# The lending policies of Credit Unions



## True Blue (13 Nov 2003)

_A simple post led to this very important debate.

I have deleted the first few posts of the thread
_


----------



## darag (18 Nov 2003)

*Re: CU*

i think borrowing while saving is a very bad idea especially
with the credit unions. the effect of their policy of
encouraging punters to do this raises the cost of borrowing to
usurous levels.  for example someone saving one grand while
borrowing two from the credit union ends up paying
approximately 20% apr (assuming 12% on loans and 4% on
deposit).  if i were to be unkind, i could easily suggest that
this policy is a cynical excercise on the part of the credit
unions to exploit people who may be financially naive.


----------



## AB (18 Nov 2003)

*CU*

Its not always the case that borrowing to invest is a bad idea. If you see a good investment which requires immediate capital, then you need to weigh up the return against how much interest you have to pay on the loan. If the return is higher and you make a profit, then borrowing is just a means to an end. the same can be said about borrowing to buy a second property. CUs may have a high APR but they don't penalise for early payments and charge interest and the principal of the loan which is outstanding after that. So it is possible to cut interest payments to well below bank levels when dealing with the CU.


----------



## darag (19 Nov 2003)

*Re: CU*

AB, it's not borrowing to invest in the traditional sense that i
object to - where investing means putting the money into a
higher risk/return venture - but borrowing while having money on deposit which is guaranteed to return many times
less than the cost of the loan.  the credit unions are not
unique in allowing early settlement of personal loans - many
personal loans from banks allow this also.  what irks me, i
guess, is the hypocracy of credit unions in their advice that it
is sensible to have money on deposit while servicing a loan.
this is absolute nonsense and solely benefits the credit union.
at the same time they portray themselves as a saintly 
community bastion and cooperative for the less well off.
their advice effectively allows them to charge usurous rates
of  interest (over 20% apr if your loan is twice your savings)
while advertising a reasonable base rate.  if they were honest
and admitted that in many cases they are positioning 
themselves somewhere between the banks and the money
lenders, i'd have more admiration for them.


----------



## Slim (20 Nov 2003)

*Borrowing from Credit Union*

Darag

I think you misunderstand the ethos of Credit Union. The CU encourages thrift and the establishment of a pattern of regular savings. THe maximum rate charged on a loan is 1% per month, 12.68%APR. Many CUs charge much less nowadays. Borrowers are encouraged to leave thier savings on deposit and borrow the higher sum for two reasons;a. security for the CU, b. the savings & loan are insured in the unfortunate event that the borrower dies, i.e. savings may be doubled and the loan is cleared. This insurance is paid for out of general funds and not by the individual borrower. While other institutions allow early repayment, many impose penalties or do not discount the amount of interest charged.The CUs do not impose any charges whatever.

How do you arrive at the rate of 20%?

Slim 8)


----------



## darag (21 Nov 2003)

*Re: Borrowing from Credit Union*

hi slim, the effect of this so called "ethos" is to make borrowing
extremely expensive for people who can afford it least.  the 20% is
taken from the following example which came up on this site before.
let's say you need two grand for something but you only have a grand in
savings.  if you go to a bank and borrow the grand at 10%, it will cost
you 100 quid for the year.  if you go to the credit union, they'll
convince you to leave the grand in savings and take out a loan for two
grand.  if you're paying 12% on the loan it will cost you 240 quid and
you'll make only 40 quid on your savings (assuming 4% interest/dividend)
costing you net 200 quid. thus you'll end up paying the equivalent of
20% for what is a one grand loan.

the extra security you talk about doesn't make any sense to me; in both
cases above, the lending institution is exposed to one grand.  the value
of the life insurance is miniscule - i'd estimate the value of the cover
for the average person in this case at around 5 quid for the year.

the reality of the situation is that credit unions deal with what many
banks would consider to be riskier customers.  it is simply
unsustainable to carry a riskier loan book without charging higher
interest.  they charge this higher level of interest by insisting people
leave money on deposit.  they can vary the effective interest they
charge by varying the savings to loan ratio they insist the punter
maintains.  for me this is pretty sneaky and i'd prefer they'd be more
upfront about their business model instead of maintaning this
holier-than-thou fascade.  it also propagates a financially ridiculous
notion that it makes sense to borrow while simultaneously having money
on deposit.

bottom line is that if you can at all avoid it don't borrow from the
credit unions.


----------



## Slim (25 Nov 2003)

*Re: Borrowing from Credit Unions.*

Darag

You are taking a very cynical view of what is a voluntary run community co-op. The example you give is interesting but you are ignoring the fact that many/most people need to borrow much more than twice their level of savings, sometimes up to ten times. Decision-making on credit is more and more impersonal in the banks, almost automated. The CU is operated by members for the rest of the members/community.

The value of the life insurance is greatly underestimated, in my view. It can  be a great benefit if a wage earner dies and leaves a large loan behind.

Your view that the CU is for the people that the banks do not want is very outdated. That was how the movement started but nowadays most of the CU members are prosperous, solvent people who could borrow from any  number of institutions, and often do as they have free choice.

I think you have had a bad experience in a CU and I am sorry about that, but your views are way off the mark and your examples highly selective. My advice is to shop around. If you get a better overall deal, take it. CUs must compete with other financial institutions but don't slag them off, considering the great work they have done over the years.

