# Credit unions - What should they do with spare capital?



## RainyDay (1 Jan 2008)

Is there an argument that says CUs which have large amounts of excess capital for investments have failed in their core objective. Shouldn't this capital be getting used within the common bond? Should CUs be lowering loan rates to make borrowing within the common bond more attractive?


----------



## Brendan Burgess (1 Jan 2008)

*Re: An investment strategy for credit unions?*

The Credit Unions are caught in a terrible bind. Despite  paying uncompetitive  rates on shares and deposits, they are swamped with money. 

In total, they have managed to lend out just less than 50% of the money on deposit. 

They have dramatically lost share of the loans market, because the banks have become cheaper in recent years. 

They would like to lend more, but they face restrictions on the size and duration of loans that they can make. If a borrower wants to borrow a large amount of money over a longer term, they should remortgage their home as mortgage finance is cheaper than the best credit union rates. 

Is this a bad thing? What is the purpose of Credit Unions? It is to lend to people who can't get money from the banks. Small loans to people whom the banks are not interested in. 

I don't see any role for the Credit Unions in the mortgage market. It is a viciously competitive market where the best mortgage rates are lower than the best deposit rates available. It would be very difficult for the CUs to compete in this market.

Brendan


----------



## domadd (1 Jan 2008)

Well said Brendan. Back in the 60s and 70s Credit Unions were able to compete very well with the old style Hire Purchase Companies who were fleecing the poor unfortunates who could not get money from their local Bank.  They are indeed in a terrible bind now as to what they do with the large amounts on deposit. Unfortunately Credit Unions now see themselves as Commercial Business Units and are aggressively competing with Banks and other businesses in the marketplace. I hope that they will survive in that cutthroat environment but they will certainly have their work cut out to do so. Presently they are lucky to have so much on Deposit that it is masking  the level of bad loan debt on their books.  I would like to see the Credit Union movement fully supported by Government because it is much more than a business.


----------



## Protocol (1 Jan 2008)

Yes, they have a problem.

But, yes, they should cut their lending rates.

Sligo still charge 12.68% APR with some sort of interest rebate. OK, they may charge lower rates on special loans, and lower rates on loans less than savings.

But, they need to cut their headline rate to approx. 8%.


----------



## Brendan Burgess (2 Jan 2008)

Protocol

Does Sligo still insist on people maintaining a share account equal to a percentage of their loan? 

Brendan


----------



## ClubMan (2 Jan 2008)

According to this _Sligo CU_ charge an effective rate of 9.68% after rate rebates (but not including the effective cost of having to keep money in shares/on deposit while borrowing).


----------



## Tadhgin (2 Jan 2008)

There are 425 credit unions registered in the Republic of Ireland currently. They vary very considerably in asset size, investment portfolio and services offered. Some offer excellent services, and are open six days a week, and have excellent websites and member interaction. 

What is not being highlighted are the successful credit unions - community credit unions offering loans between 6.5 and 7.5% APR, and paying dividends of between 2.00% and 3.00%. We see no mention of credit unions undertaking significant social investment in areas such as financial literacy, combating illegal moneylending, and supporting local sports teams, schools, etc. That is too unsexy for financial journalists to write about.

Nor does anybody - credit unions included - seek to explain the very excellent "Free-to-Members" Life Savings, Loan Protection, Permanent Disability and Death Benefit Insurances that most credit unions provide for their members.

The oft-repeated mantra of "high bad debts" is an easy chorus for all who care to hum - but has anybody investigated the logic of the situation? 

For a start, most credit unions operate significantly in a niche of the market that is largely unbanked. The banking sector only discovered the working class in the last decade, and indeed has been steadily withdrawing branches from rural areas in recent years. Credit Unions, in fairness, have stuck in there, providing "banking" services to the sometimes less fashionable sectors of society - the sectors the Celtic Tiger forgot.

