December 2013        

Bagenalstown Credit Union and its problems

For some years now I wondered why the credit union in Muine Bheag (Bagenalstown) was paying such low interest on shares to its members, occasionally even less that half of 1 per cent. So I decided to ask questions, only to be told that the Government had instructed all credit unions to put away more to increase their reserves.
      There was no mention at all of the huge amount of money spent on the new credit union building, or the prime site it was built on. There was no mention of the fact that reckless lending had taken place by way of business people getting business loans.
      A credit union is a mutual society, set up primarily to encourage people to save and then borrow for things like home improvements or building an extension, getting married, or replacing a washing machine. However, all is changed now.
      Once you could borrow as much as you had saved. Using your shares as collateral, missing a payment meant your shares were wiped out, so everyone paid their loans weekly and saved what they could on top. In other words, your weekly visit, alongside your history of repaying loans and saving, is what counted.
      If, however, you wanted more than you had in your shares, up to a maximum of three times your shares, you had to go before the credit committee to discuss your ability to pay it back. This was only fair. In those days you paid £2 a week for every £1,000 borrowed; so if you had £5,000 in and wanted to borrow €5,000 it would cost you £10 a week in interest. Interest was applied only to the diminishing balance as your loan amount fell. Now members get only €2.25 for that same €5,000.
      Should you die before the age of fifty-five your shares were trebled and added to your original shares, subject to a certain amount. After fifty-five the amount you saved was doubled, and so on, until in your seventies it was less again but your loan was wiped out. In a credit union co-operative, everyone was insured.
      This year I found out that the old interest rate of €2 per €1,000 had been abolished for some years. You now pay 45c on every €1,000 borrowed up to your shares, 90c on every thousand over.
      So on every €1,000 borrowed up to your shares our credit union is losing €1.55, and on every €1,000 borrowed over your shares we are losing €1.05. It’s little wonder that our credit union can no longer pay a rate of interest that keeps up with inflation.
      The biggest shift, however, and the most damaging, is in how our credit union operates. As members, you can no longer apply for a loan up to the value of your shares and in accordance with your history as savers or good payers of loans. Now if you are applying for a loan of over €200 it must be registered and a credit check done. Then you have to go to the credit committee, who not only seek proof of your income but must be supplied with bank statements and a full breakdown of your weekly outgoings.
      It is demeaning for members to be treated in such a way.
      Do I have to point out the obvious, that your savings are your collateral, and your history as a saver and borrower is your credit reference? This was the practice that served us well in the past.
      I think the reasons for all this change are more sinister. Firstly, it is an exercise in information-gathering. Secondly, we have gone from a mentality of mutualism to a mentality of discriminating against people from a working-class or unemployed background. Our savings are wanted, but the working class themselves are somehow untrustworthy, indeed unworthy, though for years we have proved otherwise.
      It’s funny how the credit union movement fell into difficulty only when it began to lend to speculators and the so-called business class. Sure, some people in all classes have problems, and some don’t want to pay back what they borrow; some never had any intention of paying back what they borrowed in the first place.
      But when we operated with the old ethos of the credit union movement, we were not in trouble. €2 on every €1,000 lent meant that we had something at our back.
      What’s wrong with the credit union is that it now operates like a bank, and has succeeded in putting itself in financial difficulty by bad lending. At the same time it pushes out the very people it was there to serve, and that is the community, regardless of the background they come from.
      Class war has crept into our credit union movement while we were not looking. As usual, the working class have no say. I suppose we can all shuffle off to Wonga.com should we need a loan, leaving our shares to be divvied up among the middle classes by way of cheap loans to themselves.
      Wonga, by the way, charges for every £1 borrowed £5 per day.
      At 45c in the €1,000 per week, the middle classes are laughing at our expense. This raises the question, How many members were allowed to borrow far more than the old three-times quota on shares and still have the cheap interest rate of 90c per €1,000 per week? And how many of them were asked to prove ability to pay in the first place? Indeed, how many of them intend to pay the money back at all?
      These are questions that need to be answered. In short, where does the buck stop, and whose head should roll?
      Maybe a criminal investigation might answer all these questions.
[MA]

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