Credit unions urged to join trial debt plan by Central Bank

The Central Bank of Ireland is hoping to persuade a large number of individual credit unions to participate in its pilot scheme to deal with those in arrears with multiple lenders in spite of the Irish League of Credit Unions yesterday recommending to its 383 affiliates that they boycott the plan.

The Irish Times has learned that the Central Bank wrote to each of the country's 396 credit unions on Friday inviting them to meetings where it hopes to persuade them to participate in its scheme, which is designed to provide solutions for borrowers unable to meet their repayments with various lenders.

The letters were issued by the registrar of credit unions Sharon Donnery, who is based at the Central Bank.

The regulator plans to host a series of information meetings around the country this month.

In addition, the 20 biggest credit unions have been requested to attend a meeting with the Central Bank at its Dublin head office to discuss the scheme. The league yesterday outlined its opposition to the pilot scheme, saying its concerns had been “ignored” in the recent talks brokered by the Central Bank between secured and unsecured lenders.

Direct approach
This decision was taken by the league at its board meeting on Saturday but had been anticipated by the Central Bank, which has now decided to take a direct approach in a bid to sign up credit unions for its trial scheme.

“The framework as currently constructed appears to us to facilitate the banks in maximising their mortgage interest income by extending loan terms, reducing interest rates, writing off unsecured loans, and warehousing portions of mortgage debt,” the league said.

“A major flaw with this framework from the outset has been the absence of provision for mortgage write-off or write-down which is an essential element of any plan to give meaningful relief to those in unsustainable debt situations.”

The league said credit unions would participate in a scheme that gives “real relief” to its members in distressed mortgage situations but it will not “facilitate the banks in bleeding distressed borrowers who would receive no permanent relief as a result of this framework”.

It said the framework published last week by the Central Bank is intended to protect the banks’ capital positions and maximise their income from mortgage interest payments.

The league’s affiliates are free to ignore its recommendation but its chief executive Kieron Brennan said he hoped “most” of them would accept its advice.

The league's opposition contrasts with the stance taken by the Credit Union Development Association, which represents 12 credit unions who have 250,000 members between them.

The association’s chief executive Kevin Johnson said there was “merit” in the trial study proposed by the Central Bank.

“From the insights shared with us it is obvious that there is no easy solution. A pilot study is key to working out what will, and indeed what will not, work for credit unions and members alike,” he said.

The Central Bank will begin the three-month pilot next month with a sample of 750 borrowers.

There is about €15 billion worth of unsecured personal lending across the economy.