# Credit unions to be the fall guys for the banks



## Bronte (14 May 2013)

Often on here we have people in debt and it seems the banks are now telling people to pay the mortgage and don't pay anyone else. And people on AAM are sometimes adviced to stop paying the unsecured debt.  We now see that the banks and the regulator have created a new table and have a trial scheme with 750 people.  But the credit unions are not playing ball with this and it seems the banks and regulators aim seems to be to protect the banks at all costs.  Could this result in Ireland losing the credit unions ?

Also no credit unions means more of a monopoly for the banks.  Not sure what others on here think of credit unions, but I think they are great.  Nice to deal with, a great help to small borrowers, based in local communities etc.


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## Brendan Burgess (14 May 2013)

Hi Bronte

It really is a very difficult problem to solve - the interaction between mortgages and unsecured loans. 

From a purely arithmetical point of view, you should stop paying your mortgage and pay your Credit Union. The interest on your mortgage varies from around 1.25% to 5%. The effective APR on your CU loan can be anything between 6% (if you have no shares) to 15% ( if you have say 25% of your loan in shares. )


However, the priority of most people is to keep the roof over their head, so they are advised to prioritise their mortgage repayments over unsecured loans. 

It's not just the CUs who are being deprioritised, it is also term loans and credit cards which amounts to around twice the amount of CU loans outstanding.

The principle of the CB's approach is right. 


Prioritise the mortgage debt
But hold back the mortgage repayments to allow some payment to unsecured creditors.
Write off the balance on the unsecured creditors after a period.
I would change it though to. 



Change the mortgage debt to interest-only for 5 years
Pay what is otherwise affordable to the unsecured creditors
Write off the balance of the unsecured creditors after 5 years
The ILCU is  complaining.  But many of them wouldn't be there today if Brendan Logue of the Financial Regulator had not severely restricted their lending during the boom.  They wouldn't be there either if the government had not guaranteed their deposits and provided funds for recapitalisation. They can't have it every way.

CUDA, CUMA  and individual credit unions will go along with the plan.  The ILCU left the table. They should have stayed in to get a better deal.


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## ClaireM (14 May 2013)

For years Some Credit Unions have been putting pressure on people, using personal and local knowledge, to pay their Credit Union loans at the expense of their mortgages.

A loan secured on your home should take prioirity over an unsecured loan.


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## ClubMan (14 May 2013)

Bronte said:


> Not sure what others on here think of credit unions, but I think they are great.  Nice to deal with, a great help to small borrowers, based in local communities etc.


I have posted my opinions on them and some of their practices elsewhere. Let's just say that I have a much less rose tinted view of them generally.


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## Gerry Canning (14 May 2013)

ClubMan said:


> I have posted my opinions on them and some of their practices elsewhere. Let's just say that I have a much less rose tinted view of them generally.


 ...................................
Not disagreeing, 
But from experience Credit Unions are better than Banks.
We gave Aib 20 Billion but nothing to Credit Unions.
We are (told) pay secured ie Mortgage. It is NOT SECURED , can only be secured if it is REPOSESSABLE. Homes are rarely repossessed .
 In REAL terms there is minimal difference twix secured property loans and Credit Union type debt.
 I believe the Credit Unions (who we have NOT put Billions Into) are being treated unfairly on the altar of save the Banks.
If as a people we paid our Community Credit Unions 1st , we would end up with a 3rd Banking Force ,with @ least it,s roots in the Community. 

But I do accept my rose tinted failings !!!!!


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## Bronte (15 May 2013)

Brendan Burgess said:


> However, the priority of most people is to keep the roof over their head, so they are advised to prioritise their mortgage repayments over unsecured loans.


 
What about if you're going to lose the roof over your head anyway? 

If you pay off the credit union, and you go basically bust, your credit rating is shot by the bank, so you cannot get credit, but if you've been good to the credit union they will still give you a loan as they rely on their personal relationship with you and previous dealing with them and will give you a loan, say to buy a car so you can get a job but no bank will touch you?

And even worse people could be forced to go again to moneylenders if they don't have the credit union option.