That this sector would have a higher level of arrears, on occasions, is understandable. Financial Need does not travel in parallel with financial ability - in fact, quite the opposite at times. Be realistic, there are such things as "acceptable" levels of arrears. They just have to be managed better. Or are credit unions simply to abandon lending to this sector in society because of a series of notional percentages that a few pen-pushers who never worked behind a credit union counter came up with?

And despite what others seem to suggest, having high levels of savings is a good thing - these can be invested safely, and are less prone to risk.

That there are 425 credit unions in the country is a tribute to local communities - however, we have to be realistic too. Change will come, and the big challenge for credit unions is to manage this change. So far, there is no clear vision presenting for credit unions - if the core idea of credit union is to survive, it must be clearly defined - providing value-for-money financial services to members in a dignified and not-for-profit basis. This has to be done within an increasingly regulated environment. Credit Unions will have to face the reality of amalgamations to meet the new member needs that present. Credit Unions became relevant in the past by delivering relevant services to their members in their communities - the local hall, and then the Main Street became their delivery channel. Credit Unions must now re-state their relevance through opening up new delivery channels and through meeting members needs again.

Sure, there are dysfunctional credit unions, and there are celebrated instances of credit unions that have got things wrong. Significant changes will have to come. It comes less easy for Credit Unions - these are the creation of ordinary people who did something for themselves before "self-enablement" became a politically correct term. It will be hard for many to let go of the reins - some will see a loss of power; some will see a loss of influence; some will fear the end of the dream; some find the change painful. 
For many activists, volunteer and professional, credit union is much more than about "financial Services" - it is about community, service, fair-play, dignity......

Change will have to come, including amalgamations, new IT, strategic alliances. However, if handled carefully, and with courage, it will lead to a Renaissance within one of the greatest social and financial movements in the country. It may draw inspiration from the successful change management effected by the other great social pillar of the country, the GAA.

And you'd never know, maybe an enlightened government just might devise a means of channeling surplus credit union savings funds into building local schools, social housing projects and community centres, instead of the Credit Unions investing surplus cash in multi-national, trans-national banks?


----------



## kaplan (25 Jan 2008)

The question may well be what do credit unions do now? I am struck by the fact that a key document was published in November 2006 which addressed the very issues discussed here. 

“A Call to Action – re-inventing credit unions for the 21st Century”. It’s still available on-line on the CUDA site http://www.cuda.ie/. 

It’s quite a read as it challenges all the notions of what a credit union is, restates what it is and then makes recommendations on what should happen now. 

At the time of publication it was acknowledged as making a substantial contribution to defining a way forward. 

Since of course little if anything has changed....which isn't surprising.

Kaplan

[broken link removed]


----------



## Tadhgin (30 Jan 2008)

The CUDA Document "A Call to Action" does indeed contain meaningful and valuable contributions to the all-but-silent debate on the future of the credit unions in Ireland. At least it focused on credit unions, as opposed to credit union representative organisations.

Kaplan wonders why there has been so little debate on the issues raised - the reasons are simple - Credit Unions have immersed themselves in their localities, and ignored the wider national perspective. The wider credit union movement lacks significant national vision, leadership, and business acumen. It has a national leadership alright, but this leadership seems more fixated upon the past, upon elaborate rules and the trappings of office, upon phony wars with the Regulator and with other organisations, and upon empires built upon shifting sands (a good example of the latter is the most recent investment debacle). 

Debate might stimulate change. Change is seen as a threat to the chains and trappings of seeming importance. "Dissidence" is demonised. It is stultified and subjugated. 

The CUDA document was completely ignored by the larger representative association, and, I might add, by the Department of Finance, by the Minister, by the Credit Union Advisory Committee and by the Institute of Co-operative Studies in UCC - key stakeholders all.


----------



## kaplan (31 Jan 2008)

Tadghin

You are quite right in zoning in on the real problem and that is the complete lack of leadership (as distinct from people in leadership positions). But I think your observation should also be extended to credit unions themselves. 

Those who are familiar with how credit unions elsewhere kept pace with change know that it was small groups of credit unions and their leaders, predominantly credit union senior management, who led the way and not their trade associations.  

