credit unions?

jetcat

a credit union near to me, one where a few of my friends have money, has had its actions suspended by the FSA - meaning that those who wanted their money before Xmas are unlikely to get it.

I thought credit unions were a safe place to put your money, especially if like me you are in receipt of benefits and no 'low cost' option to borrow money? Is that not the case?

Baldur

jetcat wrote: »

a credit union near to me, one where a few of my friends have money, has had its actions suspended by the FSA - meaning that those who wanted their money before Xmas are unlikely to get it.

I thought credit unions were a safe place to put your money, especially if like me you are in receipt of benefits and no 'low cost' option to borrow money? Is that not the case?

I take it that your question is rhetorical, as your first sentence appears to answer it?

http://www.fscs.org.uk/latest_news/St_Columba_Credit_Union/

http://www.fscs.org.uk/latest_news/Streetcred_Credit_Union/

http://www.fscs.org.uk/latest_news/Edmonton_Credit_Union/

http://www.fscs.org.uk/latest_news/Rotton_Park_and_Winson_Green_Credit_Union_Ltd/

http://www.fscs.org.uk/latest_news/Peterlee_Credit_Union/

http://www.fscs.org.uk/latest_news/Inner_Preston_Credit_Union/

jetcat

sorry, it actually wasnt rhetorical - i was just really confused!!

many thanks for the links - they made interesting reading.

tstemp

They are financial institutions and, like any other, can run into difficulties- but, because most cannot do mortgages they have not had the same level of problems as mainstream bodies.

They do have their own problems in that smaller credit unions rely heavily on volunteer workers to do the day to day work and can suffer volunteer fatigue. Also many still rely on an element of external support from Councils or anti-poverty funds.

Larger ('new model') credit unions are all working towards self-sufficiency but at the risk of becoming more remote from the members. For example Tower Hamlets Community Credit Union has 7000 members and three branches, so members may not always be recognised by staff as would be the case in a small community version.

http://www.abcul.org/page/news.cfm

http://www.thccu.co.uk/site/index.php

opinions4u

Credit Unions are the most common claimants on the FSCS. But they do have to be covered by the scheme.

Unsecured lending is higher risk than mortgage lending, so credit unions are higher risk bodies than banks or building societies.

Milarky

opinions4u wrote: »

Credit Unions are the most common claimants on the FSCS. But they do have to be covered by the scheme.

Unsecured lending is higher risk than mortgage lending, so credit unions are higher risk bodies than banks or building societies.

That's one half of the equation - the other half is that the risk of individual default from their own is probably a lot higher too. By definition, people who would need to join a CU are considered more risky to the rest of the financial sector. So CUs (a bit like with profit endowments) actually involve their own depositors in more risk in the very attempt at pooling that risk. The 'argument' that is often put about; that credit unions somehow reduce the risk of default simply because members are 'known' to other members is tosh. It goes back to the notion that peer pressure can somehow compel good behaviour - and so avoid defaults. Well it might have been true in the 1950s....And how is peer pressure meant to ward off the effects of the recession on personal finances? Will employers be too shamed to let their staff go?

Milarky

http://www.guardian.co.uk/politics/2008/dec/21/economy-creditcrunch

So the government continues to treat credit unions (independent and privately owned co-operatives) as an extension of their own 'clientalist' approach to the poor.

Why should I continue to associate myself with a CU if that organisation has been co-opted to give social fund loans to claimants at an 'affordable' 2% per month? I don't remember asking Mr Purnell to do this. CUs can only handle their own money - so clearly any introduction of social fund monies like this is intended to divert them from that purpose by giving them some revenue in return (eg to run their offices)

Meanwhile what do the DSS civil servants working in 'social fund' dept. do with themselves?

The essence of borrowing from a CU is choice. The essence of the Social Fund is necessity. People should not be borrowing 'from' (techically 'through') CUs simply because the government has decided it can't afford interest-free loans anymore. This is all the more dissonant given the billions they are throwing around at the moment.

No wonder 'Lord' Kinnock was dismissive of the idea...

Burny_Sweetwater_Glasgow

opinions4u wrote: »

Credit Unions are the most common claimants on the FSCS. But they do have to be covered by the scheme.

Unsecured lending is higher risk than mortgage lending, so credit unions are higher risk bodies than banks or building societies.

