Credit unions

Information

A credit union is an organisation of people that save together and lend to each other at an affordable rate of interest. It is owned by its members and is run by volunteers (committees and board of directors) to represent members' interests. Each member has an equal say in the running of the credit union, irrespective of how much savings he or she holds. 

Credit unions are regulated by the Registrar of Credit Unions under the umbrella of the Financial Regulator. Most credit unions are affiliated to the Irish League of Credit Unions and adopt the same set of operating principles with core values of equality, equity and mutual self-help. Twenty credit unions (mainly large) are members of the other credit union representative body, the Credit Union Development Association (CUDA).

Savings

The minimum saving that a member must have is usually €1 and the maximum can vary across credit unions.

Members receive a dividend (annual return) each year on shares. Each share you hold for that year is eligible for a dividend. Credit Unions can also have deposit accounts.

Your savings and the savings of other members are used to make loans to you and other members of the credit union.

There are a number of savings accounts that can be held, although not all are in operation at every credit union. You can usually withdraw some or all of your savings easily unless they are pledged as security on a loan.

Protection for savings

Credit Unions in the Republic of Ireland are covered by the Deposit Protection Scheme which is administered by the Financial Regulator. This is a scheme that can provide compensation to depositors if a credit institution is forced to go out of business. It covers deposits held with banks; building societies; and credit unions. The maximum amount a credit union member can receive under this scheme is €100,000.

The Deposit Protection Scheme covers:

• Current accounts
• Demand deposit accounts
• Term deposit accounts
• Share accounts and deposit accounts with building societies
• Share accounts and deposit accounts with credit unions.

In addition to this, the Savings Protection Scheme (SPS) owned and operated by the Irish League of Credit Unions can intervene by providing financial help to any credit union which may experience difficulties.

Your savings are also insured through Life Savings Insurance.

Life savings insurance

The amount of insurance benefit that a member is entitled to be in proportion to the amount of savings the member has. You are entitled to the insurance cover if you join the credit union before the age of 70 years and are actively at work and if not working, are in good health.

How the dividend is determined

A dividend is declared by your credit union at the end of each year. The amount varies from one credit union to another and is determined by the total amount of savings held on deposit by all members at the individual credit union and the total amount out on loans by all members. Before the dividend is declared, expenses must be paid out. As the board of directors and committees are made up mostly of volunteers who do not receive any payment, expenses are lower and return on savings can be greater than in other financial institutions.

Loans

Credit unions will consider loan applications from members for any worthwhile "provident and productive" purpose

Members have access to loans that have flexible repayments attached and have no hidden fees or transaction charges.

The credit committee elected by the members considers each loan application on its own merit. The board of directors elects a loan officer or officers that can deal directly with loan applications up to a certain limit, without involving the credit committee. The board of directors and credit committee in each credit union sets this limit.

The first loan given to a member is usually used to test his or her credit rating. In this respect, there can be restrictions on the size of the loan and the amount and frequency of repayments. The credit union can give loans for a duration of up to 30 years. The maximum loan that is available to a member is €38,092 or 1.5% of the total assets at the individual credit union whichever is the greater. There is no minimum limit on loans available.

The credit union may not give a member a loan if it considers that he or she might be unable to make regular repayments or if he or she has a bad track record of repayment on previous loans. Alternatively, it may advise the member to reduce the size of the desired loan.

If a member falls behind on loan repayments, the credit union can step in and renegotiate the terms of the loan. Although every credit union operates different polices, some credit unions will freeze interest on loans until the member is in a better financial situation. If you have debt problems or money management problems you can contact the Money Advice and Budgeting Service (MABS). MABS can help you deal with your debts and assist you to make out a budget.

Loan protection insurance

Loan Protection Insurance is available on loans to borrowing members. You should enquire when making your application if you are entitled. Generally, you are eligible if you are under the age of 80 years (or 70 years in some credit unions), you are actively at work or are able to carry out normal occupational duties or if not working, you are in good health.

How the interest rate is determined

There is no uniformity among credit unions as to what interest rate is charged on loans. If more loans are given out by a particular credit union, lower interest rates apply. This occurs because the credit union has increased income from interest payments on loans and can afford to charge lower rates of interest to members. For this reason, they actively encourage you to save and borrow with them.

Savings and tax

The interest or dividend earned on credit union savings is subject to tax, depending on the savings option you have chosen. Some options may suit you better than others. Not all credit unions offer all of them.

If you wish to use a Deposit Account, all interest on deposits will be subject to Deposit Interest Retention Tax (DIRT) at 25%.

If you wish to use a Regular Share Account, you are required to inform the Revenue Commissioners of your dividend income, which will be taxed at your marginal rate - either 0%, 20% or 41%.

If you use a Special Share Account, your credit union will automatically deduct DIRT at 25% from any dividend you receive on shares in your Special Share Account.

If you use a Medium Term (3-year) Account, you will be entitled to hold a dividend of €480 tax-free, after which you will be taxed at 25%.

If you use a Long Term (5-year) Account, you will be entitled to hold dividends that are tax-free up to €635. Anything exceeding this amount will be subject to tax at 25%.

Credit union services for people in financial difficulty

Members who find themselves in financial difficulty and who have a loan with a credit union can pay a fixed amount weekly or monthly (or as negotiated with the member) into Budget Accounts to pay their bills. The bills are sent directly to the credit union. The amount to be paid is averaged out over a 12-month period. The Budget Account service is not available at all credit unions.