Irish credit unions have failed to collaborate in creating the commercial structures which proved so successful in the US, Australia, Canada and more recently New Zealand and Poland. Even the UK credit unions are now offering a current account through a link up with the Co-Operative Bank.   
As far as I am aware the CUDA report was recognised as making a significant contribution to the debate by the Regulator, Minister, CUAC, ILCU credit unions, academics and internationally by credit union leaders in the US, Australia and UK. (The ILCU itself stayed mute for obvious "political" reasons). I recall CUDA called for a task force to be established by Government to tackle reforms. 

Interestingly, from a leadership perspective the report was quickly followed by CUDA’s initiation and sponsorship of the O’Toole Private Members Bill for a statutory savings compensation scheme early last year and its influential involvement in the Report on Longer Term Lending Limits. Shortly after its CEO suddenly resigned and since CUDA has lost 33% of its membership. (It started with 22 credit unions and now has only 10). 

Last year the ILCU produced its Strategy for the Movement which is its grand ambitious plan for reform and modernisation. Recently the ILCU’s CEO resigned and it’s currently looking for a new one. 

The answer to the spare capital (reserves) question is: hang onto to the little there is left of it, generate more and invest it wisely in improving business sustainability and not new buildings.  

Unless the question is what should be done with excess savers funds ? Find a way to safely lend more and reverse the downward trend in the critical loan to total asset ratio. 

The cheeky alternative might be removing the non-dirt status of a certain share account type and wait for the loan to asset ratio improve as money finds another home. Of course this would mean a drop in income and likely to act as an impetus for change.  

Kaplan


----------



## Quarehawk (1 Feb 2008)

WHAT SHOULD CREDIT UNIONS DO WITH SPARE CAPITAL.
1.   The Minister for Finance should establish a Statutory Deposit and Share Guarantee Scheme for Credit Unions. The Credit Unions should lodge 0.6%, 0.7% and 0.8% respectively of their assets over a three year period to this scheme. This scheme should be regulated by the Financial Regulator, and administered by a Board appointed by the Minister. After 50 years of loyalty, members are entitled to the same protection that Bank and Building Society Customers enjoy under the Bank Deposit Guarantee Scheme.

2.   The Minister for Finance should establish a Community Capital Fund, managed by the National Treasury Management. Credit Unions should be able to channel their excess funds into such a state guaranteed scheme. The Community Capital Fund should ring fence these funds for use in capital, community projects within the credit union area - projects such as primary schools, industrial breeder units and community halls could be so-funded.


----------



## ontour (1 Feb 2008)

> Is there an argument that says CUs which have large amounts of excess capital for investments have failed in their core objective.


 
The core objective of a credit union is to provide financial services to people within a common bond who are not being serviced by the main stream financial service providers.  Whether a credit union has lent out half/ the same / or twice the value of their shares says nothing as to whether they have met that objective.  It is more the operation of money lenders and lenders of last resort that tell you whether a credit union is meeting it's core objective.

If people did what was logical / profit maximising, lots of people would be moving their savings from the 2-3% potential dividend that they are getting in the majority of credit unions to the banks where they can get 4-5% interest. More 'logical' people would help credit unions to balance loans and savings.  As long as credit unions are seen as a place to hide money, they will always have an attraction where people with choose them as a place to save even though they can make more elsewhere.

My other gripe with this argument is that the core objective of credit unions should extend to all the financial services needs not just savings and loans.  This does not mean mimicking banks services, it means identifying gaps such as pension provisions and creating innovative products either alone or in conjunction with the private sector, the government, MABS etc.


----------



## kaplan (2 Feb 2008)

Ontour

The core objective is to provide affordable financial services to people within a common bond including those who cannot access services eslwhere. 

A key problem is one where credit union customers no longer borrow from their credit union. There are many reasons for this and the solution to the problem is excusively within the bounds of credit unions to redress.

The success of moneylenders is hardly evidence of a failure of credit union objective but a problem that Government through its social policy must address. A good source of information here is the report Financial Exclusion In Ireland published by the Combat Poverty Agency 2006. 

