The lending policies of Credit Unions

Re: .

Item (2) in the AGM agenda was "accept proxies (if any)".
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Hi Skinflint - That is consistent with them accepting proxies from non 'natural persons' but not accepting proxies from you (or sending them to you with your AGM invite). To do so would be a breach of the act.

i simply don't agree, rainyday. just because something benefits the cu as a whole doesn't necessarily mean it enefits an individual member.
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Hi Darag - It's not a matter of opinion. It is a matter of fact. The members own the CU. What benefits the CU benefits the members. There are questions about how the members can get access to these benefits, but the benefits become the property of the members. It is a mutual organisation.
 
Re: .

It's not a matter of opinion. It is a matter of fact. The members own the CU. What benefits the CU benefits the members.
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The members who understand the subtleties of borrowing while also saving, and who understand that the APR is not necessarily the real cost of borrowing benefit because they can leave money on deposit but do their borrowing elsewhere.

While the members who are less financially literate believe what they are being told, that saving while you borrow is a good idea.

So the CU is making bigger profits from the less financially literate and passing those profits on to those members that know their stuff.

I'm not sure this is what the CU was origianally intended to be.

But the worst part is that some of these people who believe the Credit Union are also willing to leave savings in the CU rather than clear credit card bills, Store Cards etc. That's the part of this that I have the biggest problem with.

-Rd
 
Re: Credit Union Borrowing

Too much focus here is directed at the security required against a loan. There was a time when CUs required 25/33% security but the 1997 Act changed the playing field and allowed CUs to lend out up to 1% of assets. In a decent sized CU this could be up to 300/400k. Obviously, a security of 25% is unlikely in such a case and other forms of security are necessary including, a charge against the property, deposit of deeds etc. This would also be taking ability to pay, business plan etc into account. If a member of good standing wants a loan of 10k against shares of 500, they will get the loan.

If a member dies, the loan is cleared and their savings doubled(up to age 55). That is why many older members are encouraged to take a loan out rather than deplete the savings because if they pass 55, the proportion of savings enhanced declines.

CUs always encourage thrift and work hand in hand with MABS when people are in trouble. Many/most people in employment can get a loan from the source of their choice. CUs do not force anyone to borrow from them. Many of our members do not like/trust the banks and prefer to stick with the CU. Older members leave their savings with CUs because the rate of dividend paid is much higher than that available in any other institution for a demand account with insurance attached.

Credit Union "puts people first"...

Slim 8)
 
Re: Credit Union Borrowing

You're obviously committed to the cause, and it's a good cause, but you have to accept that it has weaknesses.

I know people who to this day believe it's better to have money in the bank and carry a loan/credit card balance.
They've learned that from their CU, no-one else and it's helping to keep them back financially.

CU's have great customer loyalty, and for the most part it's with good reason, but if that loyalty is based on a belief that the CU will always tell them what's best, while the banks will fleece them then that's just not right.

If people are willing to pay a little more for the insurance and the caring attitude of the CU, along with it's Member structure then fine, but don't con them into thinking that the CU is cheaper.

-Rd
 
Re: .

hi rainyday, in response to my claim that some members do not benefit by
their dealings with the credit union, you respond that
It's not a matter of opinion. It is a matter of fact.
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i simply don't agree. if you want to argue about facts rather than
opinions, then i invite you to argue the case that it can never happen
that an individual member is disadvantaged by the lending policies of
the cu. it is nonsense to suggest it cannot happen "by definition". it
does happen and there was a person who posted to this site a few months
ago who was effectively paying a rate of 22% apr. this was probably an
exceptional case but i believe it contradicts your "matter of fact"
statement. unfortunately producing results from the ezboard search
engine is beyond my abilities otherwise i would include a link to that
discussion.

What benefits the CU benefits the members.
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this is ridiculous. if i give the union a grand in interest on a loan
that i could have gotten for half the price from elsewhere, it benefits
the cu. just because i receive fifty quid back in profit share doesn't
mean i've benefited from the deal.

There are questions about how the members can get access to these
benefits, but the benefits become the property of the members. It is a
mutual organisation.
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i don't see why you think being a mutual organisation axiomatically
equates to benefiting the members. for example, membership of the irish
nationwide certainly caused severe and terrible financial hardship to a
number of people in some high profile cases. how would your "matter of
fact" claim apply to those people?
 
