# Credit Unions to be allowed to charge 24% a year APR



## 24601 (7 Jan 2019)

Credit Union's are restricted under law to charging a maximum of 12% per annum (1% per month). This effectively renders most small lending to those at risk of financial exclusion as loss-making - despite this credit unions are still, by and large, offering these loans to members. 

Provident, to take an example, can charge 187.2% APR to loan someone 500 quid for a year, yet a credit union is limited to 12% for the same loan. Provident generates €653 in interest whereas the credit union generates €33. This is unlikely to even cover the costs of administration and underwriting, let alone facilitate the pricing of risk. This is madness. The Cabinet refused to approve a doubling of this APR limit for credit unions last week meaning that they are explicitly endorsing the extortionate rates charged by moneylenders whilst hugely restricting credit unions. 

https://www.irishtimes.com/business...-to-expand-lending-by-credit-unions-1.3748083


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## NoRegretsCoyote (7 Jan 2019)

Credit unions source funds at close to zero, and rely on volunteer labour for much of their staffing. They are also supposed to know their client in a way that the big banks don't bother with any more.

So funding is close to free, labour is cheap and default risk should be reduced by their knowledge of their customers, and they are not expected to make a profit.


So why can't they break even when lending at 12%? I think it's down to really, really inefficient work practices and processes.

I've only been in a credit union once in my life and it felt like I'd stepped back into 1983.


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## Brendan Burgess (7 Jan 2019)

The Minister for Finance has said today is to amend the legislation to allow credit unions charge up to 24% APR. 

https://www.finance.gov.ie/updates/cuac-report-implementation-group-final-report/

“I note that the Final Report contains a number of recommended actions which are the responsibility of my Department. While I will consider the majority of these recommendations in due course, I have asked my officials to begin preparations to make the legislative amendments required to raise the Credit Union interest rate cap from 1% per month to 2% per month, as recommended in the report and previously recommended by CUAC. This proposal will then be brought to Cabinet as part of the legislative process’.

Brendan


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## Brendan Burgess (7 Jan 2019)

Of course, the true APR is much higher than 24%  if the borrowers are required to hold shares at the same time. 

Brendan


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## 24601 (7 Jan 2019)

NoRegretsCoyote said:


> Credit unions source funds at close to zero, and rely on volunteer labour for much of their staffing. They are also supposed to know their client in a way that the big banks don't bother with any more.
> 
> So funding is close to free, labour is cheap and default risk should be reduced by their knowledge of their customers, and they are not expected to make a profit.
> 
> ...



They don't source funds at close to zero. All ILCU affiliated credit unions have to pay life protection premiums on savings. Regulatory levies are generally levied on the basis of total assets or savings. They must maintain a blanket total regulatory reserve of 10% of total assets (which can only be funded from the surplus/profit). Most still pay a dividend, however nominal. Many have been charged negative interest rates on liquid investments over the past couple of years. They also generally don't depend on "volunteer labour" for operations - nearly all volunteer roles are governance roles. There's pretty much no such thing as a volunteer teller any more and all credit unions are professionally managed now.

I'm not sure what you mean by the claim that they are not expected to make a profit. They may be co-ops but they still depend on generating a surplus or they wouldn't exist at all - they may not be particularly good at it, but that's a different story. Also, them knowing their members "in a way that the big banks don't bother with any more" isn't how things work anymore and was a significant part of why such high arrears presented post-crash. Character-based lending is a ticking time bomb.

So funding is not close to free. Labour is not cheap and loans have to be underwritten in accordance with far more stringent compliance and risk management requirements. The costs associated with small, short-term loans to a demographic that is at risk of financial exclusion far exceed the interest recovered at 12% APR.


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## Monbretia (7 Jan 2019)

NoRegretsCoyote said:


> Credit unions source funds at close to zero, and rely on volunteer labour for much of their staffing. They are also supposed to know their client in a way that the big banks don't bother with any more.
> 
> So funding is close to free, labour is cheap and default risk should be reduced by their knowledge of their customers, and they are not expected to make a profit.



Totally inaccurate for today's credit unions, might have had some relevance  back donkey's years ago.


