Credit Unions a softer target than banks
AFTER YEARS when the perception was that the Central Bank did very little to control the activities of our financial institutions, it's perhaps not surprising that Big Brother has decided to more tightly regulate, not the banks, but the credit unions.
No-one would deny that there are problems within some credit unions and that there are probably too many of them to make economic sense, but is the big stick the right way to go, or is it just that they are seen as a softer target than the big banks who got us into the mess we are in now.
I don't know of any credit union which would lend money with little or no security or would grant huge mortgages which would be used to build a house, furnish it and provide a 4X4 to get the family around in style, even if that was really a lifestyle built on sand. No, the credit unions are the lifeblood of many communities and at time of hardship they become more important and play a vital role in keeping town and village economies moving and communities from the breadline.
Now the Central Bank tells us that mergers are necessary because an increasing number were likely to get into financial difficulties this year, with the Registrar saying this was mainly due to being badly run and because of arrears on member loans..
One of the ways of dealing with this would be to get weak credit unions to merge with stronger ones. This would not mean that an area would lose its credit union office. Instead, it would operate as a branch of a larger credit union.
Meanwhile facing Draconian new legislation which will come into force later in the autumn, the Credit Unions Managers' Association is urging dialogue between the Central Bank and credit unions before the new rules are a done deal. Under the new rules, some credit unions will be allowed to lend a maximum to members of €100,000 in any month. Restrictions are also being placed on the amount a credit unions is allowed to lend a member, this despite current rules within the credit union movement which bases how much you can borrow on how much you have invested. This seems a ridiculous piece of lawmaking and one that makes no sense, except perhaps to the mandarins at the Central Bank.
Selina Gilleece of CUMA says many credit unions are now reaching their lending limits within ten days of a new month and this means that many members of credit unions will be forced to turn to money lenders for loans.
So why is the Central Bank, with the backing of the Taoiseach, taking this action? It makes sense for the credit unions to operate in a transparent manner and to come clean on loans and to show how their members' money is invested, but waving the big stick in this way will do no-one any good.
The government wants us to get out there and start spending to try to stimulate the economy from the ground up.
But it seems the Central Bank's actions will hamper this, threatening the one remaining lifeline that many families have after the banks closed the doors in their faces and denied households the income they need to sustain themselves through these troubled times.