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

Discussion in 'Credit Union issues' started by Brendan Burgess, May 12, 2011.

  1. CU Manager

    CU Manager Frequent Poster

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    @Slim : I agree with your assessment of MABS. I have no problem with genuine cases but quite a number of people who experience a drop in income are just not willing to lower their standard of living to reflect their changed circumstances. They run to MABS and fill in unrealistic figures for "essential" outlay. Some of the stuff we have had to challenge MABS on were:
    • Costs for landline telephone and 2 Mobile a/c's - all three are not required!
    • High petrol costs and other motoring expenses even though the member claims they ahve little work - where are you going then?
    • Cigarettes and socialising costs - no sacrafice offered here, whereas responsible people cut back what they can't afford
    • ESB and Gas bills bigger than my own with no backup
    On top of that, local knowledge means we are aware of nixers they might be doing but not declaring to MABS or that they are seen every other day in the pub.
    Its convenient for some anti-credit unionists to suggest loose loan assessment as the reason for these things but for anyone living in the real world, it is unsurprising that the vast majority of such cases are caused by a change in circumstances as this recession continues to bite.
    The trick is to get such members to live up to their responsibilities.
    It is not a massive problem (in % terms) but a frustrating one. Its all so easy for contagion to take effect if the CU is seen to be soft on such issues.
     
  2. kaplan

    kaplan Frequent Poster

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    Imagine if a poster claiming to be a banker came on this site and attacked MABS.

    Are MABS anti-credit unions as being suggested here on this thread?

    Maybe credit unions should use the following health warning on their loan agreements: Warning if you don't keep up your loan repayments we will force you to give up cigarettes and stay out of the pub.

    It's not that funny : Recall the credit union that tried to have a customer committed to jail.

    Is it the case that if a customer can't cut their cloth to the credit union's measure that they will have the full force of legal enforcement proceedings applied no matter what MABS statement of means establishes? Can credit unions objectively distinguish between can't pays and won't pays?

    Is it not the case that credit unions having a policy not to allow transfers want to maximise loan interest income? Is it not the case that this becomes more acute when profits are plummeting? Is it not the case that this practice is anti-consumerist?
     
  3. CU Manager

    CU Manager Frequent Poster

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    @Kaplan: MABS regularly revise their initial assessment when challenged so I wouldn't presume as you seem to have done, that MABS is right and the CU is wrong. Again, obviously an outsider, you fail to appreciate the CU difference - we have the local knowledge!
    CU's dont have customers, we have members - you must be mixing us up with banks!

    CU's are not-for-profit so your issue with CU practices "when profits are plummeting" is misplaced and misguided. Again you seem to mistaking us for banks.
     
  4. kaplan

    kaplan Frequent Poster

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    I thought credit union members were also their customers and that profit (if any) is the bit left over after covering expenses -credit unions call profit "surplus" so as to avoid linkages to taxable profits. Without profit they cannot fund reserves (capital) or pay a dividend (which for most people was seen as similar to interest before 2009). Is it not the case that credit unions are credit institutions just like banks? The credit union difference is seen in what profit/surplus is used for - it's not used to reward external shareholders rather for the benefit of its customers(consumers) who are also its owners (members).

    Back to the thread: anti-consumer practices such as not agreeing to transfer shares (subject to legal minima) illustrates a uniquely Irish unreconstructed credit unionist view that rejects consumer protection principles and codes on the basis that "credit unions do not have customers they have members". The contradiction is this, if I have a share account or loan account I am not protected under any consumer protection code but if I buy insurance I am and the staff of the credit union must be competent.
     
  5. CU Manager

    CU Manager Frequent Poster

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    I think we have seen very limited number of instances where a CU has refused to allow a share to loan transfer. Speaking to my fellow CU managers, the practice of granting such transfer is common throughtout the country. I suspect that of the few examples being referred to here, it could be the case that the member is not, in fact, in financial difficulty when seeking the transfer and this might be the reason for teh CU refusal.
    At the outset the member agreed to a credit agreement/contact to pay the full amount of the loans granted while pledging shares as security. If a member didnt want to pledge the shares in the first place then he/she should have withdrawn them prior to entering the contract. If, on the other hand, the member has suffered a change of circumstance which makes him/her less able to afford the agreed repayments, then a s/l transfer is appropriate, as long as the member demonstrates the need (adequately proves change of circumstances).
    The is the business model that CU's adhere to. there is nothing anti-consumer about it.
     
  6. ClubMan

    ClubMan Frequent Poster

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    Well it seems to me that my friend's CU are doing their damnedest to prevent this happening - won't even answer the very specific and clear questions asked about the loan so far and have just asked for them to be put in writing (as opposed to email) for some reason so we still haven't progressed past square one after weeks of trying...
     
