Credit unions

Credit unions are financial co-operatives where members can save and lend to each other at fair rates of interest. They are non-profit organisations that have a volunteer ethos and community focus.

You can become a member of a credit union if you have a common bond with other members. The most usual common bonds are:

• Community bond: members live or work in the same area
• Occupational bond: members are in the same profession or work for the same employer
• Associational bond: members are in the same society or association

Each credit union is owned by its members, who each have one vote. The membership elects individual members to the board of directors of the credit union.

There are two main umbrella bodies for credit unions - the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA). Most credit unions belong to one of these bodies. These bodies may have other rules their members must follow and they provide other services to credit unions.

Credit unions in Ireland are covered by the Deposit Guarantee Scheme which is administered by the Central Bank of Ireland. This is a scheme that can compensate depositors if a credit institution is forced to go out of business. It covers deposits held with banks, building societies and credit unions. The Deposit Guarantee Scheme protects up to €100,000 of your deposits in each institution.

Dividends

Your credit union may declare a dividend at the end of each year. As credit unions are not-for-profit, any income generated is returned to members in the form of a dividend, or may be used to improve and enhance services. The return on savings will vary from credit union to credit union, depending on the surplus income available at the end of the year.

Savings and tax

Interest you earn on deposits in credit unions is subject to Deposit Interest Retention Tax (DIRT). There are specific rules about how credit union dividends are taxed, depending on the type of account you hold.

Many credit unions provide current account services to their members. Services include debit cards, direct debits and overdraft facilities. You can check if your credit union offers current accounts.

Credit unions can make loans to members. For example, loans may be for:

• Car purchase
• Home improvement
• Education
• Holidays
• Bridging loans
• Special occasions, weddings or Christmas
• Medical or emergencies

The credit union may require security for the loan – this depends on the credit union’s own rules.

The minimum and maximum loan amount is set locally by each credit union.

The maximum repayment term on unsecured loans is 10 years and on secured loans is 35 years.

Your ability to repay the loan is taken into account when you apply for a loan. Each loan application is assessed on an individual basis, in line with lending regulations and the credit union’s lending policy.

The credit union must have an appeals process in place for a member who is refused a loan.

The rate of interest charged on the loans is decided by the board of directors. The interest on the loan may not be more than 1% per month.

Some credit unions offer the It Makes Sense loan, which provides small loans at low interest rates. The loan may be available if you are getting a social welfare payment and are having difficulty getting credit from other sources. You can get a list of participating credit unions on the It Makes Sense Loan website.

Many credit unions offer mortgages. The interest rate charged is set by each credit union at local level and each credit union also sets the maximum value of mortgage which it provides. You can check a list of local credit unions that provide mortgages.

The Central Bank's Credit Union Handbook includes guidance for credit unions on various aspects of lending.

Loan protection insurance

Loan protection insurance may be available on loans to borrowing members.

Difficulty repaying your loan

If you have difficulties repaying your loan, you should contact your credit union to discuss your situation.

You can make a written statement nominating someone to get your property in the credit union when you die, for example, your savings or insurance.

The property will not then be part of your estate for the purposes of your will or intestacy. This means the nominated person can access the funds without waiting for the legal processes to be completed.

The maximum amount that may be nominated is €27,000.

A completed nomination must be signed and witnessed. You can change your nomination at any time.

The main legislation governing credit unions is the Credit Union Act 1997. Credit unions are also subject to various aspects of the Central Bank Acts as well as, for example, anti-money laundering and data protection legislation.

The Registry of Credit Unions, which is part of the Central Bank of Ireland, is responsible for the registration, regulation and supervision of credit unions.

The Central Bank has the power to impose conditions on the registration of a credit union. These conditions may be appealed to the Irish Financial Services Appeals Tribunal. Regulatory decisions may also be appealed to this tribunal.

The main function of the Registrar of Credit Unions is to regulate credit unions to:

• Protect members' savings in each credit union
• Maintain the financial stability and wellbeing of credit unions generally

Credit unions who want to engage in certain types of business, for example, insurance, investment intermediary, and certain payment services must get authorisation from the Central Bank.

The Central Bank publishes the Credit Union Handbook which sets out various legal and regulatory requirements and guidance for credit unions.

Prudential requirements

Credit unions must meet the prudential requirements set by the Central Bank in relation to reserves, minimum liquidity requirements, investments, lending and borrowing.

Credit unions must have a complaints procedure in place.

If you are not satisfied with the outcome of the internal procedure, you can complain to the Financial Services and Pensions Ombudsman.

The Ombudsman is an independent officer whose remit is to investigate, mediate and adjudicate unresolved complaints of individual customers about financial service providers and pension providers.

To find a credit union you can join, you can use the credit union locator provided by the Irish League of Credit Unions.