Thursday 19 April 2018

Banking crisis encourages many to opt for credit unions

The banking crisis and difficulties faced by customers seeking loans from major institutions have encouraged many to opt for credit unions as a safe and secure alternative, writes John Cradden


THE ongoing credit crunch and the current banking crisis have certainly hardened consumer opinion about the main banks here.

So it comes as no surprise to hear that credit unions may be enjoying a modest rise in membership as people look to take advantage of their greater flexibility when it comes to taking out loans.

The Irish League of Credit Unions (ILCU), which represents most of the credit unions in the country, said late last year that the economic crisis had opened up opportunities for credit unions, with many members now coming back into the fold because they could not get credit elsewhere.

According to a spokesperson, membership among the 505 credit unions affiliated to the ILCU rose by 1.4pc in 2009.

Kevin Johnson, CEO of rival credit union body the Credit Union Development Association, said: "Member enquiries are up in recent months, though it's a little early to put specific numbers on that growth level.

"There's no doubt that people are becoming disenfranchised with the facilities, or lack of them, being offered by their bank and are increasingly turning their attention to their local credit unions," said Mr Johnson.

The ILCU recently launched an advertising and marketing drive featuring Irish rugby star Brian O'Driscoll as its new "face", and which focuses on the "safety, security and strength" of credit unions.

"This theme was chosen to highlight how we differ from financial institutions generally," said the ILCU spokesperson.

"Generally, credit unions have weathered the downward spiral of the reputation of the Irish banking system, and we felt it was appropriate to reconnect with our existing 2.9 million members to ask them to return for services they may have been seeking from banks in the recent past."

Credit unions differ from banks in that they do not offer current accounts, but if you become a member and start saving with your credit union, you will have access to attractive rates on savings and loans.

Credit unions also differ from banks in that they are owned by all the members and are not-for-profit.

Your savings contribute to your credit union's loan fund, so your savings are helping other members. Any surplus income generated by a credit union is used to bolster its reserves, to develop services for members or is returned to members in the form of a dividend or a rebate of interest on a current loan.

Mr Johnson suggests that, rather than shopping around, many consumers are choosing to build a relationship with one institution so as to improve their chances of getting a loan in the future.

"We are conscious that people's attitudes are changing in relation to the criteria they consider when selecting a financial institution," he said.

"People are experiencing what it's like not to be able to access credit and now see access to credit as a significant consideration when choosing where to save," said Mr Johnson.

Brendan Burgess, founder of personal finance site, says flexibility of credit unions may hold greater appeal at the moment when loans are harder to come by. "When everyone was trying to lend you money, a record with the bank did not matter," he said. However, he said that inertia probably prevented more people from saving with credit unions.

"I think people leave money on deposit in AIB or Bank of Ireland out of laziness, not so that they will get a loan later," says Mr Burgess.

Dermott Jewell, CEO of the Consumers' Association of Ireland, says that credit unions are understandably seeking to appeal to consumers frustrated with their banks, but the credit union movement needs to promote itself better, before they experience a significant rise in membership.

But credit unions have also been hit by the recession. Like all financial institutions, many have experienced a sharp rise in members defaulting on loans. Given their co-operative nature, this has put some at risk.

There were concerns expressed last year about the solvency of some credit unions as the recession took hold, but the ILCU says that credit unions here remain "robust, stable and prudentially sound", and that none is insolvent.

Former Financial Ombudsman Joe Meade, who retired last month, accused many credit unions of putting members' money at risk.

He dealt with a large number of complaints from credit unions over claims they were mis-sold financial products by advisers, but said the directors barely understood the risky products they were taking on.

The Government is reviewing the legislation governing credit unions in a bid to improve their financial security and lending terms.

Credit unions also want to be regulated differently from banks and building societies when regulations are enforced by the new Central Banking Commission, which will replace the Financial Regulator.

The ILCU wants a separate regulator for credit unions -- independent of the new commission -- and argues against a "one size fits all" approach to financial regulation.

Irish Independent

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