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## 24601 (7 Jan 2019)

Monbretia said:


> Totally inaccurate for today's credit unions, might have had some relevance  back donkey's years ago.



His/Her reference sample is probably unhelpful given there are c.250 of them and he/she has only stepped foot in one credit union ever.


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## Feemar5 (7 Jan 2019)

Credit unions are like banks now - they have lost the personal touch and in our local credit union all staff are full time employees.    I don’t agree that they should be allowed to double their interest rate.


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## Brendan Burgess (7 Jan 2019)

The problem for the Credit Unions is that charging 24% on a loan of €200 is still only €48.  It would cost them far more than that to process the paperwork. 

24% on a performing loan of €10,000 would be outrageous but I don't think that this rate is being targeted at big loans. 

Maybe the legislation should allow them to charge a €10 a month minimum processing fee? 

Brendan


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## 24601 (7 Jan 2019)

It depends. For lower value loans a fairly straight forward application and approval process could be utilized. There’s no reason why loans up to €500 couldn’t be turned around in 15 minutes for many credit unions. 

It’s more about pricing in the risk as loans carrying this rate are likely to be aimed at people who can only afford to borrow up to a grand or so and the cost of non-recovery across the product would need to be recovered as arrears are likely to run at 10% or so across the category. It’s surely preferable for a credit union to charge someone 30% than a moneylender charging 200%. It could be designed in such a way to be a breakeven option for credit unions and might have the added long-term positive of creating future borrowers of good standing that can manage money better and borrow larger loans with better margins for the credit union. 

If they’re willing to cap the APR they could just as easily give the minister power to impose a max loan amount at which the rate can be applied which could be amended by statutory instrument as needed.


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## NoRegretsCoyote (8 Jan 2019)

@24601 ; @Monbretia 

Perhaps I was being overly provocative with my post. I am not an expert on the CU sector. The one time I have ever been inside a credit union was recently enough, in late 2017, and they had not one but *two *volunteer tellers on duty. All I needed to do was lodge a cheque to a relative's account and the whole process took two hours and needed a second visit, and this was after I had called in advance. I've never been anywhere less keen to take my money

I appreciate that sourcing funds does not cost zero, but it is still pretty low and plentiful, judging by the fact that their deposit base exceeds their loan book by a factor of four. Obviously they are expected to generate a surplus, but they don't have analysts expecting a certain RoE that a commercial bank does.

I have no objection to lifting of the price cap per se. I just find it bizarre that they are looking to increase margins at a time when interest rates are much lower than they were when the cap was set twenty years ago. Maybe they've fallen into a bit of a space where AML and prudential requirements are squeezing players at the smaller end of the credit market. But if this is the case surely they should be trying to look at their own cost base, rather than just pushing up the cost of lending.


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## RedOnion (8 Jan 2019)

@NoRegretsCoyote 
With respect, I think you need to do a bit of
research into the CU sector. Pick a large credit union, and check if their annual report is available online, and read that as a starting point to get a better understanding.

Credit unions don't need to charge higher margins per se. To survive, they need to lend more money. And the people they'd happily lend to at 6% to 12% per annum don't actually need to borrow from them. So CUs want to lend to the people who are turning to money lenders, but 12% is not enough to cover the risk in most cases. That's why they want the cap lifted.


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## RichInSpirit (8 Jan 2019)

But credit unions are meant to be the "nice guys".
So if one of these "small" short term high interest rate loans gets into difficulty or is totally unpaid they won't have the same fear inducing collection tactics of traditional money lenders. Also if a loan remains unpaid for a time does interest continue to be added?
24% interest rate is really attacking the poorest of the poor.


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## RedOnion (8 Jan 2019)

RichInSpirit said:


> 24% interest rate is really attacking the poorest of the poor.


The alternative: 


24601 said:


> Provident, to take an example, can charge 187.2% APR to loan someone 500 quid for a year,



But I agree. The ethos of the CU movement gets called into question. All you have to do is look at the CU sector in the UK where they are borderline moneylenders in some cases. 3% per month is typical.