Slim 8)


----------



## Skinflint (25 Nov 2003)

*.*

I'd tend towards darag's view on the CU generally. The monopolistic approach of the ILCU towards insurance (insisting that it be bought by all member CU's from a provider who was far from competitive) which lead to the threatened (or actual?) secession of some unions from the league is another case in point of members not being served well. I still keep a few bob in my CU but I would not generally be inclined to borrow or buy other services from them.


----------



## Slim (26 Nov 2003)

*Re: Credit Union.*

Skinflint

I agree with your views on ILCU. That has been an archaic organisation which has only recently been shaken up and will continue to be so. They lost IR£27m of members' money on a computer system that could not work in Ireland. They have negotiated all sorts of deals that line the ILCU's pockets with commission. The alternative however is a free-for-all with 536 CUs all over Ireland doing their own thing and not getting the advantage of group purchasing. The new ILCU will have to change to survive.

Slim 8)


----------



## Brendan Burgess (26 Nov 2003)

*Re: Credit Union.*

Slim

Any calculations I have ever done have shown the Credit Union to be more expensive than an ordinary lender. They are cheaper than Credit Cards, but only just.

They mislead you when you ask them what the APR is. I guess that most of them don't understand what it means. Certainly the ones I spoke to didn't.

I've tried to raise it with the ILCU, but they never returned my calls. 

If AIB, Bank of Ireland or the Irish Nationwide behaved the way the Credit Unions do, I would be flooding IFSRA with complaints about predatory lending.

However, I believe that the CUs are well intentioned. They are ripping off their members, although I don't think that they are setting out to do so. If you can borrow from one of the main banks by way of overdraft or term loan, it's a much cheaper option. And you can pay it off without penalty whenever you want. The overdraft is particularly cheap if you are lodging your salary. 

I do appreciate that the Credit Unions are trying to encourage people to save. But saving at a low rate while borrowing at a higher rate is financially crazy. Paying off a loan is a form of saving and the Credit Unions should educate their members about this.

Brendan


----------



## darag (26 Nov 2003)

*Re: Borrowing to Invest*

hi slim. i'd describe my view as sceptical rather than cynical.  i don't ascribe evil motivations to the movement but i don't buy the holier-than-thou utterances from credit union representatives either.

i'm sceptical about the notion that communtity co-op for financial products can magically deliver cheaper loans.  like i said, no lending institution can survive without charging higher interest rates for riskier loans.  this is almost axiomatic.  the credit unions are no different except they achieve this by insisting customers keep savings while borrowing instead of just straight up stating the cost in simple apr terms.  this is obfuscation but the effect is the exact same.

with your example, i'm sure the people who are allowed borrow ten times their savings are the least risky - for example, with good steady jobs and possibly owning their home - while some youngster without decent qualifications in a low paid, low prospects position will be asked to maintain a much higher ratio of savings.  this just reinforces what i'm saying.  from a rough estimate, the person who is allowed borrow ten times their savings is paying a bit under 1% over the quoted interest rate, while like i pointed out before, the person borrowing twice their savings is paying 8% above the quoted rate.

regarding your other point, the value of the life insurance is only as much as it would cost to buy, no more or no less.  like i said the cost for life cover of one grand over a year would be miniscule.

slim, i haven't personally had any bad experience with the credit unions.  i have a friend who unwittingly paid very high interest rates by borrowing from their credit union.  i do find the morally superior tone from the credit unions a bit hard to take given they are lenders just like banks.  i'm sure many volunteers are well meaning but i'm also sure many within the movement understands the fundamental nature of their business, otherwise they would have gone bust years ago.


----------



## Slim (26 Nov 2003)

*Re: Credit Union Borrowing*

Darag & Brendan

"They are ripping off their members" 

I can't agree with that but what has to be remembered here is that each Credit Union is independent of the other 535 or so and of the ILCU. Each can charge its own interest rate up to a maximum of 1% per month. We currently charge 8.52% (APR 8.9%). This is very favourable when compared with the table in "Best Buys" linked from this site. Only OneDirect is cheaper. However, other CUs may charge more and find they can lend out a satisfactory proportion of their funds. Also, bear in mind that most CUs are paying dividend of 2.5% to 4% on what are effectively demand accounts. Where else will you get that in the market?

Borrowing as a multiple of savings has been a core value of CUs so as to encourage thrift and prudent habits amongst members. A first loan might typically be 3 or 4 times savings. Subsequent loans may be granted for higher multiples. The record of the individual member in repaying loans is more important than his/her status in the workforce. Higher paid people are not necessarily better risks. On the subject of risk, remember it is the members' money that is at risk. All members are shareholders. As I said in a previous post, shop around for value but remember, the institutions quoting lower rates may have arrangement fees or early payment penalties.

The ILCU has been a woeful organisation in the past and I am not surprised that you did not get a reply.

Slim 8)


----------



## rainyday (26 Nov 2003)

*Re: Credit Union Borrowing*



> We currently charge 8.52% (APR 8.9%).



Hi Slim - Does this APR take into account the requirement to leave funds on deposit?


----------



## Slim (26 Nov 2003)

*Re: Borrowing to invest*

Rainyday

No, that is just the loan rate. The significance of the requirement to leave shares on deposit is being overblown here. Nobody, as far as I can say, is asked to leave more than 25% as security and many are asked to leave much less.

