Credit unions need to step up to lend­ing chal­lenge

The Irish Times - Business - - FRONT PAGE - Fiona Red­dan

Last week the Cen­tral Bank ap­proved a new lender, UK-based Amigo, which will of­fer se­cured loans – each loan must have a guar­an­tor – at rates of 49.9 per cent in the Ir­ish mar­ket.

Its ar­rival, early next year, will bring the num­ber of money­len­ders reg­u­lated in Ire­land up to 39, and has caused an out­break of con­cern that such lenders are prey­ing on the most vul­ner­a­ble by of­fer­ing short-term loans at sky-high rates.

In an ideal world per­haps, there would be no need for such ex­pen­sive short-term credit. But as a spokes­woman for the St Vin­cent de Paul says, money­len­ders “do serve a pur­pose as they are meet­ing a need – but the cost of it is ex­or­bi­tant”.

In­deed it is – the max­i­mum al­low­able in­ter­est rate in Ire­land is cur­rently 288 per cent. Un­sur­pris­ingly then, there have been calls for the Cen­tral Bank to im­pose a ceil­ing on mon­eylend­ing rates – some­thing which could be part of the reg­u­la­tor’s new reg­u­la­tions for the sec­tor, which are due to be in­tro­duced next year. But in the mean­time, there could be another al­ter­na­tive.

Credit unions

Step for­ward the credit unions. Back in 2015 credit unions across the coun­try moved into mi­cro loans, firstly on a pi­lot ba­sis, although lat­terly it has been rolled out across the coun­try.

De­signed specif­i­cally as an al­ter­na­tive to high-cost money­len­ders, It Makes Sense Loans tar­get those on so­cial wel­fare pay­ments.

They are typ­i­cally quick to re­ceive – credit unions can en­rol you as a mem­ber straight away, and can of­fer the loan ei­ther on the spot, or within 24 hours. It’s short-term in na­ture, with loans avail­able for as short as a month, or as long as two years, if needed.

And the loans are “cheap”, at least com­pared to money­len­ders, with a max­i­mum rate of 12 per cent (12.68 per cent APR) charged on amounts of be­tween €100 and €2,000.

So, if you bor­row €500 with Prov­i­dent, the UK money lender with a sub­stan­tial Ir­ish op­er­a­tion, this would cost you €780 to re­pay over a year; €618.36 with new en­trant Amigo; or just €544.58 with your lo­cal credit union.

With such an at­trac­tive rate for fast, low-value lend­ing, it would not, per­haps, be un­rea­son­able to ex­pect credit unions to be crushing the com­pe­ti­tion from money­len­ders with these loans.

While the Ir­ish League of Credit Unions (ILCU) says the scheme has been meet­ing with “solid suc­cess”, the fig­ures would sug­gest oth­er­wise.

In the 30-month pe­riod from Novem­ber 2015-April 2018 for ex­am­ple, just 7,500 loans were drawn down. This works out at just 250 such loans a month, or 3,000 a year.

Now con­trast this with Cen­tral Bank fig­ures, which show that some 350,000 peo­ple – or al­most 30,000 bor­row­ers a month – were cus­tomers of high-cost reg­u­lated money­len­ders in 2017, and you can clearly see why the credit union scheme is barely caus­ing a rip­ple in the mar­ket for such loans. So the ques­tion then, is why aren’t they? First of all, more than three years since that ini­tial pi­lot scheme, the loan prod­uct still isn’t fully op­er­a­tional.

Fig­ures from the ILCU show that just 110 credit unions – or just about 40 per cent of those which could po­ten­tially op­er­ate the scheme, do so. So a bit like Shaws depart­ment store back in the 1990s, the scheme re­mains “al­most na­tion­wide”.

The re­sult of this means that there ar e lend­ing la­cu­nas right across the coun­try; Drogheda Credit Union for ex­am­ple doesn’t of­fer such loans. How­ever, the area has two lo­cal money­len­ders reg­u­lated by the Cen­tral Bank, Man­darin Loans and Le­in­ster Credit Limit, which are ap­proved to lend at max­i­mum APRs, in­clud­ing col­lec­tion charges, of up to 214.23 per cent and 152.30 per cent, re­spec­tively.

And the loans of­fered by credit unions are far more re­stric­tive than those on of­fer from money­len­ders.

So­cial wel­fare

Yes they might be fast, but they are only avail­able to those who ei­ther qualify for so­cial wel­fare pay­ments, or the Work­ing Fam­ily Pay­ment.

And not only that, but ap­pli­cants must also have signed up to the House­hold Bud­get Scheme, which is op­er­ated by An Post and helps those get­ting cer­tain so­cial wel­fare pay­ments to spread the cost of some house­hold bills over the year.

So all those low in­come – and high in­come too – bor­row­ers who aren’t on so­cial wel­fare, or who don’t avail of the bud­get­ing ser­vice – can’t ben­e­fit from the scheme.

More­over, some credit unions also ap­ply lim­its to how much they will lend. Three of those on ILCU’s list have al­ready reached their limit (St De­clan’s Ash­bourne; St Agnes, Dublin, and Tal­laght & District), while Sligo is cur­rently of­fer­ing “lim­ited” loans due to high de­mand for the prod­uct.

If the mar­ket wants money­len­ders, then money­len­ders are here to stay.

But ei­ther Cen­tral Bank or credit unions – as part of a new task force look­ing at op­tions to broaden the It Makes Sense scheme – should seize the op­por­tu­nity to make it a less lu­cra­tive ac­tiv­ity for them.

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.