Credit cards are just vultures in my opinion, they deliberately give people too much credit so I've no sympathy whatsoever for them. And they will probably be the first to be giving out credit cards again to people in a couple of years even if the credit ratings are bad.

I liked your second approach above. Credit unions are saying they are being forced into debt writedowns, but what is really needed is part debt writedowns of all loans, including mortgages, so everyone gets something. But the banks are saying we will write down nothing.


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## Harry31 (15 May 2013)

I have always found my credit union to be very helpful as long as you keep in contact with them & make an effort to pay back money as best you can.  I wouldn't agree with right-downs for people in CU's unless it's as a last resort, as this impacts directly on other CU shareholders - where as the banks have shareholders (and big bonuses still being paid to the higher ups). As far as I can see it's the bankers calling the shots again, which will only lead to the same problems we had previously.  At least CU's operate at a truly local level and as Bronte says it'll be back to the old money lender days if CU's put under more pressure.


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## ClubMan (15 May 2013)

salmon9077 said:


> But from experience Credit Unions are better than Banks.


If the banks insisted that you could only borrow €4 for every €1 on deposit thus inflating the cost of credit and did not clarify the concomitant true cost of such credit then many people would be up in arms....


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## Slim (15 May 2013)

ClubMan said:


> If the banks insisted that you could only borrow €4 for every €1 on deposit thus inflating the cost of credit and did not clarify the concomitant true cost of such credit then many people would be up in arms....


 
If the banks had operated in that way and adhered to the old maxim of 2.5 times 1st salary plus half of second, they might not have gotten into the situation they have, having fuelled the boom etc. I realise that commercial lending was the primary downfall of the banks.

Although I am biased towards credit unions, much of their practices and approaches are anachronictic and unsustainable. However, without them, Ireland will be at the mercy of moneylenders. However, people should be under no illusion here, the credit unions will be almost as difficult to get unsecured loans from in future as the banks, due largely to ever increasing regulation from the Central Bank.


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## Brendan Burgess (15 May 2013)

Bronte said:


> Originally Posted by *Brendan Burgess*
> _However, the priority of most people  is to keep the roof over their head, so they are advised to prioritise  their mortgage repayments over unsecured loans.
> _
> What about if you're going to lose the roof over your head anyway? .



An interesting point. 

The MABS policy is to prioritise according to the impact of default. 

Pay the ESB bill first, as you need electricity. 

If you can keep the house, prioritise the mortgage over everything else. 

If you are going to lose the house anyway, prioritise the CU as you might get credit again from them. 

However, the Central Bank's proposals are aimed at people who have not reached insolvency so it seems right to prioritise the family home over unsecured creditors.  Within that, I would prioritise the CU over a CC.


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## ashambles (15 May 2013)

Here's an interesting thread from 2003 on Credit Unions. 

http://www.askaboutmoney.com/showthread.php?t=4783


> I thought everyone borrowed from the credit union for their deposit!
> 
> If you want to borrow more than 3 times your savings, you should save for a few months, and borrow a small amount and pay it off asap (no penalties for early repayment). That way, you can borrow up to 5 times your savings (in most credit unions) on your second loan.





> The money won’t show up as coming form your credit union account because you are given it as a lump sum (as amounts are far less than what a bank would loan) so you can take out as cash, put into your account & pretend it was from you parents! – the bank will ask you for a letter from your parents sometimes to verify!


Credit unions should not have played along when some members were borrowing funds to use as mortgage deposits. The ability to save a deposit is one of few ways a bank has of knowing a customer should be able to repay the loan.

The Credit Unions will and do claim they didn't know people were borrowing for deposits. However that's directly at odds with their other claim that they are community organizations that know their members and their borrowing needs. There's two choices CUs either hadn't a clue what people were borrowing for, or they did know but were ignorant of the consequences.


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## Harry31 (3 Jul 2013)

Friend working in CU has advised that people trying to come to an agreement for reduced payments for their mortgages are being told that they *MUST* pay the bank first & not pay any CU loans, even if they have come to an agreement to pay a (nearly) nominal amount towards the outstanding debt. Looks like the banks are really trying to screw up the CU system here, which is a great pity because people have used the CU over many years - when banks would not even entertain some people.


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