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## NoRegretsCoyote (8 Jan 2019)

RedOnion said:


> @NoRegretsCoyote
> With respect, I think you need to do a bit of
> research into the CU sector. Pick a large credit union, and check if their annual report is available online, and read that as a starting point to get a better understanding.



@RedOnion I am familiar with how banking works and concepts like adverse selection.

Credit unions were, inter alia, set up to provide smaller-value loans to people who banks were not interested in, probably more due to the cost to the banks of underwriting than default per se. Cost to credit unions was kept down as default risk on lending was mitigated by making borrowers hold on to shares, personal knowledge of borrowers' own circumstances, and also from the social pressure on borrowers of knowing that they were borrowing from your own community.

I think it is very odd that this business model worked well 20 years ago when interest rates were higher (with lower room for margins), but won't work now.

Should credit unions be actively seeking borrowers who are more likely to default? This seems to go against the traditional lending practices that they adhered to. I don't think that lending to higher risk borrowers by credit unions is Lehman 2.0, I just think it raises fundamental questions about the purpose of the sector.

Anyway I took your advice and looked at the annual report of a big credit union in a large town outside Dublin. They seem to only be generating surpluses due to large writebacks in recent years. On the expenditure side the regulatory costs and insurance are indeed very high for the size of balance sheet. I was also surprised by some of the ancillary spending though: €450k on IT, €165k on advertising, and €134k on sponsorship, AGM and convention expenses. These seem like a lot given net interest income of around €6m.


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## RedOnion (9 Jan 2019)

NoRegretsCoyote said:


> @RedOnion I am familiar with how banking works and concepts like adverse selection


Excellent. But we're talking about credit unions.

My point was more that 'typical' credit unions aren't run like 'Penny Banks' with volunteers recording transactions in a paper ledger. The experience you described is no longer typical of the sector, and most definitely not of those credit unions pushing for legislative changes.
I'm not sure which CU you looked at, but IT cost for most has been unusually high in the past few years due to mergers. However, their IT spend per customer is very competitive compared to banks.


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## 24601 (9 Jan 2019)

NoRegretsCoyote said:


> @RedOnion I am familiar with how banking works and concepts like adverse selection.
> 
> Credit unions were, inter alia, set up to provide smaller-value loans to people who banks were not interested in, probably more due to the cost to the banks of underwriting than default per se. Cost to credit unions was kept down as default risk on lending was mitigated by making borrowers hold on to shares, personal knowledge of borrowers' own circumstances, and also from the social pressure on borrowers of knowing that they were borrowing from your own community.
> 
> ...



You do realise that this idea of "personal knowledge of borrowers' own circumstances" is one of the underlying reasons for the credit frenzy we had during the Celtic Tiger? Banks and credit unions alike lent to people who couldn't afford it but sure it was grand because Mary or John were "sound" and "good for it". Character based lending is a nonsense and doesn't mitigate risk but rather increases it exponentially. That's why some credit unions were carrying arrears of 30/40 or even 50% of their loan books around 2010/11. 

The business model never worked particularly well. When credit unions were generating their "best" returns of assets it was very often on the basis of reckless lending coupled with the investment of surplus funds in risky products. 

Credit unions already lend to people who are more likely to default and cater for this demographic insofar as they can as it aligns with their operating principles but prudent lending requirements and the cap on APR makes it a loss-making exercise and many are stopping it altogether so this development should be welcomed by anyone who would rather someone at risk of poverty borrowing to replace their washing machine for 3 or €400 at 16 or 17% rather than 200%! It's a no brainer. If credit unions could build up volume in this type of lending it might actually make them some money notwithstanding the larger than expected arrears. All other loan products are priced for risk so I don't really understand anyone's issue with this. The amount of interest earned on these loans at the minute doesn't cover the underwriting costs let alone the cost of arrears and provisions.


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## 24601 (9 Jan 2019)

NoRegretsCoyote said:


> @24601 ; @Monbretia
> 
> Perhaps I was being overly provocative with my post. I am not an expert on the CU sector. The one time I have ever been inside a credit union was recently enough, in late 2017, and they had not one but *two *volunteer tellers on duty. All I needed to do was lodge a cheque to a relative's account and the whole process took two hours and needed a second visit, and this was after I had called in advance. I've never been anywhere less keen to take my money
> 
> ...