The provision by Government of a credit union statutory state backed savings compensation scheme (deposit insurance) is an absolute requirement of any modern financial service system. Indeed it is best practice and the advice of the IMF who maintain that state backing is required in all but the strongest of financial systems. Few would consider the credit union system qualifies as one of the strongest. Such a scheme has already been designed and published in a private members Bill by Senator JOe O'Toole. It includes guaranteed compensation and provides for supports for viable but troubled credit unions. It's structure would required pre and post funding by credit unions who would be required to maintain a deposit upwards of 2% on their insurable savings. In effect the scheme would act as a call on the balance sheets of every credit union. 

The suggestion of a central community type fund was one of the key recommedations of Call to Action (CUDA) in its proposal for a social finance fund which envisaged capitalising the vehicle with credit union DIRT receipts, with ongoing funding through credit unions purchase of social finance government backed bonds. It recognised that providing social finance funding was a highly specialised form of lending requiring specialist operations (some currently exist). 

Kaplan


----------



## Tadhgin (3 Feb 2008)

The Government has avoided the introduction of a Deposit Guarantee Scheme for Credit Unions since the introduction of the Credit Union Act in 1997. They simply are afraid of offending the grandees of the ILCU Savings Protection Scheme, which offers no guarantee to the members.
The only problem with the O'Toole Bill is that the 2% funding was not to be achieved on a phased basis - if spread over a three year period, it would be more affordable.
Joe O'Toole should introduce an amended version, and force the government to stop passing the buck on this critical piece of consumer protection.


----------



## kaplan (3 Feb 2008)

Tadghin

Under the scheme credit Unions would be obliged to lodge Deposits of 2% (this figure could be slightly lower - internationally it's c1.25-1.5%). 

As it is a deposit there no reason why credit unions couldn't fund up immediately. 

The deposit would remain on their balance sheet. Thus it would not be a premium type payment ie expensed to their P&L's. 

In effect the scheme would have a call on the combined balance sheet resreves of all credit unions - similar to a cross guarantee. 

Such deposits may carry a notional cost in foregone income but then again the scheme could pay an interest rate to the depositing credit union. Similar to the Central Bank Minimum Reserve Requirement credit unions will shortly have to comply with.

Currently a credit unions contribution to the League's SPS fund is a recurring expense item. 

In fact one of the major benefits of the O Toole Bill is that there would be no need for the League's fund of €100m, which it would retain and use for whatever purposes its members decide on. (The League could use the fund to augment the state scheme for example continue to provide stabilisation assistance or fund it members mondernisation needs etc.) 

This significant benefit seems to have been missed by many people as it resolves an issue that has plagued the movement for years. I wonder why ?

Kaplan


----------



## kaplan (3 Feb 2008)

Double posting - apologies


----------



## Tadhgin (3 Feb 2008)

Dear Kaplan,
I was working off the assumption that the amount in question would be treated as an expense. If treated as suggested, then there is no reason why members should be denied this protection.

The reason why it hasn't happened is fivefold:-
1. The ILCU wants to retain control over the current fund.
2. The ILCU sees itself as the rightful regulator, and refuses to cede necessary oversight of the fund to the Financial Regulator and to place it at arms length under an independent, expert management.
3. The Government, and Fianna Fail in particular, is fearful of the ILCU and
4. Credit Union Boards do not understand the details of the current stabilisation scheme, the so-called "Savings Protection Scheme".
5. Credit Union Boards do not understand the implications of a Credit Union failure.

Bill Hobb's article in to-day's Sunday Business Post would make interesting reading for directors on the fifth point.


----------



## oldtimer (3 Feb 2008)

Can you post the Sunday Business article here?


----------



## Slim (3 Feb 2008)

> Bill Hobb's article in to-day's Sunday Business Post would make interesting reading for directors on the fifth point. Today 01:26 AM


 
Any chance of a link to this as it's unlikely I can buy he SBP at this time on a Sunday?

Slim


----------



## RainyDay (3 Feb 2008)

oldtimer said:


> Can you post the Sunday Business article here?





Slim said:


> Any chance of a link to this as it's unlikely I can buy he SBP at this time on a Sunday?
> 
> Slim



Hi Guys - Did you have a look round on the SBP website yourself, instead of expecting someone else to do this browsing for you?


----------



## Slim (3 Feb 2008)

> Did you have a look round on the SBP website yourself, instead of expecting someone else to do this browsing for you?


 
Good point! However, I would not have expected online access to today's articles so soon. Anyway, I went out and bought a copy. Nothing new in the Hobb's article. Most of it is already articulated in the posts on this thread, which also clearly promote the CUDA point of view. The O'Toole Bill was clearly a CUDA drafted mechanism to attempt to put pressure on the Gov, ILCU, the Regulator and Dept. of Finance as they attempt to work out a deal to put the Savings Protection Scheme into an approvable format.

Slim


----------



## kaplan (4 Feb 2008)

This is a consumer protection issue and not a trade body political issue.

Tadghin, you make a very good point. Most credit union boards are completely unaware of the difference between a League owned and run stabilisation fund and state backed deposit insurance. The former is a type of benevolent fund for credit unions the latter statutory consumer protection for savers, a basic consumer right in a modern society.

The difference between stabilisation and deposit insurance is this. If I say that I will take care of your family if you die this is a promise - something I might do. This is stabilisation. However if I guarantee to pay your family an amount when you die, this is deposit insurance. Deposit insurance may include for stabilisation assistance but stabilisation can never include for deposit insurance. 

Under stabilisation, credit unions club together, creating a fund to support a credit union in trouble. Originally these funds were used in the US to provide non-repayable grants to credit unions to strengthen their balance sheets (reserves). It’s a promise to provide help which was always discretionary and with no legal obligation on the fund manager typically a credit union League to provide assistance. At best they only ever provided for the possibility of assistance. The key point is the credit union is the client and not the saver.

The ILCU created a similar fund here in the 80’s some time after they disappeared in the US. They disappeared in the US in the early 70’s after credit unions succeeded in persuading the US government to provide deposit insurance protection similar to banking coverage. At the time this led to a split in the credit union League. (sound familiar)

Later still in Ireland the ILCU considered establishing the stabilisation fund as a type of deposit insurance scheme but balked as this would have meant it would have lost control as it would have to establish it as stand alone company leading to it being regulated and taxed. This was despite consistent advice over time from its advisors to establish the fund as a separate company. 

It decided to bolt on a promise that it might in the case of a credit union failing pay up to €12700 to savers. It called the fund Savings Protection and in sleight of hand promoted the scheme as a deposit insurance scheme. Most of its members thought it guaranteed savings – many still do. It maintained the subterfuge until the Competition Authority case during which it changed its stance maintaining its scheme was only ever a discretionary stabilisation fund.

In 1997 the new credit union act obliged credit unions as a condition of their authorisation to participate in an approved and regulated savings protection scheme to protect savers in the event of the failure of a credit union, in other words deposit insurance. The relevant section was enacted in 2001. However since then the Regulator has refused to approve the ILCU scheme. It appears then that every credit union in the state has not complied with the law since 2001 by not participating in an approved scheme. Technically this would appear to expose every credit union director to the possibility of legal sanction. Of course the ILCU hasn’t informed its members of this. Instead in 2001, in a subterfuge, it led them to believe their scheme had been approved. Even the Ministerial press release in 2001 implied that its scheme was approved under the act. Such was its influence at the time.

What’s really of concern is that ILCU policy is to provide assistance to a credit union no matter what for the good of the Movement. Its stated policy is:

“_In the event of a credit union not complying with procedures, the Administration Committee is given the power to recommend to the League Board its disaffiliation. The Committee also has the power to propose the amalgamation of any member credit union, which is considered to be in default with procedures, with another credit union. This, however, will be a discretion since in many cases _*it might be necessary to provide temporary support to a particular credit union for the good of the Movement even though compliance was not being secured or had not been secured in the past*_.”_”. 

Now what’s going on is an attempt by ILCU to establish a private stand alone stabilisation fund including a guarantee of compensation to savers. One that can be approved by the Regulator. 

It has cobbled together a solution arguing that there must be an all Ireland solution. But it only represents about 104 of 170 or so credit unions in the North. Funny thing is credit unions in the UK are covered under the FSCS. This scheme could be extended to credit unions in Northern Ireland by British authorities but of course the quid pro quo would require regulation by the FSA which is something the ILCU certainly doesn’t want. In effect it is saying that it wants to deny savers statutory consumer protection both here and in Northern Ireland. 

Of course Fianna Fail have pretty bad memories of ILCU when its lobbying for DIRT free status nearly threatened its re-election prospects. (Recall the McCreevy affair). Politically they have funked the issue and kicked for touch. Minister Cowen told the Regulator to find a solution within the current legislative framework – shorthand for “do a deal with the ILCU ”. 

Throughout the ILCU has never been called on to justify its position nor has it ever cogently argued why the state should not provide a statutory scheme. Why? Because, its position has always been to retain control and dominance as a trade body. If it controls the only approved scheme and every credit union is legally obliged to be a member of the scheme then it copper fastens its dominance and control. This was what it thought it achieved in 1997 but the regulator then and the new Financial Regulator (2003) refused to approve its scheme. Initial refusal had probably something to so with the way in which it dipped into the fund to finance its IT ISIS failure, its head office building and provide loans to its credit unions to do up their buildings. 

The ILCU position remains a vested interest. It can only represent credit unions as regulated financial service firms (credit institutions). It cannot and does not represent a citizens right to legal protection for their savings although it claims to do so. What’s missing is proper informed public debate on this important consumer protection issue.


Kaplan


----------



## Tadhgin (4 Feb 2008)

The views expressed by Bill Hobbs are not confined to CUDA credit unions. It really doesn't matter who originated them - the important issue is what is being proposed and why. I would venture the following:- 
1.  A bank customer has a guarantee on his or her savings, up to €20,000 or 90% of the total, whichever is the smaller amount. 
2.  A credit union member has no guarantee. I emphasise the word guarantee.
3.  Most credit union members don't realize this. Most credit union directors don't realize this. The ILCU faffed and faffed about before Christmas, but the bottom line is "There is no guarantee".
4.  A Savings Guarantee Scheme for Credit Unions must be a statutory scheme. It must be clear in it's guarantee. It must be managed by experts. It must be transparent. It must be regulated by the FInancial Regulator. Anything less is not good enough.
5.  Credit Unions should not settle for a lesser standard of protection for their members than is afforded to bank customers currently.
6.  The Minister for Finance should stop passing the buck here and legislate. There is nothing to stop him from permitting the ILCU to retain it's stabilisation fund as an additional benefit for it's member credit unions.


----------



## kaplan (5 Feb 2008)

For those who have an interest in credit union savings protection there is a quite useful posting here.

[broken link removed]

There’s an interesting piece in the Indo predicting a good year for lending for credit unions, mentioning Enfield Credit Union’s loan rate. 

http://www.independent.ie/business/personal-finance/credit-unions-set-for-a-good-year-despite-us-worries-1276422.html

A glance at Enfield’s website is quite illuminating as it highlights how credit unions promote the ILCU savings protection scheme: 

http://www.enfieldcu.ie/benefitsofmembership.php

This credit union states that *“savings are totally secure and guaranteed”* and *“savings protection scheme”. *

It isn’t the only credit union that maintains that savings are guaranteed or protected etc. 

*Derry *http://www.derrycu.com/content.asp?section=17 “Your savings are guaranteed under the Savings Protection Scheme of the Irish League of Credit Unions” 

*Thurles* http://www.thurlescu.ie/content.asp?section=17 “Your savings are protected in your credit union under the savings Protection Scheme of the Irish League of Credit Unions”. 

*Waterford** CU* http://www.waterfordcu.ie/ A savings protection scheme is in place to the benefit of the member up to euro 12,700

*Newbridge CU http://www.newbridgecu.ie/content.asp?section=88 *Savings Protection Scheme benefit of up to €12,700 per member 

*Dundrum CU*: http://www.dundrumcu.ie/content.asp All of the savings of Credit Union members are *fully insured* and secure. Dundrum Credit Union operates a Savings Protection Scheme which protects members’ shares. Dundrum Credit Union also operates Life Savings Insurance….

Kaplan


----------



## Tadhgin (6 Feb 2008)

Kaplan's Tour of the Web is very instructive. It lends support to the belief that:-
1  Credit Union Officers are under a misapprehension as to the nature of the ILCU Savings Protection Scheme - they think it is a "Guarantee" scheme, and are innacurate on many sites;
2  Credit Unions spend a lot of money and time on this scheme - few would appear to have read the document, and fewer still understand it.
3.  There seems to be confusion in at least one instance between the Life Savings Insurance scheme and the Savings Protection Scheme.


----------



## kaplan (7 Feb 2008)

Tadghin

"The Savings Protection Scheme protects the individual savings of members by making sure that the credit unions are financially and administratively sound and by providing remedial help to any credit union which shows signs of weakness in these areas. Participation in the Savings Protection Scheme does not confer any legal right on a credit union to receive any financial assistance under the Scheme. *Provided assistance is given under the Scheme the savings of individual credit union members may be protected up to a maximum of €12,700.*" ILCU definition

No sign of "guarantee" or "benefit" nor "insurance" here. It's quite clear it's entirely discretionary. 

Kaplan


----------



## IrlJidel (11 Feb 2008)

Looks like Davy is in a spot of bother with Ombudsman re selling some bonds to Enfield CU.


----------



## Tadhgin (11 Feb 2008)

Kaplan's assertion that the Savings Protection Scheme of the ILCU is totally discretionary is beyond dispute. The documentation clearly states the following:-  "Individual credit unions or their members will not have a legal right to obtain assistance".


----------



## Quarehawk (11 Feb 2008)

Were Davys acting as agents of the Irish League of Credit Unions when they sold these bonds to Credit Unions? 

Given that the Irish League of Credit Unions invited Davys to their Belfast Conference last year, and subsequently defended the advice given by Davys, going to the extent of stating that they were appropriate instruments for credit unions, where now stand the Irish League of Credit Unions?

Given that the Irish League of Credit Unions reappointed Davys as Investment Advisors to the League recently, what does that say about a scene in which one credit union has successfully taken on Davys, and a number of others stand in the wings?


----------



## kaplan (11 Feb 2008)

Tadghin

So why did the ILCU as scheme provider not insist that credit unions informed their savers properly ? It appears that there has been a quite deliberate and calculated misrepresentation of the status of the League stabilisation fund both by the League and credit unions. A credit union listed by me in a previous post, certainly knows of the status of the scheme as it is a leading member of CUDA and was witness for the Competition Authority in its action against the ILCU. 

The Enfield/Davy ruling is available on the Financial Ombudsman site. It is quite some read. Both Davy and the Ombudsman mention the ILCU advice on perpetual bonds to credit unions. It seems however that Davy were acting as advisors to Enfield and the Ombudsman is careful to exclude the ILCU from the relationship. Nonetheless his findings that the bonds were inappropriate for credit union use is based it seems on two considerations. The first is the investment policy of Enfield which required a capital guarantee and secondly that generally credit unions require such guarantees. He considered Enfield credit union people as laymen who couldn’t be expected to understand the nature of perpetual bonds, subordinated status, step ups and call dates etc. 

Whatever the outcome of the High Court judicial review Davy is pursuing, the fact that the ILCU publically stated that such bonds were appropriate for credit union use is likely to undermine its reputation and damage any prospects it currently has to establish a central treasury operation. 

One of the more interesting aspects of the ruling is the layman status (retail investor). If the ILCU is nothing more than a club for credit unions, where its board comprises credit union directors, then what is its status ? This could be particularly interesting as it admitted to having invested SPS funds in perpetual bonds. Should make for yet another interesting ILCU AGM. 

