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State to relax restrictions on credit union loan payments

THE Department of Finance is to announce soon a relaxation of the rules that currently restrict credit unions when they want to reschedule a loan that a member is having difficulty paying, it has been learned.

A change in legislation will be required as there are strict criteria in the 1997 Credit Union Act on the percentage of a credit union's loan book that can be loaned out for more than five years.

The move to relax the rules follows intense discussions between departmental officials, officials from the office of the Registrar of Credit Unions, and representatives from the Irish League of Credit Unions and the Credit Union Development Association.

A statement from the department, following a query from the Irish Independent, said that Minister for Finance Brian Lenihan was aware many credit unions members were seeking to have loans "rescheduled to facilitate a reduction in their loan repayments".

Under the act only 20pc of a credit union's loans can be outstanding for more than five years. And only 10pc of the loan book can be outstanding for more than 10 years, under section 35 of the act.

The discussions centre on extending the limit on the percentage of loans extended for more than five years from 20pc to 40pc, and those over 10 years from 10pc to 15pc.

But these new rules would only apply to those credit unions approved by the registrar as having "the necessary controls and safeguards in place and satisfying financial criteria in relation to arrears and reserves", the department emphasised.

The statement added: "The registrar of credit unions has formulated an approach which the minister expects can be agreed quickly."


Former registrar Brendan Logue, who had just retired, had warned that some credit unions were attempting to suppress bad debts in their accounts when they rescheduled loans by deleting details of loans that are not being repaid.

He cautioned against credit unions allowing "emotion to interfere with honest accounting" when he spoke at a credit union conference in November.

Credit unions have been experiencing a sharp rise in members defaulting on their loans, just as is the case with all financial institutions.

But rescheduling a loan where a member can't pay the full amount is sometimes not possible because this would breach the limits on the number of loans over certain periods.

The Irish League of Credit Unions said it hoped to agree to the new rules and to account for appropriate provisioning.

And Kevin Johnson of the Credit Union Development Association said: "We welcome this timely intervention by the minister which addresses our stated desire to support borrowing members who find themselves in difficult circumstances while also enabling the continuation of prudent lending to other members."

Irish Independent