Credit unions step up court actions as unpaid loans soar
Published 06/09/2011 | 05:00
CREDIT unions have intensified their pursuit of hundreds of customers who are not repaying their debts.
The number of credit union customers ordered by the courts to repay outstanding loans increased to more than 570 in the first eight months of this year, new figures show.
That compares with just above 300 in the first eight months of last year.
The value of the unpaid credit union debt has also increased by two-thirds, from €5.1m to €8.6m, according to latest data.
It was compiled by BusinessPro, the debt reporting and credit bureau company.
Credit unions have traditionally been reluctant to take legal action against borrowers.
And it is not clear how effective legal actions are in practice -- and whether they are getting their money back.
The Irish League of Credit Unions (ILCU) does not have a central record of the recovery rates of credit unions as each operates as a separate legal entity.
But sources indicate that the courts are not making it easy for them to get their money.
One director explained that credit unions were viewed as a soft touch which did not have the stomach to go after customers for outstanding loans.
"It is frustrating to see people with outstanding loans making no effort to pay them back," said the source, who insisted on anonymity.
His institution had won numerous court judgments against debtors, but the repayment schedules placed on some of the court orders were "ridiculous".
He said:"I can quote one particular example where someone with an outstanding loan in excess of €30,000 was ordered to pay back €25 per week. Realistically, we cannot hope to recoup even a fraction or the original loan." .
Credit unions are under huge pressure to recover debts because loans are funded by the savings of members, thousands of whom are struggling to meet their repayments.
Analysts say the surge in credit union actions may reflect increased pressures on borrowers who turned to credit unions to pay off other loans such as mortgage and credit card debts.
"Credit unions hardly, if ever, have any security and, unlike banks and other financial institutions, their only recourse is the courts," said Greg Connell, managing director of the Irish Fraud Bureau and a non-executive director of BusinessPro which publishes Stubbs Gazette.
The most active credit union in the courts this year is Dublin's Finglas Credit Union.
The largest single order for repayment -- known as a judgment -- was obtained by Roscrea Credit Union for €845,497.
Roscrea, which reported losses of €6m last year, has had to seek financial assistance from a fund run by the ILCU.
The 413 credit unions may need a bailout of up to €500m as a result of recent stress tests.
They have assets of more than €14bn and annual income of €104m, but it is understood that up to 80 are regarded by the Central Bank as at "high risk" of failing.
The largest credit union, St Raphael's in Dublin which provides loans to gardai and their families, has set aside €13m -- €3m more than is required -- to deal with its bad debts.