Credit Unions in Trouble

Discussion in 'Credit Union issues' started by KeyPoster, May 26, 2006.

  1. KeyPoster

    KeyPoster Registered User

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    Has anybody seen todays Irish Times.

    http://www.ireland.com/newspaper/front/2006/0526/581286312HM1ABCREDIT.html

    It seems some credit unions are carrying so many crap loans that they are technically insolvent .

    If their regulator pressurises them (as he did Monaghan ) to clean up their books and to write the crap off then they could be in serious trouble in certain cases. Others will survive the cleanup . Others do not need to clean up at all. Look what happened to Monaghan afterwards here and more worryingly here.

    Thats why some of them joined the Irish Credit Bureau recently, trying to spot the vermin before it gets its money, but I would worry more about some of the ones who did not TBH .
     
  2. ontour

    ontour Frequent Poster

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    technically insolvent... how .... all of the loans are insured.. risk is that they are above guideline which would mean that they should collectively be making larger allowances against bad debt.

    Ironically they generally have lower bad debts but due to the disperate nature of the business the closure of a factory in a town could put a particular credit union in to serious difficulty..such regional and localised factors are not suffered by the other lending institutions.

    My personal belief is that there is a desire to have fewer credit unions with a gretaer ability to provide a more professional service and have more to invest in IT. It is very difficult for the credit union movement in ireland to present a homogeneous service offering when some credit unions operate with assets of hundreds of millions and others aren't in to hundreds of thousands.
     
  3. Glenbhoy

    Glenbhoy Frequent Poster

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    I've never had any dealings with CU's - what advantage do they offer over banks? From my limited understanding, it seems to be that its a more personal service, wth the result that it's much easier to get loans, you then pay a slight premium for this. If the loans are insured, you would presume that the insurers are happy with the loan vetting procedures, but obviously there are problems, anyone fill me in on what the vetting procedures are?
     
  4. soma

    soma Frequent Poster

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    Well for a start, in the last five years they have been the ideal way to borrow a deposit for a house, so that it won't show up when a mortgage bank does a search. Of course this has been changing recently.

    I'm wondering if jumbo mortgage repayments have caused some CU borrowers to neglect their CU repayments seeing as CUs are traditionally seen as a soft-touch.
     
  5. Guest107

    Guest107 Guest

    They were frequently supplying the other 10% of the mortgage until the banks started doing 100% mortgages in certain cases.
     
  6. elcato

    elcato Moderator

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    Credit unions allow you to pay back any amount at any time without penalty. You will only be charged interest on the balance of the money you have borrowed. Their lending criteria is also a lot lighter than banks, its based on past history both on loans and on deposits. Their rates vary but are generally around 7.5% which is quite competitive.
     
  7. Purple

    Purple Frequent Poster

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    They are also used to hide cash from the tax man by the same people who go on about corruption...
    At least that's the case with two people I know.
     
  8. Glenbhoy

    Glenbhoy Frequent Poster

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    My time auditing mortgage approvals left me well aware of that!!
     
  9. CCOVICH

    CCOVICH Frequent Poster

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    Re. the insurance issue-the borrower is insured, but the CU isn't-right?

    Hence they (the CU) could become inslovent due to high levels of bad debts.
     
  10. ontour

    ontour Frequent Poster

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    credit unions are also insured, it is tied in to being a member of the Irish League of Credit Unions. Part of the membership fee is the insurance. There have been a number of cases whereby large sums of money mysteriously(!) disappeared from a credit union. The members of those credit unions have never lost that money.

    As an aside, the tying of the insurance premium to membership of the ILCU is the reason some large credit unions have left the ILCU. They believed that it was more competitive to acquire this insurance on the open market.

    Credtit unions like any lending institution have bad debt provisions which are based on a percentage of loan book, this is monitored and adjusted on an annual basis based on delinquency profile and size of loan book.

    If every member in the country decided not to pay their loans then there would be a problem giving members back all their share money but quite an unlikely scenario
     
  11. CCOVICH

    CCOVICH Frequent Poster

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    But is the credit union insured against the bad debts of it members? If it is, then surely they wouldn't have bad debts in the first place?

