Dan Boyle: Credit Where Due

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Recent legislation has weakened the value and the values of Ireland’s Credit Unions, writes Dan Boyle (above)

A couple of years ago my local Credit Union decided to give up its distinct identity to become part of a larger, merged entity. This saddened me. Five credit unions now operate as one, under a new single banner.

Two of the five credit unions have no geographic connection at all, with the area that had been served by the three core credit unions.

More worryingly still there is no obligation to have the original communities represented on the Board of the new entity.

The drive for less but larger credit unions has been the result of a decades long campaign of harassment, I would argue, by other financial institutions abetted by financial regulatory bodies, underlined by the Department of Finance.

This climate of competing with banks by achieving economies of scale has led to recent moves by credit unions to request that the interest ceiling on loans given by them, currently and traditionally 1% a month, around 12.8 % APR. should be raised to twice that amount.

From the late 1950s’, the 12% rate has proved a simple maximum rate for the credit union model. When combined with an established savings habit it gave confidence when granting a loan.

While the loan was nominally 12 %, the rules allowed for a rebate of interest as well as a dividend, the actual interest rate, depending on the credit union, could be as low as 5% or less.

70% or 80% of the funds could be out on loan. The size of the loans were modest, and typically short term. Loan repayments and savings refilled the coffers anxiously awaited by a queue of further loan applicants. Borrowings that went to improve their lot made possible by a union, they themselves owned.

The model, comprising volunteer oversight, together with some paid staff, worked incredibly well.

During times of high inflation that drove high interest rates in banks, credit unions continued to provide loans at ‘affordable’ rates.

From local credit unions came the need to set up a representative body, on a national/all island basis. This helped in creating loan insurance products, death benefit entitlements for members, along with generous pension funds for staff.

More importantly, it set up a monitoring service to ensure the member credit unions stayed financially on track, combined with training programmes, while crucially acting as guardian of the Ethos of the movement.

Recent legislation has weakened the value and the values of the credit union movement in Ireland. It is helping quickly to diminish its community role. Not only geographically but also communities that can be formed, and informed, by a common bond. Groups, communities, made up professions or trades or involvement with a government agency, for instance.

Increasing prosperity has seen access to other sources of credit become available. The demand for credit union loans began to fall. Despite this membership has continued to grow. None the less, the increasing staff and managerial costs have been becoming a factor.

The traditional Credit Union has been trying to hold to operating principles and the social strength it gives. The representative body, and larger credit unions, have become increasingly disconnected from the founding community ethos.

This bigger is better approach is mirroring pretty exactly the process that saw the formation, before the Millennium, of many Saving and Loans, banking light, in the United States. These more ‘competitive’ entities were the canary in the coalmine that previewed the global banking collapse of 2008.

The goal must be to keep community banking parallel and not to integrate with other financial institutions. One forgotten aspect of the Irish banking crisis was the amount of credit unions who banked with Anglo Irish Bank.

But damage has been done.

Credit unions are now labelled as financial institutions. Legislation has created a new kind of credit union manager. The mantra is now on growth. Boards have been sidelined through the setting up a ‘managers’ forum’. The members have seen their role reduced to that of stakeholder.

There has been little change in the take up of loans. They grow more expensive, while members can borrow elsewhere. Desperate for income the old operating principles are being abandoned.

Now, instead of promoting thrift and sensible lending, some of these new ‘improved’ credit unions are promising money for any and every need.

Now it seems they sidle up with their lobbyists to government, as if they were the pigs leading the other animals in taking over Mr. Jones’ Farm. If they secure approval to charge the higher rate who will pay it?

Not those better off, they have other options. It will be the poorest. It will be like that final scene in Animal Farm, except now we won’t be able to tell the difference between the credit unions and the money lenders they were supposed abolish.

The Central Bank encourages this. They seek to weaken the volunteer board by promoting the role of the manager/CEO. There is a telling line in the ‘Report of the Commission on Credit Unions’ which says

“For all their distinctive features, credit unions are, first and foremost, financial institutions, which primarily accept deposits (or shares) and make loans. In this regard they are similar to commercial banks”.

This lack of recognition of the community credit union with its unique facility to draw on the shared honesty and integrity of the community to build a local efficient economic bubble, risks losing this great resource when we need it most.

There is almost a black humour in the central bank pledge to secure ‘strong credit unions in safe hands’. It is vital that the traditional community credit union be allowed to operate as a counterpoint and not as an adjunct to the banking system.

