Strict credit union rules 'forcing families to turn to loan sharks'
Many parents preparing children for holy communion are forced to resort to loan sharks because of unduly strict credit union loan conditions, a financial expert has warned.
The warning comes as the Central Bank has again been urged to ease the tough conditions imposed on credit union loans after several big credit unions got into trouble in recent years. Fianna Fáil's social welfare spokesman, Willie O'Dea, called on the financial authority to ease restrictions on smaller loans for family projects like first communions.
"I believe that the Central Bank have gone overboard regarding red tape in relation to the provision of small credit union loans of €1,000 or less. The Central Bank's requirement that extensive documentation such as payslips, bank statements, credit card details and mortgage statements are provided for these micro loans is proving excessive in my experience," Mr O'Dea said.
The umbrella body of credit unions, the ILCU, has now embarked on another nationwide campaign warning parents preparing for holy communion to avoid moneylenders who usually charge excessive interest rates. They are also lobbying the Central Bank to ease the lending rules and awaiting an early response on the issue.
Credit union research shows that one-in-five parents use credit cards, while one-in-eight use moneylenders, to finance first holy communion. The average family spend is €703.
"We welcome the statement from Deputy O'Dea, and we look forward to the Central Bank's review on current restrictions which will hopefully result in an easing of restrictions and allow more of our members to have access to this type of small affordable loan and prevent people from turning to money lenders at exorbitant interest rates," Ed Farrell, acting CEO of the Irish League of Credit Unions told the Irish Independent.
Mr O'Dea said he appreciated the need for the Central Bank to fix conditions on larger loans given the recent history of problems. But he said the credit union had a traditional role in financing family occasions going back over 50 years.
"Discretion regarding the lending of small amounts of money needs to be restored to credit unions in particular," he said.
Strict regulation of credit unions has been in place for two years but many within the nationwide movement think it is high time to ease the strictures. One credit union source said the credit unions have large sums of capital for secure lending which would improve their financial positions and aid the national financial recovery.