There's 250 or so credit unions and some of them are backwards but the type you visited is a dying breed. How did you know they were volunteer tellers out of curiosity? I've worked with a huge number of credit union staff and I've never come across a volunteer teller but I also wouldn't be able to tell from looking at them! 

Funds are plentiful, yes, and credit unions are in fact pretty keen to *not *take your money at the moment for that exact reason. They can't lend out enough money but savings are piling in which creates a huge pressure on their capital since they have to keep a blanket 10% of total assets in a regulatory reserve. A significant number of credit unions have introduced temporary caps on savings to try mitigate this problem (which is a total nonsense to begin with, but that's another debate)

Interest rates being low is also a huge problem for them since they have such excess funds. When you lodged that cheque to your relative's account for every €100 the credit union probably lent about twenty of it, had to insure it for life savings protection, had to reserve €10 of it and likely went across the road to AIB/BOI/PTSB etc. and deposited a large chunk of the rest of it a 0% with a small portion of it being invested in longer term products that are probably yielding, if they're very lucky, 1%. They literally don't have any want or need for your money and many are telling their members this but you know what happens, money keeps piling in. This is a serious medium-term viability pressure for some credit unions. 

The cost of compliance is massive and this has to be paid for. I don't really know how they can look at their cost bases to any material degree in this sense. They all have to have a CEO, Auditor, Internal Audit Function, Compliance Officer and Risk Management Officer regardless of whether they have €1m in assets and 1,000 members or €500m and 100,000 members. They all have to have a core banking system and there's only two real players available creating a duopoly but IT spend isn't astronomical when compared with the banks. Then there's the additional compliance costs such as AML and GDPR both of which are becoming specific jobs in themselves.


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## Protocol (9 Jan 2019)

24601 said:


> Interest rates being low is also a huge problem for them since they have such excess funds. When you lodged that cheque to your relative's account for every €100 the credit union probably lent about twenty of it, had to insure it for life savings protection, had to reserve €10 of it and likely went across the road to AIB/BOI/PTSB etc. and deposited a large chunk of the rest of it a 0% with a small portion of it being invested in longer term products that are probably yielding, if they're very lucky, 1%. They literally don't have any want or need for your money and many are telling their members this but you know what happens, money keeps piling in. This is a serious medium-term viability pressure for some credit unions.



Perhaps off topic, but why don't CU cut their lending rates to boost lending and income?

Why not compete against PCPs?

They are earning maybe 0%-0.5% on deposits and maybe 1% on bank bonds.

Why not earn 4%-5% on car loans?

Instead they seem to charge 7% on car loans, or more.

My CU is actually *increasing *rates, while PCPs are available at 0%-4%.


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## 24601 (9 Jan 2019)

They have cut their rates significantly but with varying results. In most cases it has been ill-judged. People generally aren't price sensitive for small-medium sized personal loans (a point illustrated by this discussion!). Lending is growing modestly across the sector and would be in any case given the economic environment so the credit unions that have embarked upon significant rate discounting have ended up running hard to stand still - loan books are up but loan interest is stagnant. 

They can't compete with PCPs, obviously. They're generally close to zero APR and the costs associated with setting up the infrastructure to do HP type products are prohibitive and it's unlikely that there would be regulatory approval for such a product. There's also a huge amount of risk involved if you don't understand the autotrade market and regardless of all that, PCPs and car finance generally is sold at the point of sale - nobody can compete with that level of convenience. A PCP payment is always going to be small when compared with a straight-up loan on the same car so there's no getting around that cashflow USP for a credit unions. 

They do earn 4-5% on car loans at them moment but the advent of PCP finance has reduced the market share considerably - this will likely rebound though. In any event most credit union loan books comprise of a significant number of car loans but there has been a shift towards the 2nd hand market and as a result the overall book tends average small/medium shorter term car loans which require an APR of 6-8% to make sufficient margin. The churn rate on credit union loan books is staggering. 

PCPs are not comparable with a credit union car loan. They're not the same product. With a PCP you're financing the cost of the depreciation on what is someone else's asset whereas with the credit union loan you're buying the car day 1 and renting the money from the CU. The difference in payments on a new car worth 30k would be somewhere between 200 and 400 per month on any personal car loan vs PCP.


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## Protocol (10 Jan 2019)

OK.

But why not offer car loans at 4% instead of 7-8%?

4% is 4x times better return than 1% on bank bonds.

At 4% would not some PCP customers be convinced to switch, as with CU loan you own car outright.


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## Brendan Burgess (10 Jan 2019)

24601 said:


> . People generally aren't price sensitive for small-medium sized personal loans (a point illustrated by this discussion!).



This is a key point that is kind of missed. 

24% of €1,000 for a year is just €120 more than a rate of 12%.  Or put it another way, €2 a week.  

I am a big fan of APR, but it's not that helpful on small loans.

Brendan


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## Brendan Burgess (10 Jan 2019)

24601 said:


> There’s no reason why loans up to €500 couldn’t be turned around in 15 minutes for many credit unions.



Agreed for loans to long-term creditworthy customers.

But these loans are targeted at people in bad circumstances who would require a lot of management and who would have a high probability of default.

There is no way that a business, other than a moneylender, would lend to these customers. 

The well established, profitable, Credit Unions should lend to them as part of their mission and accept that they are going to lose on a lot of them.  The struggling Credit Unions should avoid them.

Brendan


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## NoRegretsCoyote (10 Jan 2019)

24601 said:


> There's 250 or so credit unions and some of them are backwards but the type you visited is a dying breed. How did you know they were volunteer tellers out of curiosity? I've worked with a huge number of credit union staff and I've never come across a volunteer teller but I also wouldn't be able to tell from looking at them!
> 
> Funds are plentiful, yes, and credit unions are in fact pretty keen to *not *take your money at the moment for that exact reason. They can't lend out enough money but savings are piling in which creates a huge pressure on their capital since they have to keep a blanket 10% of total assets in a regulatory reserve. A significant number of credit unions have introduced temporary caps on savings to try mitigate this problem (which is a total nonsense to begin with, but that's another debate)
> 
> Interest rates being low is also a huge problem for them since they have such excess funds.



@24601  I am sure they were volunteer tellers because their productivity was far below the minimum wage, although still greater than zero. 

Interest rates being low should also be an *opportunity *for credit unions, as it allows them greater margins below the legal cap. The problem seems to be that their products are not very interesting for whatever reason. I don't borrow in this space so am not hugely familiar with what's on offer but I know main banks offer unsecured lending in the low thousands with very little due diligence, and for car finance there is now PCP.




24601 said:


> You do realise that this idea of "personal knowledge of borrowers' own circumstances" is one of the underlying reasons for the credit frenzy we had during the Celtic Tiger? Banks and credit unions alike lent to people who couldn't afford it but sure it was grand because Mary or John were "sound" and "good for it". Character based lending is a nonsense and doesn't mitigate risk but rather increases it exponentially. That's why some credit unions were carrying arrears of 30/40 or even 50% of their loan books around 2010/11.
> 
> The business model never worked particularly well. When credit unions were generating their "best" returns of assets it was very often on the basis of reckless lending coupled with the investment of surplus funds in risky products.



My own understanding was that prior to the early 2000s, credit quality in the credit union sector was reasonably good. After that they got caught up in the easy lending of the time, and obviously arrears soared when one person in six lost their jobs between 2008 and 2012. Despite big fears at the time, very few credit unions actually needed a state-sponsored bailout due to arrears, and losses over the cycle were proportionately lower than at the banks. My own feeling (correct me if I am wrong) is that people prioritised paying back credit union loans over loans to the retail banks. The problems that emerged at certain credit unions seem to be down to poor governance.

If credit unions are struggling at the moment then there is a problem. The economy is booming, lending is growing, and interest rates are super low. If their business model doesn't work then they need a new one. Credit unions have a relatively light regulatory treatment, and are exempt from paying corporation tax. This is because of their local scale and positive social role they have played historically.  Some credit unions have started mortgage lending apparently, and now they seem to want to get into sub-prime personal lending.  I am not convinced that this easy tax treatment is merited any more if they are moving into the space of the banks and money lenders.



RedOnion said:


> *Excellent. But we're talking about credit unions.*
> 
> My point was more that 'typical' credit unions aren't run like 'Penny Banks' with volunteers recording transactions in a paper ledger. The experience you described is no longer typical of the sector, and most definitely not of those credit unions pushing for legislative changes.
> I'm not sure which CU you looked at, but IT cost for most has been unusually high in the past few years due to mergers. However, their IT spend per customer is very competitive compared to banks.




Credit unions are involved in taking deposits and giving out loans. This is banking under any definition. I appreciate IT spend has good reasons to be high, the ancillary stuff on conventions, AGMs, and advertising seems to be very elevated for a body that (by definition) has a local monopoly on credit union services.


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## Protocol (10 Jan 2019)

24601 said:


> They can't compete with PCPs, obviously. They're generally close to zero APR and the costs associated with setting up the infrastructure to do HP type products are prohibitive and it's unlikely that there would be regulatory approval for such a product. There's also a huge amount of risk involved if you don't understand the autotrade market and regardless of all that, PCPs and car finance generally is sold at the point of sale - nobody can compete with that level of convenience. A PCP payment is always going to be small when compared with a straight-up loan on the same car so there's no getting around that cashflow USP for a credit unions.



I am not suggesting that CU enter the HP / PCP market.

I am suggesting that CU compete on price with their personal loans against PCP.

Replacing bank bonds at 1% with loans at 4% means much more income.

However, I accept your points:

charging 4% would cannibalise the existing revenue from customers paying 7-8%

even at 4% there might not be more much volume lent


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## cremeegg (10 Jan 2019)

24601 said:


> Provident, to take an example, can charge 187.2% APR to loan someone 500 quid for a year,



Its actually 157.3%. That may not invalidate your point, but lets stay with the actual figures.


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## MrEarl (10 Jan 2019)

Hello,

24% interest rates are a very bad idea ....

Credit Unions are supposed to conduct individual credit analysis, to include testing the borrowers ability to repay a loan.  So, if someone is struggling to qualify for a loan at 12.68% when the Credit Union assess the borrower's ability to repay, how does increasing the rate to 24% result in them qualifying ?

People who cannot obtain a loan from a Bank, or a Credit Union, under the current arrangements have financial problems - be it their in ability to borrow under "normal terms", or a bad credit history.  So, how is charging them a higher interest rate helping them ?

The Credit Unions might think that they can now generate significantly more income each year from loan interest (which might help compensate for the loss of income that they traditionally generated on their surplus funds, by investing them or placing them on deposit with the Banks), but this is very short sighted, if even realistic ....


Are there suddenly going to be more people borrowing at higher rates, I doubt it.

...and even if there are...


The quality of those loans will be even more risky given the only people likely to borrow at 24% are those unable to secure cheaper funding, so the chances are that loans granted at this higher rate will have a greater risk of default, and result in the Credit Union having to write off my of their members loans in the future.

If the Government and the Credit Union movement want to do something to help the people, and also enable the Credit Unions to try and lend more, then why not offer some form of guartee scheme in conjunction with the SBCI for example ?   

We have the likes of the Credit Guarantee Scheme for businesses, a variation of that could be supported by the Dept of Social Enterprise, whereby a percentage of loans could be guaranteed by the Dept., to help Credit Unions underwrite risk from those unable to borrow under their criteria, but at 12.68%.  This guarantee could help support more lending, to those in need, while helping to protect the Credit Unions assets, or perhaps even helping to lower the applicable lending rate given the underlying security from the State.


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## 24601 (10 Jan 2019)

Protocol said:


> OK.
> 
> But why not offer car loans at 4% instead of 7-8%?
> 
> ...



No, credit unions could charge 0% on car loans but the monthly repayments would still be too high to compete with PCPs. It’s a cash flow product so it’s very much apples and oranges. Credit unions should focus aggressively on the 2nd hand market with an emphasis on nearly new cars from non-main dealers. The jury is out on whether a decrease in interest rates has a sufficiently positive impact on demand to cover the lost margin from the discounting. That said, some credit unions do it successfully. What I see as a big issue in pricing is the early redemption of loans. There has been a huge shift in repayment patterns over the last 10 years. Your typical 5 year car loan is generally repaid over three now. There could be credit unions with interest rates that low but I'm not sure of any. 

