Credit unions

Credit unions are financial co-operatives formed to allow 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 can 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 the same area
• Occupational bond: where all members are in the same profession or all work for the same employer
• Associational bond: where all the members are in the same society or association

Each credit union is owned by its members, each of whom has one vote. The membership elects individual members to the board of directors of the credit union. The board members are unpaid volunteers and they set the policies under which the credit union operates.

There are two main umbrella bodies for credit unions - the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA). Most, but not all, credit unions belong to one of these bodies. These bodies may have other rules their members must follow and they provide other services to credit unions.

Credit unions in Ireland are covered by the Deposit Guarantee 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 Deposit Guarantee Scheme protects up to €100,000 per person per institution.

Dividends

Your credit union may declare a dividend at the end of each year. As credit unions are not-for-profit, any income generated is returned to members in the form of a dividend, or may be used to improve and enhance services. The return on savings will vary from credit union to credit union, depending on the surplus income available at the end of the year.

Savings and tax

Interest you earn on deposits in credit unions is subject to Deposit Interest Retention Tax (DIRT). There are specific rules about how credit union dividends are taxed, depending on the type of account you hold.

Many credit unions provide current account services to their members. Services include debit cards, direct debits and overdraft facilities. You can check if your credit union offers current accounts.

Credit unions can make loans to members including car loans, home improvement loans, holidays, bridging loans, special occasions, education, weddings, Christmas, medical or emergencies. The credit union may require security for the loan – this depends on the credit union’s own rules.

The minimum and maximum loan amount is set locally by each credit union.

The maximum repayment term on unsecured loans is 10 years and on secured loans is 35 years.

Your ability to repay the loan is the main consideration taken into account when you make a loan application. Each loan application is assessed on an individual basis, in line with lending regulations and the credit union’s lending policy.

The credit union must have an appeals process in place for a member who is refused a loan.

The rate of interest charged on the loans is decided by the board of directors. The interest on the loan may not be more than 1% per month.

Some credit unions offer the It Makes Sense loan, which provides small loans at low interest rates. The loan may be available if you are getting a social welfare payment and are having difficulty getting credit from other sources. You can get a list of participating credit unions on the It Makes Sense Loan website.

Many credit unions offer mortgages. The interest rate charged is set by each credit union at local level and each credit union also sets the maximum value of mortgage which it provides. You can check a list of local credit unions that provide mortgages.

The Central Bank's Credit Union Handbook includes guidance for 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 your credit union to discuss your situation.

The main legislation governing credit unions is the Credit Union Act 1997. Credit unions are also subject to various aspects of the Central Bank Acts as well as, for example, anti-money laundering and data protection legislation.

The Registry of Credit Unions, which is part of the Central Bank of Ireland, is responsible for the registration, regulation and supervision of credit unions.

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.

The main function of the Registrar of Credit Unions is to regulate credit unions to:

• Protect members' savings in each credit union
• Maintain the financial stability and wellbeing of credit unions generally

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 various legal and regulatory requirements and guidance for credit unions.

Prudential requirements

Credit unions must meet the prudential requirements set by the Central Bank in relation to reserves, minimum liquidity requirements, investments, lending and borrowing.

Governance

The board of directors 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. The board is not involved in direct management.

The board makes decisions in relation to the following:

• Setting out strategy
• Making sure there is an effective management team in place
• Approving, reviewing and updating all plans, policies and procedures.

The board has between 7 and 11 members. There are term limits on membership of the board. A person cannot serve more than 12 years in any 15-year period. A number of groups may not serve on credit union boards. This includes 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. Credit unions are subject to a tailored fitness and probity regime. 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.

Death of a member of a credit union

You can make a written statement nominating a person or group of people to become entitled to your property in the credit union at the time of your death, for example, your savings or insurance. The current maximum statutory amount that may be nominated is €23,000. You can change this nomination at any time. A completed nomination must be signed and witnessed. The most recent nomination is the valid nomination. This nominated amount is then not part of your estate for the purposes of your will or intestacy.

Restructuring

Restructuring involves the amalgamation of credit unions or the transfer of their activities to another credit union. The aims of restructuring are to:

• Protect credit union members' savings
• Maintain the stability and viability of credit unions and the sector at large
• Preserve the credit union identity and ethos

The Credit Union Restructuring Board (ReBo) was a statutory body established to assist with the restructuring of credit unions. It was funded by a levy on the sector. The Registry of Credit Unions manages and supports the ongoing restructuring that continues to occur within the sector, since ReBo ceased operations in 2016.

Complaints procedure

Credit unions must have a complaints procedure in place. If you are not satisfied with the outcome of the internal procedure, you can complain to the Financial Services and Pensions Ombudsman. The Ombudsman is an independent officer whose remit is to investigate, mediate and adjudicate unresolved complaints of individual customers about financial service providers and pension providers.

Contact details for your nearest credit union are available, you can also check your local telephone directory or contact: