Business Personal Finance

Saturday 16 December 2017

Central Bank orders 200 credit unions to cut lending

Registrar of Credit Unions, Sharon Donnery. Picture: Jason Clarke Photography
Registrar of Credit Unions, Sharon Donnery. Picture: Jason Clarke Photography

Charlie Weston Personal Finance Editor

TENS of thousands of credit union members are being refused loans because half of all credit unions are under orders from the Central Bank to limit their lending.

The lending restrictions are benefiting banks and moneylenders while undermining the member-owned credit union sector, it was claimed.

Parents are being turned down for loans to cover the costs of sending children to college, with others being denied loans to cover funeral costs because of the lending limits, it has emerged.

And other members of credit unions are being forced to resort to moneylenders.

Close to 200 credit unions have been ordered by regulators to restrict their lending to consumers.

Regulators said the limits were needed because of high levels of arrears across the State's 392 credit unions.

Credit union regulator Sharon Donnery, who is based in the Central Bank, said one-fifth of the loan books of the movement were in arrears.

In 47 unnamed credit unions, arrears represented more than 30pc of the loan books, she said.

"Ongoing concerns about arrears in individual credit unions have been a key driver of the imposition of (lending) restrictions," she said.

But the restrictions have been condemned as inflexible and acting to undermine the viability of the movement.

Kieron Brennan, of the League of Credit Unions, a representative body for most of the member-owned lenders, said arrears in credit unions were falling.

"In banks, arrears are still going up – particularly mortgage arrears. I am not aware of similar inflexible restrictions being imposed on other lending institutions," he said.

He added that "banks will be loving the fact that so many credit unions have been told to limit their lending".

Loans are the main income generator for credit unions. He said loans to cover bereavements were being refused because of the Central Bank orders.

"If a credit union has a lending restriction imposed and it has reached its limit, then it cannot even lend to the Taoiseach if he walked in looking for a loan," Mr Brennan said.

Most credit unions are being told to restrict the amounts they can give out to each individual member, with smaller numbers of the lenders told to cap the overall amount loaned out each month.

Credit union registrar Ms Donnery said the restrictions were put in place to protect credit unions and their members.

"The ongoing stresses in the economy, growing arrears and the insolvency regime all create a climate of increased risk in relation to credit decisions," she said in a speech.

"Restrictions are, in most cases, intended to be short-term in nature."

But the League of Credit Unions has questioned the criteria being applied when a credit union is told to limit its lending.

The league, together with Maynooth Credit Union, has sought a judicial review of the regulation of the sector by the Central Bank in a case due to be heard in the High Court in April.

Lending is the main way that credit unions have of making money for the 2.8 million members who own them.

A fall in the lending means it is more difficult for credit unions to pay a dividend.

Irish Independent

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