Tuesday 23 January 2018

Maeve Dineen: Making credit unions more efficient will erode 'human' touch

NEWS that credit unions will need some sort of bailout is hardly a surprise, but it is unnerving all the same. Most families have at least one credit union account and the movement has acted as an alternative and vital source of lending over the decades.

The credit unions were set up to combat money lenders but now often lend money for holidays, special events in people's lives such as first communions, cars and other purchases that banks won't typically support.

This is both the strength and the weakness of the movement. The weakness is that most loans are unsecured and not backed by any assets. The strength is that you can only blow so much money on a holy communion no matter how hard you try (and let's face it, many people tried very, very hard during the boom).

We can be sure that credit unions never caused the sort of damage that the banks did. Not because they were better managed but simply because they did not have access to the international markets.

Having said this, the potential losses will almost certainly be close to €1bn. I don't know why Finance Minister Michael Noonan is insulting our intelligence by suggesting that he must wait until yet another report is finished around Easter before deciding whether to set aside €500m or €1bn to prop up the system.

The only explanations for these low figures are that the good people of his native Limerick are much more prudent than the rest of the country, or that Mr Noonan has lost touch with life on the streets.

Who does not know somebody who has served on the board of their local credit union at some stage? An upright individual, somebody involved in many other local charities and somebody who is unable to say "no" when asked to give up even more of their time every week?

Credit union volunteers are the salt of the earth.

They're the sort of people who make Ireland worth living in, but many of them are too kind to refuse people loans. Many others know almost nothing about managing money. Neither did many of our bankers, of course, and look where that got us.

All the anecdotal evidence is that many, many mistakes were made in the nation's credit unions during the past few years. Many credit union officials will tell you privately that controls were not what they should have been and many borrowers are unable to repay loans or have left the country.

Many of the so-called mergers between credit unions in recent years were effectively silent rescues.

The credit unions do not have a fearsome reputation. Most customers do not really quake before their friendly credit union official in the same way they fear their bank manager or credit company. This reflects well on the individuals working in credit unions but could soon become a collective problem that could end up destroying many local credit unions.

Here are my predictions for the credit union movement over the next few years:

•Many branches will close.

•A fair amount of fraud among customers will be uncovered when officials begin poring over the books.

•Bad loans will become a major problem.

•As the banks prove their stability (thanks to taxpayers), people will begin to withdraw money from credit union accounts.

•The entire system will have to be put on a more formal footing, with higher qualifications required for those holding the purse strings.

It gives me no pleasure writing this. The people who will suffer most will be the the hundreds of thousands of adults presently excluded from the banking system, and the many others who will be excluded by the time this crisis unwinds.

Credit unions have a vital role to play in the country's economy and have played that role with aplomb until now. It is essential that they are saved but the rescue will be more costly, more painful and change the nature of the movement.

Irish Independent

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