 (€12,000 - €3,000).

    This thread is not about withdrawing cash. It's about setting the shares against the loan, but the overall net loan remains the same, so the Credit Union's exposure does not increase.
     
  5. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    Why do some Credit Unions refuse to allow this? Aren't they supposed to be member owned and acting in the best interests of their members?

    Slim explains the reluctance of some credit unions to do this in this post.

    Most credit unions do allow this. But some are incredibly stuck in their ways.

    Tvman offers his explanation in this post

    Some will argue that the Regulator requires bigger provisions in such cases
    This is not correct. The provisions are made on the net borrowings.
     
  6. Brendan Burgess

    Brendan Burgess New Member

    Posts:
    26,959
    Are there any downsides to setting my shares against my outstanding loan?
    The Credit Union might not like it and so may be reluctant to give you a loan again.

    My Credit Union point blank refuses to set the shares against my outstanding loan. What can I do?
    Don't just accept it.

    • Write to the board and ask them to change the policy.
    • Lobby the individual board members directly
    • Contact other members of the Credit Union and ask them to support your campaign for change
    • Put down a motion at the next AGM.
    • Get out the rules of the Credit Union and see can you call a SGM on the issue to change the policy.
    • Write to the Credit Union Regulator and ask him to tell the CUs to change their policy
     
  7. ClubMan

    ClubMan Frequent Poster

    Posts:
    43,915
    Brendan - this might also be pertinent...

    my friend's CU didn't quote the CU Act but did quote the original loan agreement which included a clause pledging all shares/deposits as security against the loan. As such their line was that the shares were security. Even though the loan balance had decreased so that the shares were more than 25% of the outstanding balance they were still very reluctant to allow any offsetting (or withdrawal) of shares in excess of 25% of the outstanding loan balance. They reluctantly said that they MIGHT allow some of the excess to be withdrawn but it was still a board decision.
     
  8. Pinchy

    Pinchy Frequent Poster

    Posts:
    43
    Re: Asking CUs to set your shares against your loans

    Brendan, as per your request

    Name of Credit Union : A south county Dublin CU
    Amount of loan : €3300
    amount of shares : €2900
    Initial response from cu: Helpful, co-operative, released shares (€) to me
    What you did about it : No reason for further contact
    Final outcome: Released 65% of my shares ( I requested that amount)

    A friendly firm letter to the committee seemed to do the trick.

    Pincy
     
  9. ClubMan

    ClubMan Frequent Poster

    Posts:
    43,915
    Here's my friend's situation:


    • Name of Credit Union : Civil Service CU
    • Amount of loan : Original amount €11,450 - outstanding amount €10,133 (x 25% = €2,533)
    • amount of shares : €2,920
    • Initial response from cu: long letter quoting rule 32 of the CU Act, (local or general?) CU policy on shares/loans/withdrawals/offsets, and the loan agreement but the gist of which was that they might deign to allow €520 of shares to be offset against the loan subject to a board decision.
    • What you did about it : haven't followed up on it yet
    • Final outcome: N/A
    |before||after
    loan|10133|-520|9613
    shares|2920|-520|2400
    |29%||25%
     
  10. CU Manager

    CU Manager Frequent Poster

    Posts:
    103
    full reply to follow
     
  11. CUJimmy

    CUJimmy Frequent Poster

    Posts:
    28
    I imagine this reluctance to transfer shares to loans goes back to the belief that all members should save to enable all members to borrow. It was one of the guiding principles of Credit unions who are trying to balance the need to bring in sufficient income to pay dividends to thier savers. It can be a difficult balance but credit unions can only advise members that the transfer of shares has an impact on thier life savings insurance cover and may affect the amount they can borrow in the future. This is what my credit union does and if the member still wants to transfer shares then there is no problem.