Large credit unions take part in pilot debt scheme

A significant number of credit unions are participating in a three-month pilot scheme that began yesterday for overstretched borrowers who have debts with multiple lenders.

This is in spite of vocal opposition to the scheme this year from the Irish League of Credit Unions (ILCU), the largest representative body for the sector.

The 90-day trial gives 750 borrowers an opportunity to participate in the pilot. It aims to “enhance co-operation between lenders of secured and unsecured debt in order to fairly resolve distressed debt for the borrower”.

It is being co-ordinated by the Central Bank, which is seeking to put a framework around how borrowers who owe money to a number of lenders are treated by those groups.

Main Irish banks
All of the main Irish banks have agreed to take part in the pilot. One informed source indicated that a "substantial" number of credit unions have agreed to participate in the scheme, including a number of the larger institutions that would account for the bulk of debts owed to that sector.

The banks, credit unions and credit card groups have agreed to a “waterfall” approach to deal with borrowers in arrears with multiple lenders. This will include extending out the term of credit, reducing interest rates and a restructuring of mortgages that could ultimately, in certain cases, involve some debt being written off by banks.

The framework follows weeks of talks in the first half of this year brokered by the Central Bank between secured and unsecured lenders.

Return
The scheme is seen by the regulator as a better way for lenders to get a return on their loans while giving borrowers a chance to get back on their feet financially without the pain or costs of insolvency or bankruptcy proceedings.

The ILCU opposed the scheme on the grounds that it did not explicitly provide for mortgage write-off or writedown by the banks. As a result, the league argued that that unsecured lenders were at a disadvantage.

The Central Bank lobbied the credit unions separately and appears to have secured the participation of a number of the larger ones.

Those availing of the scheme will not be allowed to seek new credit for three years. They will be required to provide full disclosure of their financial affairs and to reduce their monthly “discretionary spending”.