Credit unions are financial co-operatives formed to facilitate members to save and lend to each other at fair and reasonable rates of interest. They are not-for-profit organisations with a volunteer ethos and community focus.
You may become a member of a credit union if you have a common bond with other members . The most usual common bonds are:
- Community bond: where the members all live or work in a particular locality
- Occupational bond: where all members are in the same profession or occupation or all work for the same employer
- Associational bond: where all the members are in the same society or association
Each credit union is governed by its members, each of whom has one vote. The membership elects individual members to the board of the credit union. The board members are unpaid volunteer officers and they establish the policies under which the credit union operates.
There are two main umbrella bodies for credit unions. Most, but not all, credit unions belong to one of these bodies. These bodies may have other rules by which their members must abide and may provide other services to credit union members.
The main legislation governing credit unions is the Credit Union Act 1997 and the Credit Union and Co-operation with Overseas Regulators Act 2012. Credit unions are also subject to various aspects of the Central Bank Acts.
The Central Bank has the power to impose conditions on the registration of a credit union. These conditions may be appealed to the Irish Financial Services Appeals Tribunal. Regulatory decisions may also be appealed to this tribunal.
Under the Credit Union Act 1997, the main function of the Registrar of Credit Unions is to regulate credit unions with a view to the:
- Protection by each credit union of the funds of its members; and
- Maintenance of the financial stability and wellbeing of credit unions generally.
The Credit Union and Co-operation with Overseas Regulators Act 2012 deals mainly with issues relating to prudential requirements, governance and restructuring.
Credit unions are subject to the same rules as banks in a number of areas. They are subject to the laws on money laundering in the same way as banks.
Credit unions who want to engage in certain types of business, for example, insurance, investment intermediary, and certain payment services must get authorisation from the Central Bank,
The Central Bank publishes the Credit Union Handbook which sets out the rules which apply to credit unions.
Credit unions must meet the prudential requirements set by the Central Bank in relation to reserves, minimum liquidity requirements, investments, lending and borrowing.
Credit unions in Ireland are covered by the Deposit Protection Scheme which is administered by the Central Bank of Ireland. 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 (which is currently the maximum you can have in a credit union savings account).
A dividend may be declared by your credit union at the end of each year. The maximum dividend is currently 10%.
Savings and tax
Interest on deposits in credit unions is subject to Deposit Interest Retention Tax (DIRT) at 41%. There are specific rules about the taxation of credit union dividends depending on the type of account you hold.
A credit union may make a loan to a member for a provident or productive purpose. It may require security for the loan – this depends on the credit union’s own rules. There are limits on the amount of any loan and the duration for the repayment of the loan. The maximum loan that is available to a member is €39,000 or 1.5% of the total assets of the individual credit union whichever is the greater.
The period for which a loan may be made depends on the total amount of money loaned by the credit union. For example, you may not get a loan for more than five years if the total gross amount outstanding in relation to all loans with 5 years outstanding is greater than 30% of the total gross loan book balance outstanding or 40% if the Central Bank approves.
Your ability to repay the loan must be the primary consideration when considering a loan application. The Registrar of Credit Unions has the power to impose lending restrictions on credit unions.
The credit union must have an appeals mechanism in place for a member who is refused a loan.
The rate of interest charged on the loans is decided by the board. The interest on the loan may not be more than 1% per month. Different rates may not be applied to the same class of loan.
The Central Bank has issued guidance notes to credit unions on various aspects of lending.
Loan protection insurance
Loan protection insurance may be available on loans to borrowing members.
Difficulty repaying your loan
If you have difficulties repaying your loan, you should contact the credit union to see if it can be restructured.
The board of the credit union makes the main decisions about its activities and oversees the management’s day-to-day operation of the business of the union but the board is not involved in direct management.
The board must make decision in relation to, among other things,
- Setting out strategy
- Ensuring that there is an effective management team in place and
- Approving, reviewing and updating all plans, policies and procedures.
The board has between seven and 11 members. There are term limits on membership of the board – a person may not serve more than 12 years in any 15-year period. A number of groups may not serve on credit union boards including employees, close family members of employees or of directors or board oversight committee members, voluntary assistants, directors of other credit unions and certain professional advisers to the credit union such as solicitors and auditors. Volunteer directors may be provided with training.
The “fitness and probity” requirements for directors of financial institutions are set out in the Central Bank Reform Act 2010. Since 1 August 2004, these requirements apply fully to credit unions with assets of more than €10 million. They apply to smaller credit unions from 1 August 2015. Also from 1 August 2015, credit unions that are authorised as retail intermediaries are subject to the fitness and probity regime that applies to other retail intermediaries.
There are detailed rules about the establishment and role of a range of committees, including a board oversight committee, an audit committee and a credit committee. There are also detailed rules about reporting to the Central Bank about the credit union’s compliance with the regulatory requirements.
Restructuring involves the amalgamation of credit unions or the transfer of their activities to another credit union. The aims of restructuring are the protection of credit union members' savings; the stability and viability of credit unions and the sector at large; and the preservation of the credit union identity and ethos.
The Credit Union Restructuring Board (ReBo) is a statutory body established to assist with the restructuring of credit unions. It is funded by a levy on the sector. The restructuring process is expected to be completed during 2016.
How to apply
Death of a member of a credit union
You may make a written statement nominating a person or group of people to become entitled to your property in the credit union, for example, savings, loans or insurance, at the time of your death. The maximum amount covered by this is €23,000. You can change this nomination at any time. The nominated person will be contacted by the credit union when you die. This amount is then not part of your estate for the purposes of your will or intestacy. If you make no such nomination, all your property in the credit union will be distributed in accordance with your will or the rules on intestacy.
Credit unions must have complaints procedures in place. If you are not satisfied with the outcome of the internal procedure, you may complain to the Financial Services Ombudsman. The Ombudsman is an independent officer whose remit is to investigate, mediate and adjudicate unresolved complaints of individual customers about financial service providers.
Where to apply
Contact details for your nearest credit union are available, you can also check your local telephone directory or contact:
Registry of Credit Unions
Central Bank of Ireland
PO Box 559
Tel:(01) 224 4228