Credit unions to pay refunds after miscalculating interest on loans
More than 150 credit unions have to carry out an expensive trawl of their loan books after it emerged thousands of members have been overcharged on loans.
The overcharging amounts are small, but the Central Bank has ordered credit unions to provide information on how they deal with accrued interest on top-up loans.
Average overcharged amounts are only €12 per loan, but the revelation is set to be an embarrassment to the movement - and cost them a fortune to investigate.
It is one of the first times credit unions have been caught up in an overcharging issue. Banks are repeatedly having to repay consumers for miscalculating what they charge.
It comes after credit unions, which always emerge from polls as having a high standing with the public, have been hitting the headlines for the wrong reasons.
These include the largest credit union in the State facing legal action from the representative body for the sector, money going missing at the Citybus credit union in Dublin, prize draws being won by large numbers of directors, fraud charges at some credit unions, and a record money- laundering fine for a credit union.
The latest controversy involves credit unions that use a financial software package from one IT firm. The software package appears to have miscalculated interest due on top-up loans. It is understood the mistake is of a highly technical nature.
This is similar to what happened at AIB in the summer. Around 85,000 AIB phone and internet banking customers were refunded, having been affected by a bank error in their loan top-up calculation.
It is not known how many credit union members are involved, but one source said the issue could affect thousands of people.
Refunds will be sent to them, but the credit unions affected by the miscalculation are likely to have to spend a multiple of the total refund costs investigating the issue.
A spokesman for the Central Bank said: "We are currently engaged in an investigation of potential interest over- collection in relation to top-up loans at a number of credit unions."
It added that where there is an over-collection of interest from members due to operational issues, it expected credit unions to pay refunds promptly, and to implement robust systems and controls to ensure the issue did not reoccur.
The Irish League of Credit Unions said it was aware that Central Bank had contacted credit unions to seek information on how individual credit unions dealt with accrued interest on top-up loans.