  7. demoivre

    demoivre Frequent Poster

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    There is no mention at all in Section 32 5 of the CU Act that a member must be in financial difficulty/ has had changed circumstances in order to do a share / loan transfer.
     
  8. CU Manager

    CU Manager Frequent Poster

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    Correct. I never said there was. I was merely stating that it is custom and practice in many CU's to only allow for share to loan transfers in circumstances of financial difficulty.
    I have outlined in previous posts the rationale for CU's wishing to hold onto the shares pledged by the member when taking out the loan in the first place.
     
  9. demoivre

    demoivre Frequent Poster

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    Fair enough so would you accept that it is the entitlement of a member to offset shares against a loan, under section 32 5 of the CU Act, notwithstanding the fact that some CU's may not wish to allow this ?
     
  10. tvman

    tvman Frequent Poster

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    Hi CU Manager

    would you accept that the quoted interest rate on CU loans significantly understates the effective interest rate given members are required to maintain 25-30% of the loan balance as shares at nominal or no interest/dividend yield?

    e.g. If I have a €10K loan @ 8% and I have to maintain €2.5K in shares, with no dividend paid my effective interest rate is 800/(10K-2.5K) = 10.66%. This is 33% higher than the quoted interest rate.

    I think it would be reasonable to suggest that many credit union members would not be particularly financially aware - making this lack of transparency pretty questionable.

    By the way I am a supporter of the Credit Union movement .
     
  11. CU Manager

    CU Manager Frequent Poster

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    I don't believe so. My reading of the Act is that this is at the discretion of the credit union. I might raise the issue with the Regulator though for clarity sake. I will let you know if I get a response.
     
  12. CU Manager

    CU Manager Frequent Poster

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    @tvman: yes I see your logic there. One thing though, there is no requirement to have a certain % in savings - not in my CU anyways. Loan assessment is done on ability to repay as well as credit history (in our CU and elsewhere as evidenced on the ICB)
     
  13. tvman

    tvman Frequent Poster

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    Do you mean that you do not operate a system where a member (with a perfect credit score) who had say €100 in shares could borrow €10K?
     
  14. ClubMan

    ClubMan Frequent Poster

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    The CU Act (section 32) seems to imply that at the time that a loan is advanced the member must have at least 25% of the borrower sum on deposit (savings or shares) even if the legislation also allows for this amount to be offset against the loan once advanced.
     
  15. ClubMan

    ClubMan Frequent Poster

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    I can't see how such leveraging is possible under the CU legislation - see above.
     
  16. tvman

    tvman Frequent Poster

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    I'm just wondering if that's what CU Manager meant
     
  17. CU Manager

    CU Manager Frequent Poster

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    @tvman: A member in our CU can apply for any loan amount as long as they have a minimum of €100 in savings (the €100 is not a legislative requirement, just a policy of the CU). We apply an affordability calculator to separate the can pays from the can't pays and use credit scoring to try to form an opinion on separating the won't pays from the will pays
     
  18. ClubMan

    ClubMan Frequent Poster

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    So my friend's CU finally got back and they are insisting that share capital at the time of taking out a loan is pledged as security as part of the credit agreement (which I have to double check) and in exceptional circumstances the board may allow the withdrawal or loan transfer of shares but only those above 25% of the outstanding loan. The letter also implies that under NO circumstances can shares be withdrawn (fair enough) or offset against the loan (not fair enough since the CU Act obviously allows for) if it would leave the share balance below 25% of the loan balance. In my opinion this is a (deliberate or otherwise) misinterpretation of the legislation and their policy on offsetting shares against loans is detrimental to the financial needs of members such as my friend. I will be suggesting that they push the issue but I don't know if they are inclined to do so even though cashflow is critical here so reducing the loan balance, keeping the term the same and making lower ongoing repayments is the best course of action for their situation right now.
     
  19. CU Manager

    CU Manager Frequent Poster

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    Hi Clubman
    Does your friend want to reduce the loan balance because of financial distress or just because he/she wants to reduce his/her interest payments (i.e. affordability is not an issue).
    I am just trying to understand the motivation of the borrower and the CU
     
  20. ClubMan

    ClubMan Frequent Poster

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    Financial distress - this is simply one of a number of steps being taken over the past few months to regain control of the finances. On interest only on the mortgage for the past few months and will probably need to extend this again otherwise things are simply not manageabe. A CC balance has been significantly reduced but remains a priority. If it was possible to withdraw the CU shares it would be immediately paid off the CC but that's obviously not an option.