A couple of points in reply to your posting

• Credit unions have to contribute to the cost of the FSCS
• When a credit union fails, it is a sad event for those people who have their savings frozen, but the FSCS endeavours to pay out these savings within a very short time scale, so nobody loses their savings
• over the last year I suggest that you add up how much this scheme has paid out to credit union members and calculate how much this has cost the tax payer and compare that to the additional tax burden that we are all going to have to pay in the years to come for bailing out the banks-many billions whereas cost to tax payer for failing Credit Unions basically ZILCH.
• there can be many reasons why a credit union fails and I would imagine that taking risks with their members money or the pursuit of profits would not be one of them.
• once a credit union becomes well established, with a large enough membership, lending sensibly and encouraging savings it will become self sustaining and eventually have sufficient income that will, after running costs, be able to pay a dividend. This year my own credit union paid 2.5% dividend to all our members whether they had £10 or £10,000 in their account, and currently that is a very good rate of interest with instant access to their savings.
• Credit Unions are as safe as banks or building societies in relation to the security of your savings, only difference is that when a credit union runs into trouble the FSA or the government do not offer assistance to keep it trading they just slap on an order that prevents them from trading any longer.

One final point, although many credit union members may come from those sections of our society who have to live off benefits or very low wages, we at least give these people a chance and just don't cast them aside. As for being a riskier investment for your savings I would disagree, for those that have the least are often those who always payback their loans. If you want further proof that this concept is true I suggest that you google the 'Grameen Bank'. You will have your eyes opened.

opinions4u

Burny_Sweetwater_Glasgow wrote: »

A couple of points in reply to your posting

• Credit unions have to contribute to the cost of the FSCS - I didn't suggest otherwise. Why else would they be able to claim on it?
• When a credit union fails, it is a sad event for those people who have their savings frozen, but the FSCS endeavours to pay out these savings within a very short time scale, so nobody loses their savings - faster than Icesave. What's that got to do with the security of the organisations?
• over the last year I suggest that you add up how much this scheme has paid out to credit union members and calculate how much this has cost the tax payer and compare that to the additional tax burden that we are all going to have to pay in the years to come for bailing out the banks-many billions whereas cost to tax payer for failing Credit Unions basically ZILCH. The performance of the banks has been disgusting. That still doesn't hide the fact that banks, IFAs etc have subsidised the higher risks of the credit unions over many years.
  
• there can be many reasons why a credit union fails and I would imagine that taking risks with their members money or the pursuit of profits would not be one of them. It depends on how you define risk. Lending money without security is a risk that is higher than lending money with security. Credit Unions have their place in society and should be actively encouraged. Just don't believe they are safer than any bank or building society because that is patently nonsense.
• once a credit union becomes well established, with a large enough membership, lending sensibly and encouraging savings it will become self sustaining and eventually have sufficient income that will, after running costs, be able to pay a dividend. This year my own credit union paid 2.5% dividend to all our members whether they had £10 or £10,000 in their account, and currently that is a very good rate of interest with instant access to their savings. Although it is a relatively poor rate of interest based on average rates paid over the past 12 months by banks and building societies. I admire those credit unions that manage their affairs prudently and would like to see a handful expand in to mainstream organisations that can replace the lost building societies of the last 20 years. I don't think it will happen though.
  
• Credit Unions are as safe as banks or building societies in relation to the security of your savings. No they are not. If 100% of their assets have no security against them they cannot as safe as a bank or building society. The only way in which they are equal is through the FSCS compensation scheme.
  
• only difference is that when a credit union runs into trouble the FSA or the government do not offer assistance to keep it trading they just slap on an order that prevents them from trading any longer. The assistance offered to the banks has more to do with the survival of the banking system as a whole and is a necessary evil in these extraordinary times.

One final point, although many credit union members may come from those sections of our society who have to live off benefits or very low wages, we at least give these people a chance and just don't cast them aside. Which is why credit unions should be encouraged.

As for being a riskier investment for your savings I would disagree, for those that have the least are often those who always payback their loans. I understand this point of honour and debt. Statistically it doesn't stack up across the UK though.

If you want further proof that this concept is true I suggest that you google the 'Grameen Bank'. You will have your eyes opened. I will do.

If a bank lends its customers money and they don't pay it back, some of that lending is backed by security. (e.g. property, plant machinery etc). Some of it is unsecured. If customers don't pay back, some of those losses can be recovered by the remaining value of that security. Credit unions don't have that luxury.

Burny_Sweetwater_Glasgow

Icesave latest news FSCS paid out £3.5 BILLION (not the final amount but give or take a few million will do for comparison) for ONE financial institution. Based on the last figures from World Council of Credit Unions, if all the credit unions in England Wales and Scotalnd failed at the same time approx payment for return of all members savings would be approx £638 Million. Hypothetical situation I know but what would the figure be if all the banks/building societies had to close down at the same time, sure they could sell off security held against any loans but even if they did realise all of the securities held the resultant figure would have goodness knows how many 0's in it! . But as you quite rightly say these are extraordinary times in which we live so our banking system has to be protected to maintain the financial stability of our country.

baby_boomer

Why would you save with an organisation whose main aim is to lend to people who are credit risks and pays you a pittance for taking on their risk?