Plan for easier lending at credit unions

The Government in considering a plan to allow credit unions provide emergency loans to people who have lost their credit rating in a move that may cut reliance on moneylenders.

The Citizens Information Board and the Money and Budgeting Service (Mabs) is proposing a State-backed loan fund to help the more than 100,000 people who have lost their credit rating due to mortgage and other debt arrears and can not access funds from credit unions or banks. This lack of access to funds for back-to-school costs, household emergencies, car repairs, or other unexpected demands due to the tighter regulation of credit unions, is pushing many people into the arms of moneylenders.

Mabs says greater regulatory oversight in this sector has undermined the “ethos of credit unions significantly” and impacted most negatively on the most needy households.

It wants a microcredit fund, initially supported by the Department of Social and Family Affairs and aimed at the most vulnerable, to be introduced by the League of Credit Unions so that these people do not resort to legal moneylenders, some of whom charge interest rates of up to 290%.

The Central Bank’s Moneylending Register shows that Southside Finance Ltd in Dublin is sanctioned to charge interest rates of up to 287.72%. PJA Home Finance in Cork City is sanctioned by the Central Bank to charge up to 210%.

The proposed microcredit fund might provide loans of up to €1,000 at a notably higher interest rate than the approximate 12% interest rate traditionally charged by the credit union, but still far less than the rates legal moneylenders charge.

CIB and Mabs made a submission to the Department of Social Protection on the establishment of such a microcredit fund which the department confirmed last night “was being considered”.

The Irish League of Credit Unions has also said it is broadly supportive of the proposal.

A 2007 Central Bank study showed that there up to 300,000 families who use legal moneylenders at enormous cost.

Last night, a spokeswoman for the Irish League of Credit Unions said the CIB submission “identified credit unions as being key to the solution by acting as a delivery channel for those having difficulty accessing credit”.

“If a State-backed loan guarantee fund were put in place it would help credit unions lend as they have always done to the most vulnerable,” said the spokes-woman. “A State-backed loan guarantee fund created, as suggested, would also absorb a portion of any potential losses. We are aware that CIB made this submission to the department but are not aware of where the submission and the proposals contained within it are at this point in time.”