Credit unions also provide services in conjunction with the Money Advice and Budgeting Service (MABS). Appointments can be made to see MABS advisors in most credit unions. They are available in credit union offices some mornings per week and give advice to people in financial difficulty. Services they provide through the credit union include:

• Special Account: A member has an ordinary book for loans and savings and has another account for bill paying. The MABS advisor works out how much bill payments will be over a period of time. The member then lodges the required sum into this account and MABS takes care of the bill-paying procedure.
• Savings Account: MABS provides help with making an application to open a Savings Account in the credit union.
• Help to repay loans: If a credit union member is in financial difficulty and cannot make repayments on a loan, he or she can be referred to MABS. A budget can then be worked out to help the member make smaller loan repayments by organising income and expenditure.

Other credit union services

Travel, home, health and household insurance are available at most credit unions.

Saving stamps can be purchased from machines in most credit unions. This service is provided as an incentive for regular saving.

Credit unions operate a foreign exchange facility.

Death of a member of a credit union

On joining the credit union, the member makes a written statement nominating a person or group of people to become entitled to any property in the credit union, for example, savings, loans or insurance, at the time of his or her death to a maximum of €13,000. The member can change the person nominated in writing at any time during the member's lifetime. The nominated person will be contacted by the credit union on the death of the member.

Complaints procedure

If a member feels that he or she has been treated unfairly or unjustly by their credit union, he or she should write a letter to the complaints officer in the credit union.

The complaints officer will respond to the member and try to resolve the situation at this stage.

If the member is not satisfied with the apology or settlement, he or she can appeal to the complaints committee in the credit union

The complaints committee then invites the member to meet with it to air his or her grievance.

If the complaint is not resolved at this stage, it is forwarded to the board of directors in the credit union.

If the aggrieved member is not satisfied that the situation has been resolved, the complaint is forwarded to the board of the Irish League of Credit Unions.

The board of the Irish League of Credit Unions will then appoint a complaints sub-committee from its members, who will discuss the dispute and where possible resolve it.

If the member is still not satisfied, he or she can refer the matter to the Financial Regulator - see 'Where to apply' below.

Rules

Setting up a credit union

There must be a minimum of between 15 and 25 members to set up a credit union. If the required amount of people have gathered together, the group should apply to the Irish League of Credit Unions, which will test the feasibility of the union. In doing so, the League will call a public meeting of any interested members of the public, which will be attended by both a Field Officer (for the area) and a member of the board of the Irish League of Credit Unions. The members of the public who attend the meeting, the Field Officer and the board member will decide if there is potential for a credit union in the geographical area or profession. If the proposed credit union is deemed to be feasible, members are required to start saving and a "study process" begins. This lasts for approximately 18 months. The Field Officer visits the union every three weeks throughout this period to see that the group is capable of running the credit union.

When the study process is completed and the group is successful, the Irish League of Credit Unions applies to the Financial Regulator to seek approval and registration for the new credit union.

Common bond

Everyone is entitled to become a member of a credit union but must have something in common with fellow members - they must either live or work in the same locality (community bond), work for the same employer (occupational bond) or work in the same occupation (associational bond).  You can be a member of more than one credit union if you come within the common bond. If a member ceases to have a common bond (they leave the area or job where the common bond exists), they can continue to save in the credit union and retain their membership and voting rights.

Rights and responsibilities of members

Each member has the right to see how their credit union is being run and how it is performing. Members are entitled to information on the accounts of the credit unions, as well as the names of credit union employees and members on the Board of Directors and committees. However, the credit union staff and voluntary workers sign a pledge of confidentiality to keep the information on individual member accounts private. Members are therefore unable to obtain information on the accounts of fellow members.

Each member has only one vote, which can be exercised at the Annual General Meeting (AGM) to elect the Board of Directors. The Board then appoints the credit committee. Members at the AGM also appoint the supervisory committee. The supervisory committee's role is to ensure that the Board of Directors works in the best interests of the members and within the law. The committee checks the books of the credit union and evaluates its operation.

Only members are eligible for election to the Board or committees. They are voluntary positions and holders do not receive any payment.

Every member can put him or herself forward for election to the Board or committees.

Rates

There is an entrance fee of €1 to become a member in most credit unions. You will also need to hold a minimum of shares between €1 and €10.

How to apply

How to become a member

Once you are within the common bond, you can apply for membership in your designated credit union. Each application must be in writing and accompanied by the required entrance fee and minimum share. You need to present written evidence of your address or place of work to staff at the credit union that you are applying to.

How to make a loan application

Who can apply for a loan depends on the rules of each credit union. Usually, any member of a credit union over the age of 18 can apply for a loan. If a member under 18 years of age applies for a loan he/she may need a guarantor for the loan. 

You can fill in a loan application form in the credit union office where you are a member.

Some credit unions operate a credit telephone hotline where details of a loan application are taken from the member over the telephone.

In making a loan application for a larger sum (up to €38,092), you may have to meet with the credit committee. There can also be a medical examination involved in making a larger loan application.

Some credit unions operate an online loan application facility.

The criteria for loans (amount, repayments, length and security offered) can be discussed with a member of the credit union staff.

Each credit union has its own policy on conditions that need to be met before a loan is granted. Once granted, you are asked to complete a promissory note, which is a legally binding document, in which you promise to repay the loan and to commit to regular payments.

Where to apply

If you are not already a member, call into your local credit union for more details. Contact details for your nearest credit union are available, you can also check your local telephone directory or contact: