Business and Finance

Workings of a credit union

Credit unions across Northern Ireland rely on teams of volunteers to assist members in their financial transactions. Meadhbh Monahan discusses the operations of Cloughfern Credit Union with manager David Dowey.

From small beginnings in 1989, Cloughfern Credit Union has accumulated 2,500 members and is run by 12 volunteers and two part-time members of staff.

Situated in Cloughfern Protestant Hall, the credit union now requires bigger premises. It has “grown so rapidly and large” that it has also had to open more hours. Previously only open on Friday and Saturday evenings, the credit union now operates Tuesday to Saturday.

One of 55 credit unions in the Ulster Federation of Credit Unions, Cloughfern is managed by local man David Dowey. The economic downturn has resulted in “a large influx of new members, primarily because people are telling us they don’t trust the banks and the banks aren’t lending them money anymore,” he tells agendaNi.

“Typically, the level at which loans are being pitched” is £3,000 to 5,000, to be used for DIY or similar projects. Dowey adds: “People are finding it more difficult to make ends meet and are finding that the credit union can help.”

All credit unions in Northern Ireland are currently regulated by DETI. However, following years of lobbying at Westminster and then Stormont (after devolution), the UK Government has granted regulatory responsibility for credit unions across the UK to the Financial Services Authority (FSA). This is due to commence towards the end of 2012 and will enable Northern Ireland credit unions to expand their services in line with Great Britain.

Credit unions in Britain are permitted to use financial products and services such as insurance and mortgage products which the FSA is responsible for, and child trust funds. Regulation by DETI also prevents members in Northern Ireland from accessing the Financial Ombudsman Service and the Financial Services Compensation Scheme, which, in England, Scotland and Wales, provides up to £50,000 protection of savings per member in the event of a credit union failing.

The Treasury has recognised that the gap between the province and the rest of Britain “takes on great significance” when the level of membership is considered: 50 per cent of Northern Ireland’s adult population, compared to 2 per cent in Great Britain.

While Dowey welcomes the move, he is concerned that a valuable inspection carried out by DETI every two years will not be continued by the FSA.

“Bizarrely, people would think you would welcome the fact that you don’t have to go through this rigorous examination every two years, but our credit unions are quite concerned that that’s been taken away because it gives us peace of mind that we are doing things right.”

When a new volunteer arrives they are given leaflets explaining the legislation governing credit unions and the model policies. They are “aunt-Sally’d” until they are capable of operating on their own. Initially, Cloughfern began as a savings group (as all new credit unions are required to.) Once it passed an oral examination by civil servants, it was permitted to become a credit union in 1993.

The savings and loans customers were initially allowed to borrow three times their savings, but Dowey says: “We rapidly discovered that that wasn’t good practice.” Instead, members are allowed to borrow twice their savings (to a maximum of £1,500 for their first loan.) After that they can borrow three times their savings dependent on their credit history.

“Some of our members were making their 13 regular payments then, thinking they had qualified and started missing weeks,” Dowey says.

He had to explain: “We are not a bank and the basis of this continuing was on their good credit worthiness. That’s the basis of the credit union movement and some members were treating us like a bank.”

Dowey is keen to emphasise that credit unions “don’t operate like a bank.” Rather, a union is “much more interested in helping its members.”

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