The questions you need to ask your credit union
The forced shut-down of Rush has rattled three million members of the State's other community lenders. Charlie Weston analyses the full picture
Published 26/11/2016 | 02:30
The three million members of credit unions have been rattled by the forced shut-down of Rush Credit Union.
Evidence given to the High Court shows Central Bank regulators have been heavily engaged with the north county Dublin lender since 2009 over persistent breaches of directions.
This closure of Rush is likely to prompt members of the State's 315 other credit unions to ask themselves how they can be sure something similar is not happening in their local lender.
Here are 10 questions to ask to work to out if your credit union is financially sound:
Q: Are my savings, or member shares, safe?
A: Members' savings remain safe, as the state deposit scheme covers savings in credit unions up to €100,000 per depositor.
Q: How would I know if my credit union was in trouble?
A: There are five key questions you need to ask the manager and/or board:
Has the board been told by the Central Bank to postpone the annual general meeting? If it has, it is a sure sign the regulator is unhappy with the way the lending is being run. Rush CU had no AGM since 2013.
Will a dividend be paid, and was one paid last year? Credit unions that are reporting losses are being barred from paying a dividend by regulators. No dividend was paid in Rush since 2008.
Is the loan book shrinking? A declining loan book is an indicator that income is set to fall fast at a credit union. It may have lending restrictions imposed on it by regulators. Although it could also be due to low demand for loans.
Are loan arrears rising? And how many loans are three months, six months or nine months in arrears? Rising arrears are a sign of trouble ahead.
How much money has been put aside to cover loans unlikely to be repaid? The level of provisioning, compared with previous years, should tell you how healthy or otherwise the credit union now is.
Q: Are more credit unions likely to end up being shut down by regulators?
A: Rush was a rogue. The Central Bank has been heavily involved in trying to tame it.
Most other credit unions are sound. However, one in the Munster area needs a rescue merger.
All this is because a small number of credit unions have not been immune to the financial downturn. Loan arrears, loan defaults and rising costs are all impacting, although these problems are easing. Some 100 credit unions have been merged into larger ones in the last two years, with many now bigger and run by professionally qualified managers.
Q: Have many credit unions gone bust lately?
A: Credit unions have been casualties of the financial collapse, but nothing like to the extent of the banks. Rush is only the second to be forcibly shut down, after Berehaven in Cork. Newbridge in Kildare was taken over by Permanent TSB and eventually closed.
In reality the vast majority of credit unions are well run and solvent, so it is unlikely that the registrar will have to intervene again to the extent that they have with Rush, Newbridge and Berehaven.
Q: Can the credit union call in my loan?
A: The credit union can only demand immediate repayment of your loan if you stop paying it. This is not something it will want to do.
Q: The credit union manager and chairperson assure me everything is fine, but I am still suspicious. Where else can I get information?
A: You should only be concerned if there is no AGM. If you're not happy with the response from your credit union, write to the registrar of credit unions in the Central Bank to find out what the problem is, though it's doubtful that they will outline what the problem is either.
The real problem is that when a credit union gets into financial difficulty members are generally last to know.
Q: I have a loan. Would that get wiped out in the event that my credit union goes into liquidation?
A: Unfortunately not, no one gains from these events. You are still obliged to honour your debt in full. Your loan book will probably be sold to another financial entity, probably another credit union.
Q: Are members entitled to know what is going on, particularly where there's a problem?
A: Yes, they own the credit union. But there are flaws with the current system. Where a credit union has financial problems, it typically has to work closely with the Central Bank to resolve them. While this is going on, the AGM is delayed, so the members get cut out as the annual communication is at the AGM.
Q: If there is no annual meeting, will there be no new board?
A: If regulators tell a credit union to delay an AGM it will delay the election of a new board.
The old board, probably through a lack of ability, may have caused the problems. This means there is probably a real need to vote them out and for new more able replacements to be appointed. And that can't happen unless an AGM is held.
Q: How could members be better informed?
A: Members could ask the registrar to host a communications meeting for members where they could set out the problems - typically poor practices and governance. However, the Central Bank will be reluctant to do this.
If members feel that the board isn't handling it particularly well, 50 or more members could request the registrar to allow them to hold a special general meeting to replace some or all of the board.