Credit unions reject pilot debt scheme

The Central Bank has said its pilot debt restructuring scheme will go ahead without the involvement of the Irish League of Credit Unions (ILCU).

The rejection by the union of the Central Bank’s plans to restructure debts for borrowers, means those who owe money to credit unions in the ILCU will not be able to take part.

Kieran Brennan, the chief executive of the ILCU, said borrowers could ultimately end up in a worse financial situation if they engaged with the proposed scheme.

He told RTÉ: “This is pretending to be a debt relief scheme when it is not. There is no mortgage writedown and the borrower may be left in a situation where they owe more at the end of the process.”

Mr Brennan said the proposed scheme was little more than a mechanism that the banks could use to avoid having to write down huge losses as a result of the introduction of the personal insolvency regime.

“Our fear is this is an alternative being brought in by stealth to facilitate the banks to avoid personal insolvency where they lose control and the regime allows a writedown.

“Banks could use their veto to force people into this where they don’t get a writedown and they are bled white on interest for years to come and end up possibly owing the banks more.”

Although the ILCU represents 383 affiliated credit unions, it is up to each union whether or not to engage with the pilot restructuring scheme.

A spokesman for the Central Bank said: “We have written to all credit unions individually to invite them to participate in this pilot as we believe the framework offers better outcomes for borrowers and credit unions than the newly established insolvency regime.”

The Money Advice and Budgeting Service (Mabs) — which is being considered by the Central Bank along with an English debt charity, StepChange, to run the new service — said credit unions would take a disproportionate hit as their loan book is mainly unsecured debts which will be written off under the Central Bank scheme.

A spokesperson for Mabs said: “Under the Central Bank pilot, mortgages get priority and unsecured debts fall far into second place.

“The writedown on credit card and credit union debts would be significant so you can understand why they are hesitating to sign up.”

The Credit Union Development Association (CUDA) said it was engaging with the Central Bank to try and develop a solution to help its members.

A spokesperson said: “There has been significant pressure from vested interests to provide solutions in this area without carrying out some form of impact analysis.

“We believe the pilot will go some way to providing the necessary impact information, before we return to the talks to see if we can agree a formula that is genuinely helpful for credit union members who find themselves in multi-lender difficulty.”