All eyes will be on the judicial review which if it finds for the Ombudsman may trigger further credit union complaints- or will it ? 

Kaplan


----------



## Quarehawk (12 Feb 2008)

The Irish League of Credit Unions "Savings Protection Scheme" (SPS) is supposed to be a stabilisation fund. If it is, surely most of it's cash should be fairly readily available to meet contingencies if and when they arise. That begs the question, then, as to what the administrators of the SPS were doing investing the money in perpetual bonds? These are not liquid instruments.


----------



## Tadhgin (12 Feb 2008)

There are a number of reasons why ILCU does not advise cedit unions as to the true nature and limitations of the SPS scheme - the primary one is control. The SPS scheme is not about protecting credit union members - it is a tool for controlling credit unions.  Were credit unions to appreciate the true nature of the SPS and it's inadequacies, they might think that the O'Toole Bill is not so bad after all. That is, of course, to presume that all directors would have read the O'Toole Bill or been aware of it's aims, objectives and needs.

Credit Union activists are contented to hear the soothing musings of Chapter, and believe that the member is protected. Time and again we have listened to the ex CEO of ILCU say "Not a single Euro has been lost by Credit Unions"...Well, wrong.....ask Enfielf Credit Union and 130 plus other credit unions.....

Credit union directors, and indeed many of their managers, have not read the SPS scheme contents - indeed, many would be hard-pressed to find this ancient document in their filing systems!

Most credit union directors would not be aware of industry standards in this area in, for instance, banking. That their websites are significantly misleading in many instances is both disturbing, and unsurprising. However, they get away with it.


----------



## kaplan (13 Feb 2008)

Yes. The credit union regulator doesn't have a consumer protection brief and the consumer director's brief excludes credit unions. 

The RCU no longer refers to the SPS "as providing an important level of protection" on the IFSRA site . I wonder why? 

Of course any consumer protection code developed for credit unions core business will be voluntary. It's already over a year in gestation and still no sign. 

Kaplan


----------



## Quarehawk (13 Feb 2008)

Dear Kaplan,
For over ten years now, the ILCU has successfully diverted the Regulator and the Government up a cul-de-sac of inaction in relation to the so called SPS Fund. It will also divert attempts for a consumer protection code for credit unions up a similiar blind alley. The ILCU is about preserving the status quo at all costs.
Change will only come when a significant credit union falls over, and a Northern Rock type run exhausts the SPS scheme.


----------



## kaplan (13 Feb 2008)

Quarehawk

I agree. It seems it will take a real crisis before action is taken. There's a great story told here.

[broken link removed]

Kaplan

[broken link removed]


----------



## Quarehawk (14 Feb 2008)

Thank you Kaplan.

The article entitled "Net Savers Dominance" is quite frightening, and even more frightening in that it is true.

Credit Union Savings grew significantly during the Celtic Tiger era. Anecdotal evidence suggests that many of those latterday savers are now moving their savings out of credit unions again now, in search of the 5% and greater rates.

That becomes particularly significant when we realise that many credit unions now pay their operating expenses out of Investment Income receipts. As this surplus savings pool decreases, so too will their ability to pay these expenses.

This haemmorage of surplus funds, allied to significant investment losses (and they extend beyond the perpetual bonds now) paints a bleak picture.

It is ironic, on another level,  that the Investment Advisors to the Irish League of Credit Unions is now challenging the constitutionality of the Financial Services Ombudsman's powers. The Financial Services Ombudsman's office is an important part of the consumer protection infrastructure in the state, and here we have the hired investment advisor of the main credit union association trying to over turn the office of the Ombudsman simply because he ruled in favour of a credit union!!! Norah Herlihy and Sean Forde must be spinning in their graves!!!!


----------



## Quarehawk (22 Feb 2008)

The Financial Services Ombudsman’s detailed account of the Enfield Credit Union v Davys case makes for informative reading, and provides valuable insight into the background to this case.

http://www.financialombudsman.ie/case-studies/Enfield_Davy_decision.pdf


----------

