Credit union members' cash savings at risk, says watchdog
Published 02/01/2010 | 05:00
THE outgoing Financial Ombudsman Joe Meade has lashed the Government for delaying the appointment of a replacement, which will, for a time, leave the country without any official watchdog.
Mr Meade, who retires today, said it will be well into this year before a new ombudsman is in place. This is despite the fact that he gave three months' notice of his intention to retire.
He spoke as he fired a parting shot at credit unions, claiming many of them put members' money at risk.
Mr Meade has dealt with a large number of complaints from credit unions over claims they were mis-sold financial products by advisers.
A decision he made in a case taken by Enfield Credit Union was instrumental in Davy stockbrokers agreeing to pay €35m in compensation to a number of credit unions.
But in an interview days before he retired, Mr Meade accused credit unions of taking huge risks with members' money on investments that credit union directors barely understood.
"I was appalled at how members' funds were invested without proper controls or people knowing the risks involved," he said.
"Often credit unions were not aware of the details of the specific products and some credit unions have lost a lot of money as a result."
Credit unions invested heavily in perpetual bonds -- investments issued by banks to raise money. The value of these bonds crashed spectacularly at the start of the credit crunch.
Enfield Credit Union in Co Meath took a case against Davy stockbrokers, claiming it was mis-sold these investments.
Mr Meade, who is the statutory arbiter in disputes between consumers and financial services providers, ruled that Davy had mis-sold the bonds to the credit union.
He found that Enfield Credit Union did not understand the intricacies of perpetual bonds. This prompted Davy to offer €35m in compensation to credit unions that had bought the controversial bonds.
But Davy appealed Mr Meade's decision to the High Court, which quashed the Ombudsman's decision and ordered changes to the way his office processes cases.
Mr Meade then initiated an appeal of the High Court ruling to the Supreme Court, with a judgment awaited.
The outgoing Ombudsman, who was in his position for almost five years, has dealt with 25,500 cases in that time. He has been responsible for some €60m being refunded to consumers due to decisions he has made against finance firms.
He criticised some consumers for making bad investment decisions, and then seeking compensation.
''There were customers themselves who were greedy and taking chances, and thought that they would come here and get compensation," he said.
"Personal responsibility is a key factor in any investment decision, with investors having a responsibility to weigh up the risks involved themselves.
''That's why I haven't upheld 38pc of complaints," Mr Meade said. ''Basically, the consumer was taking a chance.
"People were very happy with their product for about three years, and then when it dropped, they came here looking for everything."
Sometimes in a dispute, financial services firms chose to settle the case before Mr Meade had to adjudicate, he said.