Banks versus Credit Unions
Can credit unions beat the banks to provide the best loan deals?
We put all lenders to the test after a reader asked us about the best place to get.a car loan.
“I’m looking at a car loan (perhaps 5000 over 3 years),” our reader wrote.
The first port of call is the Competition and Consumer Protection Commission’s website –www.ccpc.ie - where you can compare lots of financial products.
The Irish League of Credit Unions tells me that car loans among its members average 7.9%APR and can be as low as 5%.
So yes, as you can see, credit unions can beat the banks.
And some credit unions can 'knock their socks off.'
But alas, it’s not quite that simple.
There are hundreds of credit unions and our reader doesn’t live in an area where a credit union offer the very best rates.
Nor does she work for the gardai, Dublin councils or Revenue Commissioners, whose staff unions also offer great rates.
Her local and staff credit unions charge 8.95% and 8.88% (the HSE union) respectively for a car loan, which is still a good rate but slightly above the cheapest bank.
Some bank rates can be cheaper too depending on your circumstances.
KBC also has loan rates as low as 6.3% for personal loans. However, that particular rate only applies to loans over €10k. For a €5k loan, the rate is a less appealing 9%. You also must open an account with the bank.
Another option is Avant Card, which provides personal loans with rates based. They can be as low as 6.1% or as high as 19% depending on your financial profile and credit history
Bringing up the rear are PTSB with two not-so-tasty loan offerings. This bank seems to specialise in marketing gimmicks rather than value and it’s Save and Borrow loan is no exception.
Attempting to cash in on kudos deservedly earned by credit unions, but certainly not by PTSB, it requires borrowers to save in order to avail of a slightly more advantageous rate.
But it’s merely providing the disadvantages of credit unions without the advantages as it’s 13% rate is more than double what some credit unions charge.
In the end, while credit unions do offer better deals than banks in general, our reader opted for the Bank of Ireland rate of 8.5%, which was the lowest for her particular circumstances.
However, other readers would do well to check out their local and occupational unions before going to their bank. They do a tremendous job to compete with the banks, especially given the way they are hamstrung with heavy regulation (see Consumer Eye).
A credit union in a remote area was astonished by a recent Central Bank inspection. Not because they had anything to hide – but by the size of the contingent of inspectors.
Eight inspectors trooped into the small union to inspect its books.
That’s twice as many full-time workers as many credit unions have.
Credit unions don’t mind oversight - even when it involves half a platoon of inspectors - but they do object to the way they are being asked to fork out an ever-growing sum to pay for what seems excessive regulation.
This movement suffers from being lumped in with banks when it comes to tough regulatory requirements and a spate of levies on the industry.
Like banks, credit unions are expected to keep a high level of funds in reserve right now – which they say is excessive compared to other countries. In their case they face an additional burden because they must deposit funds with their rivals - the banks.
And banks have begun charging them interest on these deposits - instead of paying out interest.
“The majority of credit union surplus funds are held with banks due to the restrictive investment regulations prescribed by the Central Bank of Ireland,” the Irish League of Credit Unions tells us.
"Bank of Ireland and AIB are charging negative interest rates to credit unions ranging from -0.65% to -1.1%.”
“Ulster Bank have also recently introduced negative rates of -0.55% for credit union funds held in excess of €1m.”
That hardly seems fair. But it’s only the tip of the iceberg.
For example, unions have to be part of a credit register which charges them the same fee to check tiny loans as major institutions have to pay for much larger loans.
Credit unions have to pay the Industry Funding Levy (IFL) to the Central bank to fund their own regulation.
And three other levies are lobbed on as well totalling €22m ( see table), a sum that ultimately comes from members.
That industry levy is about to soar five-fold to extract €7.8m from credit unions by 2022.
Sources tell us Finance Minister Paschal Donohoe signed off on the massive hike in this levy without even bothering to consult credit unions.
Although the Central Bank could go a bit easier on unions and maybe rein in its army of inspectors, the ultimate blame for this sort of sneaky funding model lies with finance ministers, who have increasingly been using a growing spate of ‘levies’ as a form of stealth tax on all of us.
The Government wouldn’t dare to raise headline tax rates – and indeed makes a great show of promising not to.
But why should they when they pile on sneaky “charges", “levies", and “contributions"?
These are the most unjust forms of taxation because they cut through all our credits and allowances, that build fairness into the tax system, to take money from our pockets.
Why raise taxes to fund renewable energy and stir a political backlash when you can slap a “levy” on our energy bills? Check out your electricity bill. It will show a deduction of around €6 per two-month bill for the Public Service Obligation (PSO) levy.
You probably haven’t noticed it before – I didn’t until I looked recently – and most people probably won’t notice either when it goes up again from October 1st by a whopping 129%.
That’s the great thing about levies, once introduced, they can be not just raised but hiked massively by stealth too, as the credit union levy will soon be raised.
We already pay hundreds of euros a year in levies: on plastic bags, prescriptions, health insurance (C€400 a year), life assurance (€100 a year), non-life insurance (€50 a year), just to name a few….
The dispicable “voluntary contribution” parents must pay to schools if they are to meet their running costs is a levy by another name.
The Government does not give schools enough money, knowing that they will be forced to raise the shortfall by harassing parents.
To add to the dysfunctionality and confusion of it all, schools are forced to call this contribution they need from parents “voluntary” – as a fig leaf to cover the Government’s shameful reneging on its constitutional obligation to fund schools properly.
So it’s hardly surprising that instead of paying for financial regulation, the Government slapped a levy on the whole industry.
Banks can afford it but why include a non-profit making community-based organization of tiny lenders like credit unions in the cross-fire too?
In a recent report on its future, appropriately entitled Movement, ILCU president Gerry Thompson spelled out what needs to be done to help it survive the pressures outlined above - and those resulting from the current pandemic.
"Faced with an imminent severe economic downturn, now is the time for Ireland’s policymakers and regulators to act. Existing legislation must be reviewed and reformed to ensure that credit unions can serve their local communities in the best and most appropriate ways while helping them strengthen their long-term sustainability and development." "We welcome the recent commitment in the Programme for Government to do so, however, this commitment must now be acted upon and not become another empty promise.”
Cheap credit union loans
Cheaper credit unions*
St Paul's Garda Credit Union
5.0%
Athea & District Credit Union
(Co.Limerick)
6.0% APR
New Ross credit Union
(Co. Wexford)
6.05% APR
Black Raven Credit Union
Dublin council employees
6.1% APR
The Cana Credit Union
Revenue Commissions employees
6.1% APR
LEVIES on credit unions – and their members
Deposit Guarantee Scheme €13.4 million
Credit Institutions Resolution Fund €4.4 million
Stabilisation Fund Levy €2.7 million
Industry Fund Levy €1.5 million
Total €22 million
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