Walk in any day, they would know you by your first name, says John Payne. “They often ask me about my daughter in London or my son in Australia.”
He’s talking about his local credit union, the Donore Credit Union on South Circular Road, which he’s been a member of for the last 40 years, he says.
Those visits have stopped recently, though, he says. Since the Covid-19 lockdown came in, he has had to cocoon himself in his home. “I haven’t been out in the past six weeks,” says Payne.
Nonetheless, he has been in regular contact with staff. Like many other credit unions around Dublin, staff at Donore Credit Union are ringing around its vulnerable members, checking they’re okay.
It’s one of the ways in which credit unions vary in ethos to banks, and of the reasons that some say they should be treated differently under government regulations – particularly as they start to feel the impact of the Covid-19 crisis on their day-to-day operations.
Others, though, say the rules that they operate under are there for a reason.
In March, the Irish League of Credit Unions had “asked for a couple of bits of leeway that has already been afforded to the Irish banks in terms of regulatory requirements”, says Donore Credit Union CEO, David McAuley.
One bit of leeway that credit unions are looking for is a reduction in the mandatory amount of minimum reserve requirements, he says.
Reserve requirements are the amount of cash that a credit union or bank must hold at any given time, to make sure they’re stable.
“We are obliged to hold 10 percent of our assets with the Central Bank in terms of minimum reserve requirements,” says McAuley.
McAuley says these requirements should be loosened – otherwise, it could impact credit unions down the line.
The Central Bank has told credit unions that it would not be loosening regulations during Covid-19.
What Are Reserves?
Members lodge savings with their credit union, creating a pile of money that can then be lent out to other members.
On the other side of the equation, interest charged on loans to members generates an income for the credit union. Or, if the credit union invests some of the savings that can generate an income, too.
At the moment, savings are up. Credit unions have an influx of people saving money, says McAuley. “People aren’t spending as much.”
Where the money used to go on the pub or the cinema some people are now just saving it in the credit union, he says.
But, at the same time, loans are down, says Tom Ryan, manager of Aughrim Street Parish & District Credit Union in Stoneybatter.
“The loans that we gave out this April are down 90 percent from what we gave out last April,” says Ryan. “We would go from giving out €350,000 a month to giving out €20,000 a month.”
That creates pressure on the reserve requirements, says Ryan. Because when savings are up, then reserve requirements are up.
But because there are no applications for loans coming in – and the interest charged on those loans is how they’d usually make money to cover those reserves, they face a challenge doing that.
“If we’re not earning money from [loan] interest then I don’t know where the money is supposed to come from,” says Ryan.
Not all credit unions think the rules need to be changed, though.
“From our point of view I would say that the Central Bank is being very helpful and supportive,” says Fiona Cunnigham, manager at the Marino branch of Members First Credit Union.
Members First is among the bigger credit unions, says Cunnigham. “We serve eight different communities in the north of Dublin.” (It has more than 77,000 members, its website says.)
Cunningham doesn’t see the need for regulation to change during this time, she says.
“Unfortunately the world we operate in today, and based off what happened in the previous crisis back in 2008, warrants rules for financial institutions to abide by,” she says.
Current regulation is not an impediment to their business, says Cunningham.
“There is nobody stopping you doing anything. It’s what your business model dictates what you can do.”
An example of this is forbearance on mortgages, says Cunningham. Forbearance temporarily relieves mortgages holders from paying their loans.
“Forbearance was offered to the banks but we were not even considered in that,” says Cunningham.
They asked themselves whether they were in the position to offer this to their members, she says.
“And the answer is yes we can. How can we? Because we have the reserves to be able to do that,” says Cunningham.
McAuley, meanwhile, points to the example of “It Makes Sense” loans, as a way that different rules and more government support for credit unions could be beneficial.
They’re “basically loans for people on social welfare”, he says. They were set up to deter the use of moneylenders.
In the UK, the government underwrites those loans.
That means that if someone can not pay back that loan the government will pay back the credit union, he says. “But in Ireland, the credit union is expected to take that risk.”
Ryan says he feels that if the Aughrim Street Credit Union’s reserves drop below 10 percent, it’ll face pressure to merge with other credit unions.
But that wouldn’t be the right move for members, he says.
“The smaller credit unions are quicker to react because they can see what’s on the ground. They’re only dealing with the local area,” he says.
Independent credit unions can give some leeway on loans to customers that they know and trust, says Ryan.
Bigger credit unions are unable to do that, he says. “If something falls to one side of the policy or the other, that is slightly out of kilter, they just won’t do it.”
Cunningham feels her members still get an equal amount of representation in Members First, she says.
When a credit union merges, there is an independent board that is drawn from all of those various communities, she says. “There is no loss of identity for that area because your representative is there on the board.”
Recognising the Social Impact
Some say that the Central Bank needs to do more to recognise the difference between a credit union and a bank.
“They both provide a financial service but it is a totally different model,” says Sam Toland, the secretary of the Dublin Food Co-op.
Dublin Food Co-op borrows from the Donore Credit Union.
“It does seem that the Central Bank tends to say, these guys are banks so we are just going to regulate them like banks. The reality is they are not,” says Toland.
One big difference is that credit unions have voluntary boards while board members for banks get paid, says Toland.
A spokesperson for the Central Bank says it “acknowledges the important role which credit unions play in Irish society, in the financial system and their strong voluntary and community ethos”.
The Central Bank is committed to providing useful supports “to assist credit unions in fulfilling their regulatory duties in the provision of services to their members”, the spokesperson said.
The role of the Central Bank is to ensure that credit unions can protect the funds of its members, the spokesperson said.
“We are committed to providing useful supports to the credit union sector to assist credit unions in fulfilling their regulatory duties in the provision of services to their members,” the spokesperson said.
“Value can’t be just measured by profitability,” McAuley says. “We are looking to start a different type of conversation. We are asking what really are credit unions?”
Payne, the long-time member of Donore Credit Union, says that he appreciates all the links that the lender has in the neighbourhood.
“They are very good in the community. They are involved with the boxing, scouts and many committees,” he says.