Incidentally, we and many other CUs, pay a 10% interest rebate which would reduce the cost of borrowing significantly.


Slim 8)


----------



## rainyday (26 Nov 2003)

*Re: Borrowing to invest*

Hi Slim - I take your point (and I don't question the motivation or principles of those behind credit unions). I do think that you should help your members/borrowers to compare your loans against other alterntives by quoting a comparable all-in apples-for-apples APR.


----------



## darag (27 Nov 2003)

*Re: Borrowing to invest*

hi slim.  it is disingenious if not false advertising to quote an apr for credit union loans.  apr has a particular meaning when it comes to loans - it is supposed to include all the costs of the borrowing.  your quoted interest rate simply doesn't and so you shouldn't call it apr.  

for example your credit union never ever lends money at 8.9% apr.  assuming 2.5% interest on savings, even if you are lending ten times savings the apr is 9.6% by my calculation.  the apr rises to 12.3% for someone borrowing three times their savings.  these rates aren't usurous i admit but the figures get much worse if the borrowing rate is higher which it is in many credit unions.

by the way, i've never heard rainyday give anyone such an easy ride when it comes to economy with the truth.  he must have a soft spot in his socialist heart for the credit unions.  if any other lending institution quoted an apr rate in the same way there would be outrage.

i believe you are well meaning slim but this is nonsense:


> Borrowing as a multiple of savings has been a core value of CUs so as to encourage thrift and prudent habits amongst members


the reality is that it is never prudent to borrow at higher rates of interest while having savings on deposit at much lower rates.


----------



## Slim (27 Nov 2003)

*Re: Credit Union Borrowing*

Just as a matter of interest, our independent auditors calculate the APR for us, but it is close to what I myself have worked out. That is the straight cost of borrowing. If you want to factor in the opportunity cost of leaving shares on "deposit" at a superb "demand" rate, you need to be aware that the proportion changes for each borrower and subsequent loan. What is the harm in leaving 2k on deposit if you need 10k for a car, the rate is competitive, the loan is insured and so are your savings? THere is no fixed rate deal so if you pay it off early, no penalties apply nor is there an obligation to pay up all the interest calculated over the full term of the loan. Most CUs are flexible when it comes to the amount required to be left as security.

I don't think I was being economical with the truth. CU is not always the cheapest but it is very community based and if it makes a few euro it pays this back to members as dividend and not as profit to fat cat shareholders. As a movement it is struggling to modernise, partly due to the ineffectiveness of ILCU and partly because of the nature of the movement. It is not one company but 530. 

I am considering moving the finance for the family vehicles to First Active Utopia myself, so the CU does not suit everyone but I prefer to borrow from it for loans where I don't want a direct debit hitting my account on a monthly basis.

Slim 8)


----------



## rainyday (28 Nov 2003)

*Re: Credit Union Borrowing*



> by the way, i've never heard rainyday give anyone such an easy ride when it comes to economy with the truth. he must have a soft spot in his socialist heart for the credit unions. if any other lending institution quoted an apr rate in the same way there would be outrage.


Darag, will you ever give it a rest? What gives you the right to moan about what I DON'T say? Your sneering comment is hovering over that line of attacking the person instead of the posting. I highlighted the APR issue - AAM readers are big enough to make their own minds up when they see the facts.

Hi Slim


> If you want to factor in the opportunity cost of leaving shares on "deposit" at a superb "demand" rate, you need to be aware that the proportion changes for each borrower and subsequent loan.


It's not just an issue of the opportunity cost of the shares on deposit. If I have 2k savings & I want a 10k car, I can borrow 8k from the bank. With my CU, I have to borrow 10k. Therefore the total interest paid on the 10k should really be apportioned over an 8k loan to give a comparable APR with the bank. I think this would push your APR's significantly higher.


----------



## Slim (28 Nov 2003)

*Re: Credit Union Borrowing*

Rainyday

Leaving 20% of the total needed is not always necessary. The proportion to be left is negotiable and varies according to the record of the member/borrower. The cost to the member of leaving the funds on deposit are somewhat mitigated by the high dividend paid and the free loan/life insurance. However, more importantly perhaps is the service available to the member. If problems arise in job losses, emergency at home etc, the CU is a more friendly place to appeal to than a bank. It is driven by an ethois of servcie to members not profit. It is old fashioned in that respect.

But, yes I take your point, nevertheless, although that is the way Credit UNions were set up and the ethos they operate under. Much has changed over the 50 yrs or so. CU loan interest rates are struggling to compete with banks and still pay a decent dividend to members. Banks are more aggressive nowadays and much has changed in lending generally. We seem to be in a "show me the money" society and if that is your sole criterion for choosing a lender then I could never persuade you of the advantages of using your local CU.

Slim 8) 

P.S: Thanks for the respectful way in which you have conducted your argument


----------



## daltonr (4 Dec 2003)

*Show Me the Money*



> We seem to be in a "show me the money" society and if that is your sole criterion for choosing a lender then I could never persuade you of the advantages of using your local CU.



It IS the sole criterion for determining APR.  Whatever the borrower's sentiment towards a lender he/she is entitled to see an honest and accurate representation of the cost of borowing. 

Unless the Credit unions APR takes into account the money that MUST be left on deposit then it is misleading and should not be called an APR.

The fact that the Credit Union customers must hold on to savings at a low rate while repaying debts at a high rate IS NOT GOOD for the customer, it IS GOOD for the CU.  