Re: Cost of interest

I Darag,
I am following this thread with interest, as my own experience has shown how expensive credit union loans are. Below is my previous post which I think you are referring to -22% rate interest in your last post on this topic. I have seriously prioritised my over-payments to the credit union and now have the loan down to €4000, and I still have €5000 on deposit there.


"Until I took out a credit union loan 18 months ago, I was under the general impression that they offered good value compared to borrowing from banks. I really don't understand how they calculate interest rate but I have paid €2,323 in interest on a €15,000 loan in 18 months, and have been regularly overpaying them (to cut overall interest paid) and the outstanding loan now stands at €7,327. I received €250 from them last Christmas for dividend and rebate combined and I have €5000 savings with them securing the loan. At the outset, the loan was for 5 years and my repayments were to be €184.00 every two weeks, but based on 26 fortnightly payments per year over 5 years I would end up paying €23,920 back for the original loan of €15,000! I don't know if its just my credit union are more expensive than others or am I timing my repayments incorrectly?"
 
We would offer them a loan to clear that credit card balance or move the loan to us. We would point out the advantages of keeping a little cash in savings while the loan rate is one of the cheapest about, taking interest rebates into account. The fraction of the loan they would have to keep on deposit would depend on their record with us and so on.

We are not trying to con anyone. We look at it differently. That goes back to the origins of CU. We are changing but still cling to the old values.

Slim 8)
 
Re: .

i don't see why you think being a mutual organisation axiomatically
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Because the members own the organisation - plain & simple. If I pay 1,000 in interest to my CU, that money goes 'into the pot' and is owned by all members of the CU. So what benefits the CU benefits the members.
 
CU lending rates

Kells CU interest rates, which seem good value:

Dividend 3%
Loan rate 8.95%

Sligo CU, not as good:

Dividend 2.5%
Loan rate 12.68% less 25% interest rebate

Plus, although it's technically illegal, you get all the dividend paid gross = tax-free. I don't know of anybody who declares it. Although this is changing.

Also, although the APR may seem higher, the euro cost to repay a CU loan is lower than from a bank. A €1000 loan for a year costs €45.50 in interest. That's using an interest rate of 0.7% pm, or 8.73% pa. But the loan costs just 4.55% really, though the APR is 8.73%.

This is because the interest gets less, as the loan balance falls.

Protocol
 
CU rates

What I am saying is that the APR of 8.73% suggests you will pay €87.30 interest per €1000 borrowed. When, in fact, you would repay €45.50.

I will check how much BoI and AIB charge for 1000 for a year and get back to you.

Protocol
 
CU vs. Bank of Ireland

1000 loan for a year.

Bank of Ireland, from website:

Variable rate 50.36 interest, 9.6% APR
Fixed rate 57.32 interest, 9.8% APR

Kells CU, 0.717% pm, or 8.95% pa APR:

=46.61 interest

CU wins on interest cost. Plus you are contributing to a mutual, community-based organisation. Plus the loan is insured for free. Whereas repayment protection insurance costs €4 pm from the bank.

Plus you get a top rate of 3% on dividends. Paid gross. Where else would you get it?

Protocol
 
Re: Credit Union Borrowing

Also, although the APR may seem higher, the euro cost to repay a CU loan is lower than from a bank.
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My question was how a higher APR loan from a CU could cost less to repay than a loan from a bank. The example you have given deals with a lower APR at the CU, which will obviously be cheaper.
I don't see this as a vindication of the CU, merely as making the point that the lower the APR the better for the borrower.
The question of whether the stated CU APR is realistic after considering the fact that a CU borrower must maintain funds on deposit has been discussed already in this thread and I won't repeat it.
 
Re: Cost of interest

Stretched and Boo

All credit unions are independent and have different rates and policies. I would like to compile a list of cheap ones and dear ones.

Would you mind naming your Credit Unions as they seem to be dear and inflexible.

Brendan
 
brendan, i probably did step over the mark there but it was
as a result of frustration. i think that there are enough
examples around to prove that membership of a "mutual"
type of financial organisation is no protection against getting
a very raw deal in some circumstances. i find the claim
that it simply cannot happen by definition very irritating given
the well known counterexamples. anyway, that argument
probably belongs in a seperate debate. some of what you
deleted had nothing to do with my rant and was addressed
towards streched which was:

it's shocking that you, streched, have more savings than
your loan balance. if you can at all, you should run from the
credit union and take the grand balance you have. as it is at
the moment (and if you left things as they are), it would cost
you about 300 a year even though you have a positive
balance of a grand. this is ridiculous; it's like being charged
minus 33% interest on your savings.
 
Re: .

darag

Theoretically, as a member of the Credit Union I own it and benefit from it.

In practice, I get no benefit and lots of people are losing out as a result of their commitment to the mutual ideal. To argue otherwise, is to ignore the reality.

I had a mortgage with the EBS, because it was good value, not because it was a mutual. I now have a mortgage with AIB, because they gave me the best deal.

I like the idea of a credit union, but the structure and policies result in customers/members paying above the odds. They should be reformed.

Regarding the editing of posts. Im my old age, I am getting less tolerant and patient. I used to spend time editing sections of posts, but it's too time consuming. Now if a post is generally not in comliance with the posting guidelines, I delete it. In your case, as a long standing poster, I explained to you what I was doing. Normally, I just delete without explanation.


Brendan
 
Re: .

In practice, I get no benefit and lots of people are losing out as a result of their commitment to the mutual ideal. To argue otherwise, is to ignore the reality.
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Exactly. Those who understand what's going on and have the sense to deposit with the CU and borrow elsewhere, gain at the expense of those who don't understand the impact of leaving money on deposit while borrowing.

Subsidising the financially aware at the expense of the financially naive. I guess all CU members are created equal. But some are more equal than others.

-Rd
 
Fair is fair . . .

I think much of the criticism of the CU is highly unfair.

A good friend of mine, who is on social welfare, tried recently to get a laser card from her bank (where she has only a cashsave account, which means she will be charged the same rates as rival banks do for a current account for basically a glorified deposit account) and was given pretty much a two fingered salute. On the other hand she was given a very fair loan by the CU even though her income was pretty limited. The banks would have told her to go and **** herself.

Banks are nice if you are doing well but do not take your applications on its own merit. So if you had repayment issues up to 6 years previously you will not be treated equally. If you are on a below average income you will not get a fair deal. These days most banks will not even let you have a current account unless you've got a steady income from paid work. In the UK this created such a serious problem with financial exclusion (people having no bank account at all) they had to force the banks to offer "basic bank accounts" and in my experience some banks will still exclude you if you are unemployed. And if you are a tenant or a recent migrant they will also remind you of your place.

Another thing is that the CU usually give very generous rates on deposit compared to banks and refund interest which makes the loans quite favourable. In fairness to credit unions, the existence of savings can and will influence whether or not you get a bank loan.

Critics of the CU do not consider that banks will give literally nothing but the bare minimum of service to people on social welfare and anybody on less than the median wage. And the CU is brilliant for people like me who had debt problems in the past that are now resolved but will continue to linger on the credit report for a couple of years - they take into account what you can afford to pay, not something that happened 3 or 4 years ago that may no longer be relevant.
 
Re: Fair is fair . . .

Critics of the CU do not consider that banks will give literally nothing but the bare minimum of service to people on social welfare and anybody on less than the median wage. And the CU is brilliant for people like me who had debt problems in the past that are now resolved but will continue to linger on the credit report for a couple of years - they take into account what you can afford to pay, not something that happened 3 or 4 years ago that may no longer be relevant.
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On this thread I fall into the "critics of the CU" category. But I don't disagree with anything you've said. Yes they will be more inclusive in who they'll lend money to. Yes there are people who wouldn't get past the door of the bank but who can get a loan from the CU. Yes their profits are owned by the members not by anonymous investors. yes your debt is written of in case of death and your estate gets a multiple of your shares. All good, fair play to them.

Now with all that accepted your first point:

I think much of the criticism of the CU is highly unfair.
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Just because there are good things the CU's do doesn't mean that they don't do any bad things. It's always fair to criticise the bad things people/organisations do regardless of what good they do. Mother Theresa could be criticised on many fronts and it wouldn't be unfair.

I won't rehash all the criticisms, but I don't think any of them are unfair just because CU's are "Nice".

-Rd
 
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