Financial Regulator to investigate credit union ‘irregularities’

FRESH controversy regarding the lending practices at credit unions has arisen, with news that the Financial Regulator is to investigate alleged irregularities at a Co Kilkenny branch.

The regulator said yesterday that it has become aware of issues that have arisen in connection with the financial affairs of Dunnamaggin Credit Union in Co Kilkenny. It went on to say that it now intends to appoint independent inspectors “in accordance with the provisions of the Credit Union Act of 1997, to investigate the affairs of the credit union more fully”.

It is understood that the issues relate to irregularities concerning loans to branch members. No further details are known as yet. However, the Financial Regulator also moved quickly to reassure concerned customers, saying that their savings are safe.

“Members are reminded that the new deposit protection legislation, announced by the Minster for Finance, provides that credit union members’ deposits are protected to the extent of €100,000 and by the Savings Protection Scheme operated by the Irish League of Credit Unions,” it added.

The Dunnamaggin investigation is the latest installment in what has been a poor start to the year, in terms of reputation, for the Irish credit union movement. It has been reported, in recent weeks, that roughly one in three credit unions are currently loss-making and that the combined network of branches here wrote-off €284 million in bad debts last year.

Brendan Logue — the Registrar of Credit Unions at the Financial Regulator — has already warned member branches that 2009 could be “an extremely difficult year” in which further losses should be expected. The registrar has also already warned branches about their lending practices, after loan arrears soared by 22% to €515m last year. Mitchelstown Credit Union, in Co Cork — earlier this month — went to the Irish League of Credit Unions (ILCU) seeking bailout funding of €5m to cover hefty withdrawals.

But, while the ILCU has maintained that it is capable of supporting any member union that may require financial aid, calls have been made for the Government to bailout credit unions. There are concerns many do not have enough liquidity to support their daily cash demands, resulting in their financial stability being put under threat.

The ILCU failed to comment on the Dunnamaggin inquiry yesterday, but Mr Logue reiterated the regulator’s stance that there is no danger to customer savings.

“Dunamaggin Credit Union is a member of the Irish League of Credit Unions, which operates a savers protection scheme designed to provide support to credit unions,” he said.