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Credit Unions slam mew bank scheme

Monday, February 04 11:30:38

A new initiative from the Irish Banking Federation to help keep people in arrears in their homes skes the balance in favour of the banks and ensures that Credit Unions and other non-bank creditors take a disproportionate share of the losses.

That's according to the Credit Union Development Association's (CUDA) chief executive Kevin Johnson.

Last week, the IBF announced a scheme which it says will help customers struggling with unsecured debt.

Under the protocol, banks will work with customers to prioritise mortgage debt and to restructure any remaining debt. The mortgage payment may be reduced for a period of up to five years, to support a payment to unsecured creditors.

Lenders will discharge the customer from any residual unsecured debt at the expiry of the agreed period of up to five years, provided that the customer has adhered to the terms of their arrangement.

But Mr Johnson from CUDA today said that credit unions believe that appropriate implementation of the Personal Insolvency Act 2012 is essential to preserving the strong bond that exists between credit unions and their members and ultimately, to maintaining the uniqueness of the credit union model.

"The IBF documentation claims that "This protocol is designed to provide further support to keep people in their homes". We believe that every effort should be made to enable people to remain in their homes, but we don't support the belief that the mortgage lender should be afforded the same absolute level of protection. From our perspective, the protocol appears to be structured to skew the balance in favour of the banks and to ensure that Credit Unions and other non-bank creditors take a disproportionate share of the losses," Mr Johnson said.

"CUDA contend that with such dramatic cuts in the volume of unsecured lending across the banking sector in recent years, the banks appear to have substantially reduced their exposure to this lending sector and it could be interpreted that they are, as a consequence, more open to it suffering losses. However during the past five years, the doors of credit unions have remained firmly open to new lending, with these local institutions taking a totally different and more economically supportive approach by continuing to lend unsecured credit into their local communities. As a result of supporting their members and supporting local communities, we believe that credit unions have now have a higher proportional share of unsecured debt," he added.

"Unfortunately, the announcement by the IBF, without consulting credit unions, MABS or consumer advocate groups is possibly indicative of the insular thinking in the banking sector. A broader, more open approach will certainly be required by all if the PIA is to have any reasonable chance of success; indeed CUDA has already expressed its concerns about the uncertainty and potential negative impact for credit unions and their membership".

The Board Directors of some of the country's largest credits unions are confident of the greater role Credit Unions will play in consumer finance over the next decade. A well thought through collective business strategy and a fair and pragmatic approach by personal insolvency practitioners is critical to this.

Speaking at the recent Credit Union Development Association (CUDA) AGM and conference which took place at The Radisson Blu Hotel, Lough Atalia in Galway, Lorcan O'Connor, Director Designate of the Insolvency Service of Ireland (ISI), said, "Credit Unions need to get very familiar with the legislation and the implications for credit unions, and have appropriate resources and procedures in place to quickly assess proposals that will come to them".