Fears of credit union interest rate increase

Borrowers may be forced to pay higher loan interest rates, as reported by The Independent.

Arrears from loans and falling profits may force credit unions to recuperate their loses with increased rates.

A government commission has been set and is demanding new professional standards in the financial services industry.

The commission also wants credit unions to pay into a new emergency fund to cope with future losses.

The commission is headed by Professor Donal McKillop from Queens University.

An interim report has called on credit unions to put forward €140 million into the bailout fund, which will be managed by the Central Bank of Ireland.

The proposals are targeted to offset the risk of a smaller banking crisis amongst the credit unions.

However critics are concerned that they may force smaller, weaker credit unions to merge with larger to survive.

The proposals seek to place stricter compliance and risk management protocols on credit unions.

Credit unions will need to appoint risk managers and compliance managers, as well as strict internal self audit procedures.

According to The Independent we may see up to half of credit unions disappear, merging with other unions.

There are fears that credit unions may charge more for educational/student loans and car loans, which are sometimes cheaper than those from the banks.

The commissions thinks that the credit unions are not storing enough money in reserve in order to be able to withstand a future crisis.

Apparently 27 different institutions had lower than 7.5% of their deposit books in reserve.

If there was a shock to the economy this would place them at risk, and potentially unable to survive.

Reports are that almost €1 billion of credit union loans went unpaid over a ten week period across the state.

With the ongoing Euro crisis, officials need to demonstrate fiscal prudence, which means the faster credit unions can demonstrate they have offset any risk the better.

This will mean a tightening of controls in the credit union sector. The commission has recommended credit unions should be subject to the same Central Bank sanctions and fines that apply to bankers and other institutions.

Article by LoansIreland.ie.

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