We don’t need US style Savings and Loans, with the chaos that came from them. We need, and should insist, on community banking.

Dan Boyle is a former Green Party TD and Senator and serves as a Green Party councillor on Cork City Council. His column appears here every Thursday. Follow Dan on Twitter: @sendboyle

Top pic: Rollingnews

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36 thoughts on “Dan Boyle: Credit Where Due

  1. dav

    Thanks for this Dan, I’ve noticed my own Credit Union has fallen into the Retail Banks method of “Selling” loans – no longer making a lending decision but now making a “sales” decision – this is one of the fundamental reasons for the last banking crash and will be a good starting block for the next one and it’s terrible to see that Credit Unions will caught up in it. I somehow doubt they will have the political power to get the government to save them.

    1. V

      Growing the Loan books are not just directions from the Central Bank
      They are also directions from the Members

      Investment income has fallen
      So the only other source of income is Loan Interest
      and the pennies in commission they get from Fexco etc

      Members want their dividends
      Members want their DBI covered
      Members want their Credit Union to thrive
      Members don’t want to merge, but they know they may have to so that they can keep a Credit Union in their common bond open

      Most of all Credit Unions are desperate for Volunteer Directors, and to be recognised as Big Loan lenders
      not just for holidays and back to school
      But for Mortgages and for Longer Term 75K plus loans

      Any why shouldn’t they
      Credit Unions didn’t need any taxpayer bailout during the last crash
      Why don’t people trust them now?

  2. baz

    disingenuous Dan, the Credit Union mergers were brought about by how badly some of them were ran.
    Credit Union still running in Ireland today thanks to the generosity of the tax payer who bailed them out.
    You are 15 years late with your current observation Dan.

    1. V

      NO Credit Union in Ireland got a cent from the Tax Payer

      FACT

      So please withdraw
      Or Name the or any Credit Union who did then

        1. V

          2013 Eoin
          Surely you have better resources than this?

          And it was PTSB – that got the bailout from Taxpayers
          The funds from the Central Bank were under the REBO scheme to assist Credit Unions amalgamate/ merge (here https://www.gov.ie/en/publication/289988-credit-union-restructuring-board-rebo/)
          to better assist them deal with the new regulatory environment that is known as the Central Bank Act 2013
          For which Credit Unions are actually charged for by the CBoI
          I note you haven’t, nor did Dan btw, mention the Levy that was racked up by Paschal Donohue – I wonder who might have been in his ear; hardly a former party colleague now the Lobbiest In Chief for the Banks
          Which would be exactly the question you would normally ask around here about any other entity that is not a Retail Bank or Finance House

          But then E
          I’ve seen with my own eyes here your sniggery attitude to the Credit Union movement and Cooperative Credit
          And those of us that try to keep it going, despite the odds
          Odds that include blatant discrimination from the Central Bank, and from the Dept of Finance
          Odds that make us pay negative interest to retail banks for short term call up cash
          Odds that make us keep our regulatory reserve at 10% of total assets
          Odds that prevent us from retaining Directors and other volunteers
          Odds that prevent us from investing our members money as freely as retail banks and other regulated financial institutions are

          I never hear you call out how much the Banks pay their Directors
          Or their CEOS
          Or where they hold their conferences

          Funny that
          Hope their soup is nice

    2. Cathal

      Don’t think so, Banks did there best to close credit unions as they believed they were taking customers from them, A few credit unions were run badly , but the majority were fine.

  3. Qwerty123

    Google Rush credit union, 800k missing, car draws to phantom people, and nobody held account. In principle, the credit union is a great idea, in practice, they are run by Irish people who less face it, are pretty corrupt and love money.

    1. V

      Well
      In fact people were held to account
      And Action was taken

      And a number of proceedings are still in progress

      But what you really need to know
      Is that not One member lost a single cent

      1. Qwerty123

        Genuinely curious, who makes up the shortfall? And a ban from working in credit union does not seem like strong action to deter future incidents.

        And lets face it, there is a Rush all over Ireland, just not discovered yet.

        BS – Also, again, why am I on the naughty list?

        1. V

          Rush was a member of the Irish League of Credit Unions
          Which has a Savings Protection Fund (SPS) that steps in

          The fund eventually stepped out in order to protect itself once it became clear that Rush was not viable on its own
          And the Loans and the Assets subsequently transferred to another CU

          And I resent your assertion that there is a Rush all over Ireland

          1. Qwerty123

            Ah lets face it, there is now. Look at newbridge above, you say there was no bail out, but there was.

            Credit unions were also caught overcharging too.

            Also the citybus employees credit union debacle

            Also the central bank found that 30% of prizes in credit union go to directors and staff???

            etc etc.

          2. V

            You know the Central bank walked back on that

            About the directors / staff winning from the prize draws

            I made them actually
            Because they openly let us be mocked and derided because of the rules they insist on

            That Members can only be Directors
            So it is a naturally recurring risk that directors will win

            Should I allow myself be discriminated by my own credit union by withdrawing for the Cash Draw fund

            Admittedly there was behaviour by elements within the movement that reflected badly on all of us
            But given the level of the harassment we all get over a handful of cases
            It was quite right the Central Bank via the currently Registrar said they should have stood up for us

            but then
            most people don’t

          3. Qwerty123

            “I made them actually
            Because they openly let us be mocked and derided because of the rules they insist on”

            Maybe I am taking you up wrong on that, but are you saying you took part in these type of fixed draws?

            “So it is a naturally recurring risk that directors will win”

            30% of the time? ah here now….

            Literally can stop thinking of that father ted episode with the car draw writing this, Ireland really is a basket case. From small CU to large banks, Irish people couldn’t run to the shops.

    2. GiggidyGoo

      Google Anglo Irish Bank – at least the customers in Rush were protected, but most taxpayers in this country were caught with one of the old stalwart banks.

      The Credit Unions are a far more helpful organization too than your ‘would you like me to show you how to use the machine to lodge’ crowd of shysters.

  4. edalicious

    Having never had any dealings with credit unions, I recently had to go to one for a fairly substantial loan. I was astonished at how much easier a process it was to go through than going to a bank and they were giving much better rates at the time too, pretty much the cheapest money you could get outside of a mortgage. And on top of that, service was much better; open weekends, helpful staff etc. Would highly recommend.

    1. Spaghetti Hoop

      +1
      Classic rainy day lenders.
      During the belt-tightening 80s they were (and still are) champions in my town for helping out cash-strapped families for events like funerals, communions, weddings, emergency house repairs etc.
      Throw in whatever you can regularly – you never know when you might need a few bob from them, for either seen or unforeseen expenses.

  5. Gabby

    Credit union directors have lost their vision. They have been lured into the mega world of high finance and grand speculation. Every member of a credit union board should be presented with E.F. Schumacher’s book Small is Beautiful.

  6. bisted

    …an astonishing attack on one of the most revered institutions on the island…made worse coming from a green party member who was close to those in government who were responsible for the financial meltdown that will be a burden on generations to come…you Dan have no right to comment on a financial institution unsullied by the corporate greed that you presided over…

    1. GiggidyGoo

      +1
      Danno doesn’t like to be called out either. Amazed you didn’t get a reply with something like ‘it’s all in my book’
      or the like.
      The recent history of the Green party has been dumped from its website. It’s on wayback though and opens your eyes to their capabilities. Obviously an embarrassment for them.

  7. Seamus Maye

    A lot of very inaccurate commenting here, particularly from baz but also the author appears not to fully grasp the Credit Union situation. Allow me to make some points:-

    The Pillar Banks hold all the power at both government and EU level (much of this control is done through “Legal Corruption” including “capture” and other tools.

    The ECB wants to effectively monopolize Banking by creating a few Pillar Banks in each country thus giving ECB a virtual stranglehold on Credit creation, which will enslave citizens in the generations to come. That’s what the vultures are about.

    To further facilitate this, our government is facilitating the mass decimation of our Post Office Network and is corporatizing the remaining rump, wherein PO’s will become mere “agency” Banks thus further consolidating the dominance of the Pillars.

    The Credit Union movement is unsustainable as we know it, given the current slew of unlawful restrictions placed upon it by a captured government, captured Department of Finance and captured Central Bank. The restrictions are designed so as to suffocate Credit Union’s ability to compete with the Pillars. Many of these restrictions are in clear breach of both Irish and EU Competition Law.

    Article 45.2.4 Directive Principle) of our Constitution states:- “That in what pertains to the control of Credit the constant and predominant aim shall be the welfare of the people” – we didn’t see much heed passed on our own Constitution over the past couple of decades!

    For example, Credit Unions are not allowed to create credit whereas the Pillars have a monopoly on credit creation and worse still, Credit Unions at forced to place the vast majority of savings held on deposit with the Pillars, its nuts. It was an orgy of senseless credit creation by the Pillars that brought about the financial crash.

