# Credit Union Lending Practice



## Baracuda (20 Aug 2011)

Came across this situation during the week and would like some advice from people that has experience of this or from someone who works in this area please. Sorry for the length of the post!!!

Mrs Blogs who has a credit union account and has €3000 in her account. She works part time and earns c. €7000 P.A. She has perfect track record repaying loans over the last 10 year. Mr Bloggs earns c. €60000 P.A. but is not a member of credit union. They have mortgage repayment of €900 per month. 

Mrs Bloggs seeks a loan for €25000 in January 2007 with a repayment of €330 plus interest per month. On the loan application it asked for Mr Bloggs annual income, but he is not named as a guarantor on the loan. CU advances loan to Mrs Bloggs.

Mr Bloggs business suffers badly due to recession and his income reduces to c. €40000. They get in to financial difficulty and Mrs Bloggs starts missing payments on the CU loan but manage their mortgage, she miss’s 9 months repayments. They bury their head in the sand until they start receiving solicitors letters. They deal with this through their solicitor and they agree to repay €200 per month. They have increased this repayment to 350 per month over the last year and are quite proud of themselves of course. 

She is now c. €7000 in arrears. She receives a phone call from the CU loan officer which asks her to come in as they are happy with the repayments and would like to restructure the loan. The loan officer advices her to bring in her husband as well.

Mr and Mrs Bloggs meet with loan officer and she said that CU would like to restructure the loan but will only offer this if Mr Bloggs will go as a guarantor on the loan (don’t forget that Mr Bloggs still has perfect credit rating) Mr Bloggs agrees to this and signs paperwork for same but has to bring in proof of income etc..

This is where I come in. I receive a phone call from Mr Bloggs and he tells me the story. I tell him not to do this as if things get bad again and they have to miss a repayment his credit rating could be affected. He goes back into CU and meets loan officer and says that he does not want to go as guarantor. Loan office says that CU will not restructure the loan as Mrs Bloggs income cannot support the loan on her own. Mr Bloggs say’s Mrs Bloggs income has not changed from the time she took out the loan so they should not need him on the loan. Loan officer says that their lending critiara has changed and that they would have taken his income into account when they issued the loan, loan officer also states that if Mr Bloggs does not go as guarantor for the loan that the CU reserves the right to take legal proceedings and take them to court and get a judgement against them as they loan is over €7000 in arrears.

So my question is should the Bloggs go to court and plead that the CU were completely reckless in giving a loan of €25000 to someone with such a low income and with only a balance of €3000. 

Second question. Obviously the CU is using heavy handed tactics and this may warrant a complaint to the FSO, but is there anything stopping the CU from restructuring the loan based on Mrs Bloggs income based on the fact that they originally issued the loan using the same information and income… 

Many thanks for the reply’s


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## hastalavista (20 Aug 2011)

I have read this 3 times and still am not sure if the numbers stack up and if the CU is happy or unhappy: the post says happy

What is the full detail on the 25k loan, term rate as the 330 + i is unhelpful.

Re ur questions, the reckless bit wont fly.

What's heavy handed about trying to get better security on a 25k loan that is 30% in arrears?


I think you are giving bad advice, based on what's in the post.

"Mr Bloggs business suffers badly due to recession and his income reduces to c. €40000."

Seems to me you should be looking closely at where the 40 is going.


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## Baracuda (20 Aug 2011)

> What is the full detail on the 25k loan, term rate as the 330 + i is unhelpful.


Don't have exact details of the loan but the figures that I gave are the most relavant i.e. 25K loan, repayment 350+interest, agreed payment through solicitors 200 inc interest, increased to 350 inc interest for the last 12 months and c.7000 arrears. Why should it matter what the term of the loan is???


> Re ur questions, the reckless bit wont fly


Do you think that giving a loan of 25K to a person with only 7000 income p.a. and only 3000 in savings is not reckless? Yes by all means Mrs Bloggs should have never borrowed this much but CU should have refused to advance this much credit as I thought the CU only gave a multiable of 3/4 times savings. Is this not going against there own lending policy. They completely ignored repayment capacity of the member.


> What's heavy handed about trying to get better security on a 25k loan that is 30% in arrears?


I would certainly think that it is heavy handed trying to convince a person to go as a guarantor for a loan without advising them of the financial consequences and making it a condition of restructuring the loan is very heavy handed.


> Will the JM be just against Mrs Blogs or Mrs Bloggs depending on where u are in the post, as Mt B is not party to the debt


Mr B has still got a perfect credit rating but should he suffer further pay reductions they not be able to afford to pay the restructured loan and therefore this would affect his credit rating. Is it not bad enough that one of them is locked out of the credit market?
"





> Mr Bloggs business suffers badly due to recession and his income reduces to c. €40000."


Yes there is people that is a lot worse off than them but do you think that having taken a 33% pay reduction is not badly affected by recession


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## Brendan Burgess (20 Aug 2011)

Hi Baracuda

Your advice to your friend is good. Mr B should not sign the guarantee. 

You should forget about reckless lending.  Maybe it was reckless borrowing. Mrs B knew what she was doing. 

I think that the problem here is that the Credit Union tried to help out a member in good standing. They gave a loan which was easily affordable given the income of the wife and the husband.  In theory, they should have refused her the loan or offered her  a joint loan so that her husband would be equally liable. 

What was the loan for? Did Mr B benefit from the expenditure? 

