That's not true. Given that the biggest expense to a credit union in terms of its lending is provisions and bad debts, the insurance cost wouldn't have any affect on the interest charged. Actually it would cost the Credit Union more as it would have to write off loans were a member died.
As for a savings return, well there's many more things affecting the dividend return than the cost of the insurance. The insurance was always a cost paid as an expense, yet credit unions paid 2-3% historically. Explain why you think the insurance cost is now the cost that's causing a reduced dividend?
Every cost incurred by the CU reduces the dividend to members. You could make an argument about whether the cost of this insurance is material or not, and perhaps it's not, but it is ultimately a cost to members.
And it's not true to say that the CU would have to write off debts on death without the insurance. Without the insurance, the CU would have the option of pursuing the estate for repayment, if it chose to do so.
While it is financially logical that of course borrowing at 12% when you have savings at 1% makes no sense. But that is to fundamentally misunderstand the people who use a credit union.
The credit union, any that I've seen are there for it's members. People who otherwise would not get loans from mainstream lenders can go there for loans for cars, holidays, communions, weddings. There's no fuss and bother nor massive form filling and having to send everything to Dublin for a machine to make a decison on refusal. Inevitably the credit union will give you the loan. And sometimes it might be because the credit union committee member might know your uncle, and will therefore take a chance on you.
They have an immensely important role in helping people to both save and borrow, and have helped keep many people away from moneylenders. That can only be seen as a positive.
When I was first starting out it was the best way to borrow easily. I like they way they operate, but as many know I cannot stand the banks so I might be prejudiced.
Banks of course would like to see them wiped out. Both Mr. Bronte and I have operated a CU account each for a very long time, and we get derisory interest as all we do is save, but I know that if ever everything fell apart I'd have no problem getting a loan, but more importantly, as they are a force for good in society I would always support what they do. Anyone who has regularly visited the credit union, as I once did, can only observe and see how people need the credit union.
It is true that during the boom some credit unions lost the plot. Hopefully they are getting back on track to what their original core business was.
I'm well aware of the role and value of CUs and I'm quite a big fan of CUs as community financial institutions, owned by the their members. I'm certainly not a fanboy for the banks.
I'm challenging this particular operating practice of the CU, not the CU movement or ethos itself.
It seems to me that the CU is actively trying to keep their members financially dependent on the CU, instead of educating them to be financially independent. It is in the interests of the CU staff and Directors that members continue to borrow, even when there is no need for members to borrow. If the CU truly has the interests of members at heart, they would not be encouraging them to pay interest unnecessarily.
If members find it much more difficult to make payments to savings then payments to repay loans, then the CU should
1) Be absolutely open and transparent about the price members pay to borrow instead of saving, or
2) Offer alternative services, like a 'nagging' service about payments to savings, to support members to save better, if that is what it takes.
It seems to me that this approach of encouraging members to borrow instead of saving is designed to be in the interests of the CU staff and Directors moreso than the interests of members, who pay the price of the interest margin.