It is unfair and dishonest to tell people that this is for their benefit.  These people may well trust the CU and apply the same logic to credit card debts, mortgages etc.

If the CUs APR takes into account the savings then that's an entirely different matter.  But I doubt they do, I'll check it out.

-Rd


----------



## tedd (4 Dec 2003)

*Re: Show Me the Money*



> It is unfair and dishonest to tell people that this is for their benefit. These people may well trust the CU and apply the same logic to credit card debts, mortgages etc.



I think this aspect of your argument is unfair. The members of a CU *are* the CU and profits are reditributed in this way. My credit union, for example, has a rebate of some interest paid at the end of each year. I think Slim is pointing to the community ethos of the CU movement in that the benefit is to the members as a group and not as individuals.

Your arguments about interest rate/APR are, of course, correct. I think it is fair to say the CU movement has been slow to adapt to very sophisticated, financially aware customers and they will need to adapt to the accepted standards to survive.


----------



## darag (4 Dec 2003)

*Re: Show Me the Money*



> I think it is fair to say the CU movement has been slow to adapt to very sophisticated, financially aware customers and they will need to adapt to the accepted standards to survive.


ted, do you realise how bad that sounds?  for me it contains a strong implication about CU attitudes towards the intelligence of their existing customers.


----------



## tedd (4 Dec 2003)

*Re: Show Me the Money*

I know how it sounds. Most of the credit unions I know well are in areas of relative (at least historical) deprivation where moneylenders controlled the finances of many families. My impression is that these credit unions are set up by well-intentioned individuals and small groups of people. They are run by a mixture of volunteers and employees. I think many of them see it as part of their remit to "look out" for people, in a sort of paternalistic way. Their publications advocate the need for thrift. The whole "saving while you borrow" philosophy is really a way to try to teach people to save, to avoid debt and to avoid moneylenders. So I don't think it's unfair to say that they have simplified the message they deliver in an attempt to promote a savings "mentality" or "habit". 

In my view, this underestimates the intelligence of some *but not all* of their customers. I do not believe its origin is disrespect for customers but rather a somewhat outdated paternalistic aspiration to "save people from themselves".

tedd

Declaration of interest: I am a member but not an employee of a CU.


----------



## Tommy (4 Dec 2003)

*Bag ?*

Are any of the bigger CU's worth holding as a carpetbagging opportunity ?


----------



## darag (5 Dec 2003)

*Re: Bag ?*

tedd it doesn't strike me as encouraging thrift by championing the
notion that borrowing money at a high rate of interest and loaning it
back at a lower rate has some financial benefit.  the advice to do this
does not benefit the customers, it benefits the cu itself. i find this
end justifies the means (i.e. lying) attitude objectionable.

we are going in circles i think but i'm not suggesting that cu should do
a better job of adapting to "sophisticated customers".  i'd just rather
the cu's were straight up and honest with people and didn't propagate
financial untruths seemingly motivated by the notion that the advice
ultimately benefits the member.  there's something animal farmish about
this whole approach.


----------



## rainyday (5 Dec 2003)

*Re: Bag ?*



> the advice to do this does not benefit the customers, it benefits the cu itself



Hi Darag - You seem to be missing the point which Tedd made earlier that being a mutual organisation, the CU *IS* the members - so what benefits the CU does benefit the members.


----------



## Skinflint (5 Dec 2003)

*.*



> so what benefits the CU does benefit the members.



Sorry, but that's simply not true - take for example:

- the ILCU computer system fiasco and all the wasted millions on various consultants' fees that entailed before being abandoned (Ireland's answer to the infamous LSE Taurus project perhaps?)

- the monopolistic attitude of the ICLU which insisted that all member unions buy insurance products from a single provider which was far from the cheapest

- the development of certain CU's (my own in particular) of fancy and expensive office spaces far beyond the union's or their customers' needs


----------



## rainyday (5 Dec 2003)

*Re: .*

Hi Skinflint - I take your point, but actually, I think it still is true, but what I omitted to say was that what damages the CU also damages the members.


----------



## Skinflint (5 Dec 2003)

*.*

In some recent cases what benefited the ILCU top brass damaged the ILCU, individual unions and the members!


----------



## Slim (5 Dec 2003)

*Re: Carpetbagging the CU.*

Tommy

You would have to qualify as a holder of the "common bond" to join the CU of your choice. According to the credit union rules, there is no chance of demutualising a credit union.

Skinflint

The Computer System fiasco cost the members IR£27m and set back the movement in its goal of modernising the technology. However, this was a result of amateurish incompetence and there is no evidence that any of it benefited the ILCU members/brass.

You must all remember what was said above. The CU was created in different times and is modernising as best it can given that each CU is independent and is mostly run at policy and strategy level by volunteers. THe ILCU is undergoing radical change and will be some time before it gains credibility with CUs.

CUs do not mislead members. I have outlined above why we/they encourage savings and borrowings simultaneously.

Slim 8)


----------



## Skinflint (5 Dec 2003)

*.*

OK - maybe it was not related to the ISIS project but this SBPost article ( [broken link removed] ) includes the following snippet:

"The level of expenses paid to ILCU board directors has provoked criticism. In defence, it is argued that the expenses are essential mainly for travelling on board business to meetings and conferences. A motion at the forthcoming agm calls for annual publication of all expenses, fees and benefits in kind awarded to ILCU directors and requests that these items be listed for each director individually."

