Banks 'bending over backwards' to lure borrowers, says ILCU chief

Irish banks and mortgage providers are adopting "hard sell tactics", which are encouraging customers to over-extend themselves by borrowing too much, the head of Ireland's credit union movement has alleged.

Mr Liam O'Dwyer, chief executive of the Irish League of Credit Unions, said banks were "bending over backwards in their attempts to lure people into taking out loans and are indulging in lending practices that they themselves would have frowned upon in the recent past".

He alleged one financial institution was offering customers the chance to repay a holiday loan over 10 years.

The general advice to consumers is to repay such loans within a year or before the next holiday is taken, whichever is the sooner.

Addressing a summer school in Cork, Mr O'Dwyer criticised the practice of lenders encouraging borrowers to take out a "super loan to cover a multitude of outstanding debts".

"This may be attractive in the immediate term but should really only be used as a last resort," he warned.

"If some of the marketing 'speak' was taken at face value, you would almost think that some financial institutions were providing money for nothing. But, of course, that's not the case and people will often find themselves paying much more than they envisaged at the outset."

Mr O'Dwyer said the credit union movement would "continue to urge members to borrow prudently".

"Our not-for-profit status means we don't have an obsession with the bottom line and are more concerned that those who take loans have the wherewithal to repay them and are not building up problems for themselves down the road," Mr O'Dwyer said.

Speaking earlier, the chief executive of the Irish Financial Services Regulatory Authority (IFSRA), Mr Liam O'Reilly, said the credit union movement was facing considerable challenges unless it took a more professional approach to regulation. He told the UCC Credit Union Studies Summer School that the movement must work with the new regulatory support system.

IFSRA, the single regulator for financial services in the Republic, has recently taken over supervision of the credit unions.

"Not all credit unions are the same and therefore they need a special regulatory regime which will ensure that the various boards are doing their job," Mr O'Reilly said.

IFSRA is in the process of appointing the first registrar of credit unions, whose job will be to ensure a smooth transition in the annual regulatory process, as well as opening dialogue with the Irish League of Credit Unions.

"The league is facing challenges particularly in the growth path and there is a lot of work to be done. We must ensure a common stance of corporate governance so that credit unions take a professional approach to regulation.

"The relationship between the board, management and volunteers must be improved. We're talking about a volunteer movement dealing with huge amounts of deposits, so there has to be parameters and guidelines set," Mr O'Reilly stated. He noted one area of concern to the regulatory body was investment policy.

"Managers must realise there is no reward without risk, and it's important they don't squeeze the margins of lending so as to undercut the foundation of the financial institution," he said.