I think you should view this as a community lending instution which was not overly legalistic with its dealings with its members. They lent the money with the comfort of the husband's income. 

There is nothing heavy handed in this. Unfortunately the CU doesn't have anyone to go to, to complain about Mrs B burying her head in the sand. 

The Credit Union may get a judgment against Mrs B.
They may get a payment order from the court.
They may register it as a judgment mortgage
They will charge Mrs B the costs of all this. 

1) you should insist that the CU sets the shares against the loan. this will reduce the annual interest cost
2) You should ask the mortgage company to reschedule the home loan to allow you get to grips with the CU loan
3) Mr B should explain that he won't sign the guarantee but that he will make every effort to help his wife repay the loan. 

Brendan


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## Baracuda (20 Aug 2011)

Hi Brendan

Agree with you, they should have made Mr B go as a gurantor for the loan but as they didn't, this has benefited Mr B by not affecting his credit rating. I assume that Mr B benefited from the loan but never bothered to ask him this question. 

The problem that I see nowadays is that the CU is very active in the courts in seeking judgement orders. I was in Court myself last year and it really was frightening to see the amount of people that the CU got judgement orders against. I would have thought at the time that this would have been a last resort by the CU but after what Mr B told me about the CU threntening to issue legal proceedings and judgement orders against his wife if he didn't go as a gurantor on the loan, despite the fact that she was repaying 350 per month for the last 12 months. I would consider this very heavy handed and have changed my mind as a result.

Yes they should have addressed their financial situation at the time and worked with the CU and agreed a new loan repayment schedule rather than ignoring the situation and then having to get solicitors involved but all this said two wrongs do not make a right and I would think that it would be in both Mrs B and the CU interest's to agree to a new loan repayment schedule rather than threadening to bring them to court. 

I advised Mr B to ask the CU to reduce the loan balance by the amount of savings in the account and he said that they asked for this through his solicitor last year but they refused point blank.


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## Slim (21 Aug 2011)

Brendan Burgess said:


> Hi Baracuda
> 
> Your advice to your friend is good. Mr B should not sign the guarantee.
> 
> ...



I agree with Brendan mostly. I think CUs are learning by their mistakes. Tighter lending practices ahead. Not fair to blame them for trying to facilitate a member with a good record. Many such members are now running into trouble. It is highly unlikely that CU will go to court if Mrs. Bloggs is paying €350 pm on the loan. Any court judgement could order a much lower repayment - that's the way the cases are going, especially if MABS get involved. I think the CU is bluffing about "re-structuring" the loan. There is no need from Mrs. Bloggs point of view and it may involve much greater provisioning from CU against bad debts.  Mrs. B should stick to the repayment she can afford and the CU will be lucky to get that. Slim


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## ontour (21 Aug 2011)

Restructuring the loan only really serves to reduce the credit union's figure for arrears, it does not change what Mrs Bogs will pay back if the restructuring is not changing the interest rate.  Mrs Blogs is now paying back more than in the agreement so no need to restructure even though it will take a long time to clear arrears.

Credit unions are forced down the very expensive road of legal action because many people make make their credit union debt their lowest priority.


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## Brendan Burgess (21 Aug 2011)

Baracuda said:


> I advised Mr B to ask the CU to reduce the loan balance by the amount of savings in the account and he said that they asked for this through his solicitor last year but they refused point blank.



Hi Baracuda

The Credit Union is obliged under the Act to set the shares against the loan. 
Print off this post. If they still refuse - straight to the Ombudsman.

http://www.askaboutmoney.com/showthread.php?t=155464

Brendan


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## Slim (21 Aug 2011)

Brendan Burgess said:


> Hi Baracuda
> 
> The Credit Union is obliged under the Act to set the shares against the loan.
> Print off this post. If they still refuse - straight to the Ombudsman.
> ...



I don't believe the CU is obliged to set off the shares...I think the [broken link removed] is 'may',,,,


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## Brendan Burgess (21 Aug 2011)

Slim said:


> I don't believe the CU is obliged to set off the shares...I think the [broken link removed] is 'may',,,,



I think it's open to interpretation, but having said that, there is nothing in the CU Act to stop the CU doing this. 

The Consumer Protection Code obliges a financial institution to act in the best interests of its customers. While the CPC does not apply to Credit Unions, this is a clear case of the member owned CU acting against the best interests of the borrower. 

Therefore,the OP should complain to the Ombudsman. And they should put down a motion at the AGM calling for a change in policy. 



Brendan


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## Baracuda (22 Aug 2011)

Thanks for all the contributions everyone!

I will pass on this info to Mr and Mrs B tomorrow and will print off the suggested letter. Has this letter been tried and tested Brendan? No matter I will keep in contact with them and will post the CU responce.



> Restructuring the loan only really serves to reduce the credit union's figure for arrears, it does not change what Mrs Bogs will pay back if the restructuring is not changing the interest rate. Mrs Blogs is now paying back more than in the agreement so no need to restructure even though it will take a long time to clear arrears.


 I don't have a lot of experiance in this area but I would think that the ICB would hold it on their records for a period of 5 years after all the arrears would be cleared where as if the loan is restructured now her ICB record would be clear in 5 years time, so it would be in her interest to get this sorted out now! Also she is not meeting the original loan repayments as the agreement was 330 plus interest where as she is paying 350 inc interest


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