Is IFSRA's Registrar of Credit Unions in operation yet to provide some transparency to members on issues such as this?


----------



## rainyday (6 Dec 2003)

*Re: .*

If you want transparency, the first place to look for it is at your CU's AGM when they present the accounts.


----------



## Skinflint (6 Dec 2003)

*.*

No - that will give no insight into monopolistic practices forced on the member unions by the central ILCU, ILCU director remuneration (sorry - expenses) and so on...


----------



## rainyday (6 Dec 2003)

*Re: .*

Of course it will - your CU is a democratic organisation. Get up & speak at the AGM - propose a motion or two - If a majority of the members share your concern, then it will be actioned. Of course, if they don't share your concern....


----------



## Skinflint (7 Dec 2003)

*.*

I received notice of my CU's AGM yesterday. The AGM was on last Thursday. They never issue proxy forms to allow non-attendees to vote.


----------



## rainyday (7 Dec 2003)

*Re: .*

Looks like you have some problems in your local CU. My AGM invites always come a couple of weeks in advance. Unfortunately, I've never got round to attending myself. I trust you'll let them know of your dissatisfaction. AFAIK, the relevant legislation does not permit proxy voting for CU's.


----------



## Skinflint (7 Dec 2003)

*.*



> I trust you'll let them know of your dissatisfaction.



No. I'll probably just leave as I get no benefit from membership to be honest. I saved a few bob years ago but never borrowed or bought any other financial product from them.



> the relevant legislation does not permit proxy voting for CU's.



Proxy votes are allowed accoding to the annual report. It's just that they don't send out proxy forms in advance of the meeting.


----------



## rainyday (8 Dec 2003)

*Re: .*



> Proxy votes are allowed accoding to the annual report. It's just that they don't send out proxy forms in advance of the meeting.


From [broken link removed]



> (3) Subject to subsection (4), *a member of a credit union may not vote by proxy at a general meeting of the credit union.*
> 
> (4) *Where a member of a credit union is not a natural person, that member may be represented at a general meeting by a representative* who may vote on behalf of the member if—
> 
> ...


So unless you can claim that you are not a 'natural person', they are correct in not sending you proxy forms.


----------



## Skinflint (8 Dec 2003)

*.*

Item (2) in the AGM agenda was "accept proxies (if any)".


----------



## darag (8 Dec 2003)

*Re: Credit Union Borrowing*



> Hi Darag - You seem to be missing the point which Tedd made earlier that
> being a mutual organisation, the CU IS the members - so what benefits
> the CU does benefit the members.



i simply don't agree, rainyday.  just because something benefits the cu
as a whole doesn't necessarily mean it benefits an individual member.
if an individual ends up paying very high interest for their borrowings,        
it certainly benefits the cu from a profits point of view but it hardly
benefits the member if they could have gotten money cheaper from a
different source.

i don't see how telling people that borrowing at a high rate while
saving at a low rate is financially prudent benefits the members who
take this advice.  but i do see how it helps the cu's profits.


----------



## rainyday (8 Dec 2003)

*Re: .*



> Item (2) in the AGM agenda was "accept proxies (if any)".


Hi Skinflint - That is consistent with them accepting proxies from non 'natural persons' but not accepting proxies from you (or sending them to you with your AGM invite). To do so would be a breach of the act.



> i simply don't agree, rainyday. just because something benefits the cu as a whole doesn't necessarily mean it enefits an individual member.


Hi Darag - It's not a matter of opinion. It is a matter of fact. The members own the CU. What benefits the CU benefits the members. There are questions about how the members can get access to these benefits, but the benefits become the property of the members. It is a mutual organisation.


----------



## daltonr (8 Dec 2003)

*Re: .*



> It's not a matter of opinion. It is a matter of fact. The members own the CU. What benefits the CU benefits the members.



The members who understand the subtleties of borrowing while also saving, and who understand that the APR is not necessarily the real cost of borrowing benefit because they can leave money on deposit but do their borrowing elsewhere.

While the members who are less financially literate believe what they are being told, that saving while you borrow is a good idea.

So the CU is making bigger profits from the less financially literate and passing those profits on to those members that know their stuff.

I'm not sure this is what the CU was origianally intended to be.

But the worst part is that some of these people who believe the Credit Union are also willing to leave savings in the CU rather than clear credit card bills, Store Cards etc.  That's the part of this that I have the biggest problem with.

-Rd


----------



## Slim (8 Dec 2003)

*Re: Credit Union Borrowing*

Too much focus here is directed at the security required against a loan. There was a time when CUs required 25/33% security but the 1997 Act changed the playing field and allowed CUs to lend out up to 1% of assets. In a decent sized CU this could be up to 300/400k. Obviously, a security of 25% is unlikely in such a case and other forms of security are necessary including, a charge against the property, deposit of deeds etc. This would also be taking ability to pay, business plan etc into account. If a member of good standing wants a loan of 10k against shares of 500, they will get the loan. 

If a member dies, the loan is cleared and their savings doubled(up to age 55). That is why many older members are encouraged to take a loan out rather than deplete the savings because if they pass 55, the proportion of savings enhanced declines.

