Tuesday 16 January 2018

Fraud claims show need for 'super' credit unions


The suspected fraud at Rush Credit Union makes the case for creating super credit unions (Stock picture)
The suspected fraud at Rush Credit Union makes the case for creating super credit unions (Stock picture)
Charlie Weston

Charlie Weston

The suspected fraud at Rush Credit Union makes the case for creating super credit unions.

This is the agenda being pushed by the Department of Finance and the Central Bank, but many smaller credit unions are holding out - and want to remain independent.

They do not want to join up with a neighbouring credit union to create greater scale and install professional managers. Although around 218 credit unions have already merged to give rise to bigger bodies, as many as 40 are holding out.

The official policy is for voluntary mergers, reflecting the more complicated financial world we live in, since the banks crashed the economy back in 2008.

This prompted the introduction of more intrusive and complex regulations for all financial bodies, including credit unions.

The sheer cost and complexity of the increased regulatory burden - and the need to modernise by introducing the likes of electronic payments and debit cards - has meant the days of the small, parish-based credit union are numbered.

Size, professional management and strong governance are now needed for a credit union to thrive.

A State body, the Credit Union Restructuring Board (Rebo), was put in place to fund and offer advice to credit unions that wanted to scale up by merging with another, usually larger, one.

Rebo's deadline for getting funding passed at the end of March, but there are still around 100 credit unions engaged in merger talks.

From around 383 credit unions last year, there is expected to be 280 by the end of this year.

However, some are holding firm in their desire to remain independent.

Rush Credit Union has been one of these, long resisting attempts to merge with the larger and more professionally-run neighbour, Progressive.

Independence is fine, but members need to ask questions about the future development of their credit union if it stays small.

All credit unions are suffering from a number of problems. Loan arrears may be falling, but they are still high. Most credit unions are seriously under-lent, meaning they have too much money in savings and too little loaned out.

This makes it very difficult to make a profit, as most credit unions are one-trick ponies. Loans are their main source of income.

Banks realise this and are back pitching personal loans. But it is not just the more assertive banks that are eating their lunch.

The surge in popularity of cheap loans offered by car manufacturers is also stealing a march on the sector.

A lack of good leadership in the movement means all credit unions are subject to the same level of regulatory scrutiny - whether they have 5,000 members or 50,000 members. The movement made a strategic mistake when it resisted attempts by its regulator, the Central Bank, to introduce tiered regulation.

Leadership is also lacking when it comes to credit unions offering their members more than just savings and loans, especially when it is so hard to make an income from this with the current low interest rates.

To avoid being left behind, 11 credit unions this week launched electronically-enabled payments accounts and a MasterCard debit card.

Despite all that, the fact that there was no run on Rush Credit Union after the fraud allegations shows people trust local lenders. Banks, take note.

Irish Independent

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