# Has a Credit Union ever liquidated and distributed net resources to the members ?



## MrEarl (13 Jan 2016)

Hello,

While I am coming at this from a position of almost zero knowledge, I was wondering has there ever been a voluntary liquidation of a Credit Union (CU), with net assets distributed to the members ?

Has anyone ever explored the possibility of going this route, rather than be "compelled" to merge, despite being in good financial health ?

Personally, I think it might be an option worth considering for smaller credit unions, if they do not want to be forced into a merger, simply due to lack of scale (and by extension, resources to deal with such things as compliance and reporting).  In time, no doubt a larger CU would then take over the area or other common bond which previously held the original CU together.


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## Slim (13 Jan 2016)

Berehaven CU pops up in Google search: [broken link removed]


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## Brendan Burgess (13 Jan 2016)

Hi Mr Earl

I agree that this would be a much better option for many credit unions.  


I wrote about it here at the time 

*The lessons from Berehaven Credit Union*

"So the enterprise was unsustainable and guaranteed to become insolvent in time. The board should have realised that its business model was no longer viable. It should have opted for an orderly wind down, where it could have collected in loans and repaid the savings and deposits to members. A High Court liquidation is a needlessly expensive and needlessly disruptive way to close down a solvent enterprise.



The board should have realised this at least five years ago and voted to wind down the business at that stage. It's very difficult for a community based board to face up to this reality, so the Central Bank should have forced it to do so. The Central Bank should order a credit union to wind itself down long before imminent insolvency becomes a threat to members' savings."

http://www.askaboutmoney.com/threads/article-the-lessons-from-berehaven-credit-union.188505/


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## MrEarl (14 Jan 2016)

Thank you Mr. Burgess,

I am shocked to think that the directors of various boards around the country are not actively exploring this option at the moment as it would appear to be benefical for the current members of solvent credit unions, while in time I could see the larger credit unions opening offices to replace those smaller credit unions which are wound up.


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## Black_Adder (14 Jan 2016)

There are some differences about Credit Unions that are not widely understood.

But first on the creature called 'insolvent'. This at a simplistic level means that a Company cannot pay its debts as they become due. So companies that have substantial assets may not be able to pay their debts as they fall due. Conversely when a company has an excess of liabilities over assets - it may be able to pay its debts when they come due and therefore not be insolvent.

Credit Union biggest liability is Member Shares. Given that there is a State Guarantee of €100k why then would all the Members be rushing to the door unless they were mislead as to this fact. So we can take it that there is considerable mischief when it come to insolvency and Credit Unions.

Whether the business is profitable or  not is a different matter.

As to MrEarls being shocked, the idea of a Credit Union is to lend not be a savings club.

At the moment the Credit Unions are misinterpreting the EU Credit Directive and the mischief created by the Prudent Lending circular sent out by the Central Bank. 

Insolvency therefore is misunderstood.


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## Brendan Burgess (14 Jan 2016)

Hi Black Adder

The point is that many credit unions while solvent, are no longer viable. In time, their liabilities will exceed their assets. The time to address this is now and to go into wind down.  It will take a few years to collect all the loans or they can be sold to another credit union. 

There is no mischief about the government guarantee.  The taxpayer should not be bailing out credit unions just because their boards failed to face up to the fact that they were no longer viable.  The board should not be relying on the fact that the members' savings are ok because the taxpayer will make up the deficit. 

In theory, the idea for a credit union is to lend. But they have become savings clubs and they destroy members' value. 

I don't know the point you are making about the EU Credit Directive.  The Central Bank is doing a terrible job supervising credit unions. But the Credit Unions invite it on themselves by being so stubborn. 

Brendan


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## Black_Adder (15 Jan 2016)

Viability of Credit Unions is not transparent because to conduct research you have to have access to accounts. The only bodies that have this are Central Bank of Ireland, perhaps Irish League and maybe the breakaway urchin CUDA.  Accounts should be made available by Central Bank to help research.

What I can say with certainty is that even with Total Assets of €10 a Credit Union is viable IF:

1. It lends 70% of its Members Shares at 12%. Interest Income approximately €960k 9.6%
2. Staff Costs - €300k 3%
3. Non Staff Costs €360k 3.6%
4. Surplus for Dividend and reserves €300k 3.0%

The issue on write off and provisions: If we would see the collective 2015 accounts there are extraordinary write backs. Why is this? Because
CU eventually got their act together on collections.

The biggest non-staff operating cost is loan and savings insurance. A single cost that if necessary could be cut. Name another business that could cut a significant cost without redundancy to a cost that most don't even they had the benefit.

The Dividend is declared after year end and means that there is a low 'interest cost' 

Non viable is a bogus term. If a CU is relying on investment income - which is falling through the floor - AND do not lend
then they may be Non viable. 

What has happened by over zealous infliction of regulations and wrong interpretation by Credit Unions unused to having a metaphorical boot to their throats is that they have lost the two competitive advantages they had - Speed of Loan and Certainty that I will get it.

How many Credit Unions actually failed?


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## Brendan Burgess (15 Jan 2016)

Hi Black Adder

Despite the problem with your calculator, you are still proving our point.

They are charging their customers 12%!    There is no need for a Credit Union at 12% as you can get loans elsewhere much cheaper. 

That is a main reason why they are not lending. 

You make no provision for bad debts. If their customers are the type who have to pay 12%, then they are sub-prime and the loan losses will be very big. 

The insurance is a cod and should be scrapped.

Brendan


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## MrEarl (15 Jan 2016)

Brendan Burgess said:


> ....They are charging their customers 12%!    There is no need for a Credit Union at 12% as you can get loans elsewhere much cheaper....