    Both the Post Office Network and Credit Union movement need critical restructuring in order for them both to survive and provide much needed competition to the Pillars. It is not going to happen under Fine Gael or Fianna Fáil and indeed the Green Party, when last in government lost its marbles when it came to dealing with the Banking Sector.

    I would be happy to submit an article to Broadsheet on these matters to help clarify the position re Banking / Post Offices / Credit Unions in Ireland.

    Seamus Maye, Joint Chair PBFI (Public Banking Forum of Ireland) and Joint author of “Creating Ireland’s Alternative Banking Force” (March 2017).

    1. baz

      Seamus.

      Dare me or apologise

      I will lay the can of worms out for all to see (May take me a week as I am very busy)

      Nothing I stated was false or inaccurate.

      Your move.

      1. Seamus Maye

        Baz, to be taken serious on social media, one should at the very least identify oneself. I would be grateful if you would do so. I believe you are speaking on a micro level without understanding the bigger macro picture.

    2. V

      Fair play Seamus

      But I can tell you the Post Office are directly targetting Credit Union business to replace the local PO Account

      How many leaflets are ye all getting in the door marketing Post Bank?

      and they are using taxpayers subvention funds to do it

      They are no friend to the Credit Union movement here in Ireland.

      Our friends are our Members; who voted the Irish Credit Unions FOUR TIMES in a row top in the Customer Experience awards
      No banks
      and beaten out this year by An Post

  8. garrett

    Dan Boyle shows a total lack of understanding of why Credit Unions are being squeezed out of the financial market. I assume he’s not willing tto annoy off potential government partners too much.
    Usual stuff from politicians, personal gain first, always

  9. V

    Hi Dan
    Sorry your column got Hijacked by me
    and sorry if I was swinging a bit too much timber at some of ye

    But a disclosure item, if I may
    Most of ye know I’m involved, but just to confirm
    I am Director / Chair here in St Agnes’ CU – as far a I know the largest Independent left
    And that’s only by the hairs of our chinny chin chin, and the support of our members, the Central Bank, our Staff and our Volunteers
    I am also a Director of the Irish league of Credit Unions

    There is so much coming at us in the Movement
    Especially the newly signed by Paschal, Funding Industry Levy, which will actually force smaller local community credit unions to close or merge.

    And the disparity of the Regulatory Reserve imposed on Credit Unions v Retail Banks;
    We are actually looking at a situation where Credit Unions may have to give Members Savings back, and many have already introduced the savings cap.
    Because it is costing us too much money – to pay the Irish Retail Banks negative Interest and charges by the way, to remain compliant with a regulatory reserve condition that the Central Bank have not imposed on the Retail Banks

    All over the world Credit Unions are thriving and respected
    and in may countries particularly Developing and former Developing Countries
    Credit Unions have replaced Banks, or just passed them out all together
    Kenya and Brazil for example

    It is only in this jurisdiction and in the Irish media
    That we – when I say we, I am referring to those of us that are trying to keep it going, get mocked and slagged off
    Criticised and questioned

    I believe in the Co-operative Structure and the strenght of the Common Bond ethos
    I believe in Co-operative Credit

    Saving together : Borrowing from Each other
    my question for people is

    Why isn’t everyone else?

    1. bisted

      …since we’re doing declarations of interest…I did a 3year stint as Treasurer of my local CU…the reason I left was the obvious influence of the church on the Board…not to diminish the marvellous work they do …same with St Vincent dePaul…I respect the work they do but not their ethos…

      1. V

        There is absolutely no presence or influence in St Agnes

        Nor any Invocation

        And do you know what?
        Members didn’t even notice its omission at the AGM

        I also know there are many other CUs around that dumped it

  10. Joe Malone

    Looks like V is a director of the irish league of credit unions and a director of St Agnes credit union. It’s nice to declare an interest V

  11. Liam Deliverance

    I was in the Credit Union today, thankfully staying open late an evening a week is still a useful service they still perform among many other excellent services. My CU also merged in recent years and I was contemplating that and what it might mean for me, a regular member. I welcome the commentary here from Baz, Seamus, Vanessa et al and found it enlightening and intriguing and would welcome further comments and/or articles on the subject. Seamus mentioned the pillar banks, CU’s are like pillars in the community, trusted and relied upon, and indeed supported in return by the community. If that model changes, does the trust change with it? The “old ” CU model needs to be retained, fought for if necessary, stop reducing every faucet of our lives to being about money.

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