CUs always encourage thrift and work hand in hand with MABS when people are in trouble. Many/most people in employment can get a loan from the source of their choice. CUs do not force anyone to borrow from them. Many of our members do not like/trust the banks and prefer to stick with the CU. Older members leave their savings with CUs because the rate of dividend paid is much higher than that available in any other institution for a demand account with insurance attached.

Credit Union "puts people first"...

Slim 8)


----------



## daltonr (8 Dec 2003)

*Re: Credit Union Borrowing*

You're obviously committed to the cause, and it's a good cause, but you have to accept that it has weaknesses.

I know people who to this day believe it's better to have money in the bank and carry a loan/credit card balance.
They've learned that from their CU, no-one else and it's helping to keep them back financially.

CU's have great customer loyalty, and for the most part it's with good reason, but if that loyalty is based on a belief that the CU will always tell them what's best, while the banks will fleece them then that's just not right.

If people are willing to pay a little more for the insurance and the caring attitude of the CU, along with it's Member structure then fine, but don't con them into thinking that the CU is cheaper.

-Rd


----------



## darag (9 Dec 2003)

*Re: .*

hi rainyday, in response to my claim that some members do not benefit by
their dealings with the credit union, you respond that


> It's not a matter of opinion. It is a matter of fact.


i simply don't agree.  if you want to argue about facts rather than
opinions, then i invite you to argue the case that it can never happen
that an individual member is disadvantaged by the lending policies of
the cu.  it is nonsense to suggest it cannot happen "by definition".  it
does happen and there was a person who posted to this site a few months
ago who was effectively paying a rate of 22% apr.  this was probably an
exceptional case but i believe it contradicts your "matter of fact"
statement.  unfortunately producing results from the ezboard search
engine is beyond my abilities otherwise i would include a link to that
discussion.



> What benefits the CU benefits the members.


this is ridiculous.  if i give the union a grand in interest on a loan
that i could have gotten for half the price from elsewhere, it benefits
the cu.  just because i receive fifty quid back in profit share doesn't
mean i've benefited from the deal.



> There are questions about how the members can get access to these
> benefits, but the benefits become the property of the members. It is a
> mutual organisation.


i don't see why you think being a mutual organisation axiomatically
equates to benefiting the members.  for example, membership of the irish
nationwide certainly caused severe and terrible financial hardship to a
number of people in some high profile cases.  how would your "matter of
fact" claim apply to those people?


----------



## stretched (9 Dec 2003)

*Re: Cost of interest*

I Darag, 
I am following this thread with interest, as my own experience has shown how expensive credit union loans are.  Below is my previous post which I think you are referring to -22% rate interest  in your last post on this topic.  I have seriously prioritised my over-payments to the credit union and now have the loan down to €4000, and I still have €5000 on deposit there.


"Until I took out a credit union loan 18 months ago, I was under the general impression that they offered good value compared to borrowing from banks. I really don't understand how they calculate interest rate but I have paid €2,323 in interest on a €15,000 loan in 18 months, and have been regularly overpaying them (to cut overall interest paid) and the outstanding loan now stands at €7,327. I received €250 from them last Christmas for dividend and rebate combined and I have €5000 savings with them securing the loan. At the outset, the loan was for 5 years and my repayments were to be €184.00 every two weeks, but based on 26 fortnightly payments per year over 5 years I would end up paying €23,920 back for the original loan of €15,000! I don't know if its just my credit union are more expensive than others or am I timing my repayments incorrectly?"


----------



## Slim (9 Dec 2003)

We would offer them a loan to clear that credit card balance or move the loan to us. We would point out the advantages of keeping a little cash in savings while the loan rate is one of the cheapest about, taking interest rebates into account. The fraction of the loan they would have to keep on deposit would depend on their record with us and so on.

We are not trying to con anyone. We look at it differently. That goes back to the origins of CU. We are changing but still cling to the old values.

Slim 8)


----------



## rainyday (9 Dec 2003)

*Re: .*



> i don't see why you think being a mutual organisation axiomatically


Because the members own the organisation - plain & simple. If I pay 1,000 in interest to my CU, that money goes 'into the pot' and is owned by all members of the CU. So what benefits the CU benefits the members.


----------



## Skinflint (9 Dec 2003)

*.*

Another example where this is not true:


----------



## Protocol (9 Dec 2003)

*CU lending rates*

Kells CU interest rates, which seem good value:

Dividend 3%
Loan rate 8.95%

Sligo CU, not as good:

Dividend 2.5%
Loan rate 12.68% less 25% interest rebate

Plus, although it's technically illegal, you get all the dividend paid gross = tax-free.  I don't know of anybody who declares it. Although this is changing.

Also, although the APR may seem higher, the euro cost to repay a CU loan is lower than from a bank.  A €1000 loan for a year costs €45.50 in interest.  That's using an interest rate of 0.7% pm, or 8.73% pa.  But the loan costs just 4.55% really, though the APR is 8.73%.

This is because the interest gets less, as the loan balance falls.

Protocol


----------



## Statler (9 Dec 2003)

*Re: .*



> Also, although the APR may seem higher, the euro cost to repay a CU loan is lower than from a bank.



Protocol,
How so?


----------



## Protocol (9 Dec 2003)

*CU rates*

What I am saying is that the APR of 8.73% suggests you will pay €87.30 interest per €1000 borrowed. When, in fact, you would repay €45.50.

I will check how much BoI and AIB charge for 1000 for a year and get back to you.