It would be an interesting for a credit union to try as a once-off exercise in January or July some year - just drop APR for car loans to 4% for the month and see what sort of spike there is.


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## 24601 (10 Jan 2019)

NoRegretsCoyote said:


> @24601  I am sure they were volunteer tellers because *their productivity was far below the minimum wage, although still greater than zero*.



So you haven't a clue whether they were volunteers or not. What does that sentence even mean?



NoRegretsCoyote said:


> Interest rates being low should also be an [B]opportunity [/B]for credit unions, as it allows them greater margins below the legal cap. The problem seems to be that their products are not very interesting for whatever reason. I don't borrow in this space so am not hugely familiar with what's on offer but I know main banks offer unsecured lending in the low thousands with very little due diligence, and for car finance there is now PCP.




For someone with limited familiarity with credit unions you do sure have a lot of opinions on them. Your familiarity with bank lending seems to be fairly unfamiliar too. Banks are required to do plenty of "due diligence" for loans "in the low thousands". They might have easier access to the information than credit unions but the process is by and large the same. I'm not sure what relevance interest rates really have in a credit union context at a time of depressed loan demand. They can't lend out enough money so there's no real opportunity. The best performing credit union have loans to assets of around 50%. It seems pretty clear that slashing interest rates would result in a loss of loan interest income and little much else. 

[QUOTE="NoRegretsCoyote, post: 1596249, member: 106686"][USER=87658]  My own feeling (correct me if I am wrong) is that people prioritised paying back credit union loans over loans to the retail banks. The problems that emerged at certain credit unions seem to be down to poor governance. [/QUOTE]

You're wrong. Credit Union arrears ballooned after the crash. They've done a marvelous job reversing this trend and cleaning up their loan books but there was plenty of credit unions with over half the loan book >10 weeks in arrears around 2011. I'm not sure on the overall average but I have in my head that it tipped 30%. Poor governance was definitely a factor though, yes.  

[QUOTE="NoRegretsCoyote, post: 1596249, member: 106686"][USER=87658] If credit unions are struggling at the moment then there is a problem. The economy is booming, lending is growing, and interest rates are super low. If their business model doesn't work then they need a new one. Credit unions have a relatively light regulatory treatment, and are exempt from paying corporation tax. This is because of their local scale and positive social role they have played historically.  Some credit unions have started mortgage lending apparently, and now they seem to want to get into sub-prime personal lending.  I am not convinced that this easy tax treatment is merited any more if they are moving into the space of the banks and money lenders.[/QUOTE]

Consumer credit demand has been falling recently. Consumer confidence is down and the economic outlook is a bit damper than the media would have you think. The overall consumer credit pie is about half the size it was during the Celtic Tiger. I'm not sure where you think these borrowers are going to spring from? Credit Unions are no longer lightly regulated. They don't pay corporation tax because they're non-profit co-operatives. Many credit unions have being doing small mortgages for years and credit unions have always done small "sub-prime" loans because it aligns with their mission/ethos. I don't know what the "space" of the banks and money lenders is but credit unions issue loans and collect deposits so they've been in whatever that space is for 50+ years, yes.

[QUOTE="NoRegretsCoyote, post: 1596249, member: 106686"][USER=87658] Credit unions are involved in taking deposits and giving out loans. This is banking under any definition. I appreciate IT spend has good reasons to be high, the ancillary stuff on conventions, AGMs, and advertising seems to be very elevated for a body that (by definition) has a local monopoly on credit union services.[/QUOTE]

You don't seem to know what a credit union actually is. Well, you kind of do, but you seem to have some sort of peculiar preconception of what they [I]should [/I]be. They may have a monopoly on "credit union services" but these are the exact same services offered by other institutions so I'm really not sure what you're trying to say at all. 

Also, AGM/convention expenses aren't "ancillary" - an AGM is required by law and credit unions have to send written notices to every single member. Also, if they don't advertise their services how do you reckon they'll do any business?[/user][/user][/user]


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