Hello Mr. Burgess,

Not intending to be rude here and I agree with much of what you have said, but the true fact of the matter is that Credit Union borrowers are actually paying closer to 16%, when we consider the impact of having to maintain 25% of the loan amount as shares (earning close to zero interest in many cases).

The point being made about the insurance is very well made by all.  Dare I ask why they credit unions don't scrap this cover ?


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## Brendan Burgess (15 Jan 2016)

MrEarl said:


> the true fact of the matter is that Credit Union borrowers are actually paying closer to 16%,



Good point and one which I have made often before. 

But for many customers the rate is far higher than this because they pay down their loan while continuing to add to their savings. 

And you have the bonkers position of credit unions actually offering "secured loans" @ "only" 6%.  In other words, if you have shares of €10,000 and need to spend €10,000, they will lend you €10,000 at only 6% but you don't need to touch your shares! 

If AIB or BoI tried to do this, there would be a Central Bank investigation.




MrEarl said:


> The point being made about the insurance is very well made by all. Dare I ask why they credit unions don't scrap this cover ?



Apparently the members love it. 

Credit Unions destroy value and it's their members value which is being destroyed.


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## Slim (16 Jan 2016)

Brendan Burgess said:


> Good point and one which I have made often before.
> 
> But for many customers the rate is far higher than this because they pay down their loan while continuing to add to their savings.
> 
> ...


It's not as simple as that. What percentage of credit unions charge the maximum 12%? In many cases, both historically and more recently due to the banking crash, members of credit unions have access to loans from their own organisation whereas they may not be entertained by banks. The maintenance of Loan & Life Savings insurance provides some comfort that, if a member dies or becomes permanently infirm, neither they nor their family will lose the savings or be burdened by the loan.

It's not always about the numbers.


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## MrEarl (17 Jan 2016)

Brendan Burgess said:


> ...And you have the bonkers position of credit unions actually offering "secured loans" @ "only" 6%.  In other words, if you have shares of €10,000 and need to spend €10,000, they will lend you €10,000 at only 6% but you don't need to touch your shares!
> 
> If AIB or BoI tried to do this, there would be a Central Bank investigation..



Was the use of the word "bonkers" intentional there Mr. Burgess ?

If not, then I take it you have not seen *this* little offering from PTSB.


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## Brendan Burgess (17 Jan 2016)

Hi Mr. Earl

That is an astonishing coincidence. No, I was not aware of the Bonkers product.



> Under the terms and conditions of this product, Permanent TSB will require the customer to hold either a Permanent TSB Deposit Account, a Third Party Savings Bond or the proceeds of a Life Insurance Policy as security against the loan. There are four tiers for the product: 100% Cash Secured Loan 6.4% - 75% Cash Secured Loan 7.0% - 50% Cash Secured Loan 7.5% - 25% Cash Secured Loan 8.0%




They should be ashamed of themselves promoting this on behalf of ptsb. I have used Bonkers.ie and it's a reputable brand.

There is validity in having the loan backed by a bond which the borrower can't cash. But there is no validity in using a ptsb deposit account.


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## Brendan Burgess (17 Jan 2016)

Slim said:


> It's not as simple as that. What percentage of credit unions charge the maximum 12%?



12% was the figure used by Black Adder to show how a CU could be viable.  They are even less viable when they charge 6%. 




> In many cases, both historically and more recently due to the banking crash, members of credit unions have access to loans from their own organisation whereas they may not be entertained by banks.



Agreed. But this is a double edged sword. If they lend to the socially or credit disadvantaged, their bad debts will be much higher.  Borrowers who can get loans elsewhere, can get them cheaper, and don't need to pay a premium rate for insurance they don't need. 





> The maintenance of Loan & Life Savings insurance provides some comfort that, if a member dies or becomes permanently infirm, neither they nor their family will lose the savings or be burdened by the loan.



But it's just too expensive.  Why not strip out that cost and allow borrowers optional insurance on their savings and deposits? Then the cost will be transparent.


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## Slim (17 Jan 2016)

Brendan Burgess said:


> But it's just too expensive.  Why not strip out that cost and allow borrowers optional insurance on their savings and deposits? Then the cost will be transparent.


It's a charge on general expenses before surplus is declared. So, if it affects the dividend, it affects the dividends of the higher saver more than that of the modest saver who needs to borrow.


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## Brendan Burgess (18 Jan 2016)

Slim said:


> So, if it affects the dividend, it affects the dividends of the higher saver more than that of the modest saver who needs to borrow.



Sorry, other than stating the obvious that makes no sense to me. 

I presume, but maybe it's a wrong presumption, that the credit unions coordinate their interest rate charged and paid policies? If they are paying out money for anything, it affects the rates they charge and the rates they pay.  

As with any financial product, it would be much better if they showed the premium for the various packaged insurances and allowed people to opt in or out of them.  

Brendan


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## Slim (18 Jan 2016)

Brendan Burgess said:


> Sorry, other than stating the obvious that makes no sense to me.
> 
> I presume, but maybe it's a wrong presumption, that the credit unions coordinate their interest rate charged and paid policies? If they are paying out money for anything, it affects the rates they charge and the rates they pay.
> 
> ...


The LP&LS(Loan Protection & Life Savings) insurance is priced at Xc per '000 of savings/loans. This means everybody gets it and nobody can opt out. If If the insurance was optional, members of more modest means may not choose it as it will cost more than currently. It's a co-operative benefit. Also, to make your counter argument, it would diminish the appeal of holding shares against borrowings. It might not strike you as the most effective model but it has grown over 50 years and to remove this would throw everyone to the mercy of the banks.


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