Credit unions claw back €19k per court case

Credit unions have been forced to go to the courts to recoup €3.6m in loans after lending up to 20 times more than they should have.

This year, 74 credit unions have taken 183 cases for unpaid loans averaging almost €20,000. In one case a credit union sought a judgment to recoup a consumer loan of over €675,000.

The figures emerged as the Commission of Credit Unions recommended a complete overhaul of the credit union system, suggesting that up to 100 institutions may merge.

Vision-net.ie, a business intelligence provider, carried out research on court cases taken by credit unions to recoup owed monies so far this year. It said unions’ assets were not sufficient for the scale of loans granted, and that some institutions were loaning up to 20 times more than they should be.

It found that credit unions had taken 183 cases in the first three months of the year in an attempt to recoup €3.6m from people to whom they had loaned. The value of cases was up almost 25% on the corresponding quarter last year, with cases taken by credit unions accounting for 17% of total judgment rulings against consumers.

The average value of individual judgments in the first quarter was €19,762, up 43% on last year.

Vision-net.ie said that last year the courts awarded 794 judgements in favour of credit unions to recover a loan book valued at €13.9m.

Christine Cullen, managing director of Vision-net.ie, said its figures provided a clear context to the report published by the Commission of Credit Unions.

“Our findings indicate that many credit unions were lending more than they could afford. In some instances, individual loans amounted to almost 20 times the allowable amount.

“This raises questions as to the depth of credit suitability screening which was carried out and the level of adherence to the 1.5% total asset rule that exists in credit unions for the majority of personal loans.

“It is important that consumers and businesses borrow money responsibly and according to their means and that those giving credit to consumers or commercial enterprises carry out sufficient risk tests to protect themselves against default.”

Ms Cullen said the probability for default was significantly diminished when suitable stress tests and research are undertaken.

“All of this underlines the need for the reforms highlighted in today’s report.”

Vision-net.ie’s findings came as the Commission of Credit Unions called for the credit union movement to go through a four-year restructuring process. It is estimated as many as 100 credit unions may seek to merge to secure their future. The report recommends that, with credit unions’ performance declining due to the adverse economic conditions, there needs to be more effective governance across the sector.