Protocol


----------



## Protocol (9 Dec 2003)

*CU vs. Bank of Ireland*

1000 loan for a year.

Bank of Ireland, from website:

Variable rate 50.36 interest, 9.6% APR
Fixed rate 57.32 interest, 9.8% APR

Kells CU, 0.717% pm, or 8.95% pa APR:

=46.61 interest

*CU wins on interest cost*.  Plus you are contributing to a mutual, community-based organisation.  Plus the loan is insured for free.  Whereas repayment protection insurance costs €4 pm from the bank.

Plus you get a top rate of 3% on dividends.  Paid gross.  Where else would you get it?

Protocol


----------



## Statler (10 Dec 2003)

*Re: Credit Union Borrowing*



> Also, although the APR may seem higher, the euro cost to repay a CU loan is lower than from a bank.


My question was how a higher APR loan from a CU could cost less to repay than a loan from a bank. The example you have given deals with a lower APR at the CU, which will obviously be cheaper. 
I don't see this as a vindication of the CU, merely as making the point that the lower the APR the better for the borrower.
The question of whether the stated CU APR is realistic after considering the fact that a CU borrower must maintain funds on deposit has been discussed already in this thread and I won't repeat it.


----------



## Brendan Burgess (11 Dec 2003)

*Re: Cost of interest*

Stretched and Boo

All credit unions are independent and have different rates and policies. I would like to compile a list of cheap ones and dear ones.

Would you mind naming your Credit Unions as they seem to be dear and inflexible.

Brendan


----------



## darag (12 Dec 2003)

brendan, i probably did step over the mark there but it was
as a result of frustration. i think that there are enough 
examples around to prove that  membership of a "mutual"
type of financial organisation is no protection against getting
a very raw deal in some circumstances. i find the claim
that it simply cannot happen by definition very irritating given
the well known counterexamples. anyway, that argument 
probably belongs in a seperate debate.  some of what you 
deleted had nothing to do with my rant and was addressed
towards streched which was:

it's shocking that you, streched,  have more savings than 
your loan balance.  if you can at all, you should run from the
credit union and take the grand balance you have.  as it is at 
the moment (and if you left things as they are), it would cost 
you about 300 a year even though you have a positive 
balance of a grand.  this is ridiculous; it's like being charged 
minus 33% interest on your savings.


----------



## Brendan Burgess (12 Dec 2003)

*Re: .*

darag 

Theoretically, as a member of the Credit Union I own it and benefit from it. 

In practice, I get no benefit and lots of people are losing out as a result of their commitment to the mutual ideal. To argue otherwise, is to ignore the reality. 

I had a mortgage with the EBS, because it was good value, not because it was a mutual. I now have a mortgage with AIB, because they gave me the best deal. 

I like the idea of a credit union, but the structure and policies result in customers/members paying above the odds. They should be reformed.

Regarding the editing of posts. Im my old age, I am getting less tolerant and patient. I used to spend time editing sections of posts, but it's too time consuming. Now if a post is generally not in comliance with the posting guidelines, I delete it. In your case, as a long standing poster, I explained to you what I was doing. Normally, I just delete without explanation. 


Brendan


----------



## daltonr (15 Dec 2003)

*Re: .*



> In practice, I get no benefit and lots of people are losing out as a result of their commitment to the mutual ideal. To argue otherwise, is to ignore the reality.



Exactly.  Those who understand what's going on and have the sense to deposit with the CU and borrow elsewhere, gain at the expense of those who don't understand the impact of leaving money on deposit while borrowing.

Subsidising the financially aware at the expense of the financially naive.  I guess all CU members are created equal.  But some are more equal than others.

-Rd


----------



## shoegirl (15 Jan 2004)

*Fair is fair . . .*

I think much of the criticism of the CU is highly unfair.

A good friend of mine, who is on social welfare, tried recently to get a laser card from her bank (where she has only a cashsave account, which means she will be charged the same rates as rival banks do for a current account for basically a glorified deposit account) and was given pretty much a two fingered salute.  On the other hand she was given a very fair loan by the CU even though her income was pretty limited.  The banks would have told her to go and **** herself.

Banks are nice if you are doing well but do not take your applications on its own merit.  So if you had repayment issues up to 6 years previously you will not be treated equally.  If you are on a below average income you will not get a fair deal.  These days most banks will not even let you have a current account unless you've got a steady income from paid work.  In the UK this created such a serious problem with financial exclusion (people having no bank account at all) they had to force the banks to offer "basic bank accounts" and in my experience some banks will still exclude you if you are unemployed.  And if you are a tenant or a recent migrant they will also remind you of your place.

Another thing is that the CU usually give very generous rates on deposit compared to banks and refund interest which makes the loans quite favourable.  In fairness to credit unions, the existence of savings can and will influence whether or not you get a bank loan.

Critics of the CU do not consider that banks will give literally nothing but the bare minimum of service to people on social welfare and anybody on less than the median wage.  And the CU is brilliant for people like me who had debt problems in the past that are now resolved but will continue to linger on the credit report for a couple of years - they take into account what you can afford to pay, not something that happened 3 or 4 years ago that may no longer be relevant.