    Or is it that they have some form of insolvency insurance through ILCU?

    I understand that members loans are insured in the event of death etc.
     
  12. Eurofan

    Eurofan Frequent Poster

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    I'm curious about this as well. I'm aware of insurance against theft etc. but was under the impression that bad debts were not insured. There's provision on the books each year but it seems to be far from what neccesary to cover the problem.
     
  13. dam099

    dam099 Frequent Poster

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    Is the insurance insuring the members deposits or repayment of loans?

    It is possble that if the insurance just covers the members deposits that insolvency in the event of a sufficiently high bad debt rate would result in winding up the credit union and using the insurance to meet any shortfall in members deposits. In this scenario the credit union would likely cease to exist but the members wouldn't lose any money

    For the credit union to continue the insurance would have to cover the defaults returning them to solvency (or preventing them ever being insolvent). As others have pointed out there would be no need to make a provision for bad debts if the insurance covered them.
     
  14. elcato

    elcato Moderator

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    Yes. If you die your loan dies with you and they also give triple (or so) your share value to give to your next of kin. This is why old people always were members long before the current wave of younger members. It was known as the burial money. It also is the reason that they tell you to borrow and leave existing shares in your account.
     
  15. Guest107

    Guest107 Guest

    They were also prepared to lend to sub prime candidates at decent rates which was about half of the population of the state only 20 years ago.

    The banks would not go near you back then even if you DID have a job , who do you think paid for Italia 90, the banks or the credit unions ???
     
  16. ontour

    ontour Frequent Poster

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    oh to be able to answer questions !! Credit Unions have an Loan Protection Scheme and a Share Protection scheme. The loan protection scheme would clear your loan in the event of death and the share protection scheme would provide a multiple of your shares in the event of death. The multiple depends on the age at death. Shares are capped at something like 6 or 10 grand, everything above that is deposit and not covered by this death insurance.
    The Irish League of credit unions have a vested interest in protecting the good name of the credit union hence their willingness to support an individual credit union in financial difficulty. Again it is theoretically possible to not have enough money to pay all the share and deposits if all the loans went bad but unlikely.. It has not been all good times since the ILCU was set up nearly 60 years ago !

    Not sure if the status of a credit union as regards legal company structure would enable them to become tecnically insolvent.. would need one of our legal buffs for that one !!

    ALso a number of the largest of the credit unions are profession based ( gardai, health, teachers etc) where payments are made by deduction from payroll so it is very secure. Local credit unions have lower bad debts because they are run by people from the locality and therefore there is less of an tendency to short change the neighbours. If you are short of cash you will probably pay the credit union first so that the locals involved in the credit union don't know that you couldn't really afford the new massey ferguson !!!
     
  17. Joe1234

    Joe1234 Frequent Poster

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    I am a member of Monaghan Credit Union, and I believe it is solvent. Monaghan Credit union has been ordered by the regulator not to pay it's proposed dividend for last year, presumably because of the high level of bad debts. Approx 10% of the total loans outstanding at the start of last year were written off. Therefore, I, and 16,000 others are missing out on a dividend of over €700,000. In the days after the AGM there was a rush of people withdrawing savings from the credit union. For some, it was the threat of insolvency, for others it was the fact that a 1% dividend (which has not been paid) is pittance for a credit union to offer, and many banks are offering 4 or 5 times that.
     
  18. thewatcher

    thewatcher Guest

    If i was a member of your credit union,i would be looking into getting the entire board sacked.Surely the members are not going to let these fools away with this ?
     
  19. ontour

    ontour Frequent Poster

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    simplistic view to get the board sacked... who will replace them... it is not as if there is a queue of people lining up to do volunatry work these days

    What I find most surprising about Monagahan CU is that it is big with a large staff and should be in a better position to control their loan book.

    Was there any local reason for so much bad debt? big local factory closure?
     
  20. Joe1234

    Joe1234 Frequent Poster

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    It is a big credit union, probably with too many staff. A number of years ago, loans were given out to all and sundry, and there is a belief around Monaghan that a large majority of these loans were given to non nationals, who skipped the country. They have implemented new procedures now, but the damage has been done.