Wednesday 13 December 2017

Credit union customers to get lower dividends as regulation costs mount

There has been a slight fall in the dividend paid by credit unions this year
There has been a slight fall in the dividend paid by credit unions this year

Charlie Weston Personal Finance Editor

THERE has been a slight fall in the average dividend paid by credit unions this year, new figures indicate.

Regulatory restrictions on credit unions and loan arrears mean that only 281 credit unions in the Irish League of Credit Unions will pay a dividend.

Another 93 credit unions won't.

Credit union dividends are much the same as interest paid on savings by a bank.

But each credit union sets its dividend if it has a surplus or profit to distribute to its members.

"Based on the current data, 281 credit unions have confirmed the payment of a dividend for year end September 2013. The average dividend paid was 0.89pc," a spokesman for the league said.

These dividends would have been paid to members since November, according to the league, which is a representative body for most credit unions.

The average dividend being paid to members at the moment is down slightly on the figure for 2012, when it was 0.96pc.

This year all share dividend and deposit interest paid to credit union members will be subject to DIRT (deposit interest retention tax) following a change in the last Budget.

The only exception is for members who are exempt from DIRT.

DIRT is now 41pc, more than double what it was at the start of the financial downturn in 2008.

Credit unions are coming under financial pressure from restrictions imposed by the Central Bank, an update provided to members of the Oireachtas by the league, and seen by the Irish Independent, shows.

"The imposition of inflexible loan limits which are often too restrictive means that credit unions have to refuse credit for members with excellent repayment records," the update says.

Central Bank regulators have imposed some form of lending restrictions on around half of the State's 394 credit unions over fears some loans are not being repaid by members, which risks weakening some credit unions.

"Lending limits such as €25,000 mean that credit unions may not be able to service all of their members borrowing needs.

"A limit of €10,000 implies that credit unions will only be able to service the most basic lending requests and will effectively remove credit unions from two of the most important markets for credit union loans i.e. home improvements and car loans," the update adds.

Loan interest is the single largest source of income for credit unions. The update says anything that curtails credit unions' ability to lend will negatively impact upon their ability to generate income.

"The restrictions the Central Bank is placing on lending are causing severe difficulties for members of credit unions in some communities and they may be forced to turn to money lenders," the league told the TDs and senators.

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