----------



## daltonr (15 Jan 2004)

*Re: Fair is fair . . .*



> Critics of the CU do not consider that banks will give literally nothing but the bare minimum of service to people on social welfare and anybody on less than the median wage. And the CU is brilliant for people like me who had debt problems in the past that are now resolved but will continue to linger on the credit report for a couple of years - they take into account what you can afford to pay, not something that happened 3 or 4 years ago that may no longer be relevant.




On this thread I fall into the "critics of the CU" category.  But I don't disagree with anything you've said.  Yes they will be more inclusive in who they'll lend money to.  Yes there are people who wouldn't get past the door of the bank but who can get a loan from the CU.  Yes their profits are owned by the members not by anonymous investors.  yes your debt is written of in case of death and your estate gets a multiple of your shares.  All good, fair play to them.

Now with all that accepted your first point:



> I think much of the criticism of the CU is highly unfair.



Just because there are good things the CU's do doesn't mean that they don't do any bad things.  It's always fair to criticise the bad things people/organisations do regardless of what good they do.  Mother Theresa could be criticised on many fronts and it wouldn't be unfair.

I won't rehash all the criticisms, but I don't think any of them are unfair just because CU's are "Nice".

-Rd


----------



## darag (16 Jan 2004)

*Re: .*

sure shoegirl but the basic point is that credit unions can
often charge very high interest in a way that is not clear to
borrowers.  yes they are better than moneylenders in terms 
of interest charged and are more accommodating than banks
in terms of offering credit to people who would be considered 
risky cases.  however, there have been enough cases on this 
messageboard of people ending up paying a real apr rate of
16-20% apr on credit union debts that it obvious that some 
people get burned badly by borrowing from credit unions.
i believe credit unions fill an important role in helping people
with access to credit but i find the idea that they are beyond 
reproach and that the idea that people cannot get ripped off
by them ridiculous.  i also believe that they propagate poor
financial advice with what is either misguided or false advise 
that people should maintain deposit savings while borrowing.

as for protocol's claim - it's ludicrous.  real apr is the true
measure of credit cost.  if you borrow 10K at what is claimed
to be 8% interest but are forced to keep 2.5K in savings 
earning 3% then you are really borrowing 7.5K at a 11% rate.
the credit unions never factor in the mandatory savings when
they quote apr which in a fit of generosity, i'd say was very
opaque.

as for contributing to a mutual - some contribute and some
benefit; it's a zero sum game.   call me cynical, but you'll 
find plenty of people on this messageboard and elsewhere 
encouraging you to "contribute to a mutual" because they 
benefit from membership.  it's not such good fun for those
who end up paying over 15% on their debts.


----------



## Slim (19 Jan 2004)

*Re: CU rates*

"i also believe that they propagate poor
financial advice with what is either misguided or false advise 
that people should maintain deposit savings while borrowing."

I think it is important to understand why CUs encourage the holding of deposits while borrowing.
1. To establish a pattern of saving in advance of getting a loan
2. As a form of security to ensure that there is an incentive to repay the loan and
3. In the case of elder members especially the shares insurance declines from age 55 onwards.

Credit UNions do not give out financial advice as part of normal business. It is neither misguided nor false. It is simply current policy.

If CUs abandoned the requirement to maintain at least 25% of the value of a loan in savings, a number of things could happen;
1. Higher level of default on loans
2. CU would attract less scrupulous members
3. Higher level of bad debts leading to reduced returns on lending which would lead to lower dividends and slightly higher interest rates and
4. Some folk who currently are able to borrow from CU (and do so honourably and make full repayments) would not be entertained for loans

Horses for courses.

Slim 8)


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (19 Jan 2004)

*Re: CU vs. Bank of Ireland*

Fair points - but they should be obliged to, or volunteer to, quote APRs that include the cost of keeping money on deposit while having a loan outstanding. That way people could compare like with like against other credit products on the market and choose the best value product. As things stand, notwithstanding all the good things that the CU stands for and has done in the past, the CU approach to lending causes confusion for somebody looking for the best deal. This is potentially bad for many consumers.


----------



## daltonr (20 Jan 2004)

*Re: CU vs. Bank of Ireland*



> but they should be obliged to, or volunteer to, quote APRs that include the cost of keeping money on deposit while having a loan outstanding.



This is what actually amazes me!  I'm surprised that they aren't obliged to.  Can anyone confirm that the rate advertised by the CUs does not include the money on deposit?

-Rd


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (20 Jan 2004)

*Re: .*



> Can anyone confirm that the rate advertised by the CUs does not include the money on deposit?



Presumably they would have to quote different APRs to different borrowers based on the amount they keep on deposit so I presume that any APR quoted doesn't take into account the cost of holding money on deposit while having a loan outstanding.


----------



## Dave (25 Jan 2004)

*Credit Unions vs Banks*

Most banks don't give much unsecured credit, except through Credit cards to non-customers. Most Overdrafts for example are bolted into expensive Current accounts, and customers can also get very poor deposit rates. There's also no interest on C/A credit balances worth talking about.

The point is, taking daltonr's line that if CU's were required my IFSRA to recalculate APR, even allowing for interest rate rebates, ( which seems impossible) surely it would also knacker bank advertising too?


----------



## Slim (26 Jan 2004)

To answer daltonr's question, the rates quoted DO NOT include the cost of keeping funds on deposit. This would vary from member to member depending on the loan and the amount held on deposit etc. It is difficult enough to calc. APR without including this. It is part and parcel of credit union to borrow against secured funds.

Slim 8)


----------

