Dot ComUnity Credit Union - ISA

pafpcg

codetown wrote: »

A way forward might be to offer a (voluntary) increased rate of say 4% for another year of ISA holding with them.
If the authorities allow this extension at a higher rate, it might help their position, in parallel to the bonds they will be able to sell.

From my reading of the letter to members dated 3-March, the problem appears quite simple: The credit union has grown to a size where the regulator's rules oblige the credit union to hold reserves (unsecured loans or deferred accounts) of greater than 5% of the total of the secured and non-deferred accounts - currently the reserves are below 5% and thus DotComUnity are not accepting any further deposits in non-deferred accounts including ISAs. They are concentrating their efforts on raising the reserves above the required 5% and will not/cannot re-open the ISA accounts until the money for the reserves has been raised.

Maybe DotComUnity management should have seen the problem coming and restricted the volume of deposits in non-deferred (secured) accounts to a rate which matched the rate of growth of deferred (unsecured) reserves. The thought occurs to me that if their sales pitch last year had been "We can offer 3% on a one-year ISA, provided that you deposit an equivalent of 5% of your ISA deposit in our reserves (on which we'll pay you 4% interest but it's unsecured)". In other words, for every £10,000 we put into their ISA, we had to put £500 into their deferred account (not just a flat-rate £5). I think there'd still have been a substantial take-up and there would not have been a breach of the regulator's rules.

That's my understanding - maybe others who've looked at the position know better.

I'd certainly agree with the call for patience. For those upset by the lack of communication, I suspect the reason for this is that there's a lawyer in there somewhere advising "SAY NOTHING!".

Steve_xx

pafpcg wrote: »

From my reading of the letter to members dated 3-March, the problem appears quite simple: The credit union has grown to a size where the regulator's rules oblige the credit union to hold reserves (unsecured loans or deferred accounts) of greater than 5% of the total of the secured and non-deferred accounts - currently the reserves are below 5% and thus DotComUnity are not accepting any further deposits in non-deferred accounts including ISAs. They are concentrating their efforts on raising the reserves above the required 5% and will not/cannot re-open the ISA accounts until the money for the reserves has been raised.

Maybe DotComUnity management should have seen the problem coming and restricted the volume of deposits in non-deferred (secured) accounts to a rate which matched the rate of growth of deferred (unsecured) reserves. The thought occurs to me that if their sales pitch last year had been "We can offer 3% on a one-year ISA, provided that you deposit an equivalent of 5% of your ISA deposit in our reserves (on which we'll pay you 4% interest but it's unsecured)". In other words, for every £10,000 we put into their ISA, we had to put £500 into their deferred account (not just a flat-rate £5). I think there'd still have been a substantial take-up and there would not have been a breach of the regulator's rules.

That's my understanding - maybe others who've looked at the position know better.

I'd certainly agree with the call for patience. For those upset by the lack of communication, I suspect the reason for this is that there's a lawyer in there somewhere advising "SAY NOTHING!".

Yes you may be right in that they ought to have seen this coming, given the attractiveness of their product at the time.

Their sales pitch last year was for a relatively simple ISA product. If, as you describe they had opted for the complexity of what you proposed, then the take-up would undoubtably have been less and the current problem may not be in evidence. The thing is as it is, and so it has to be dealt with as it is.

You are possibly correct in that there might be some lawyer involved and advising that nothing be said. But at some point this is going to burst and so it is often more prudent for a public statement to be made. In the absence of that, people will continue to speculate and the result is that the whole thing could end up on a sharp downward spiral and much damage to the concept of credit unions may well ensue.

MARTYM8`

Steve_xx wrote: »

Y
You are possibly correct in that there might be some lawyer involved and advising that nothing be said. But at some point this is going to burst and so it is often more prudent for a public statement to be made. In the absence of that, people will continue to speculate and the result is that the whole thing could end up on a sharp downward spiral and much damage to the concept of credit unions may well ensue.

And personally I think the proverbial 's**t' may hit the fan sooner than you think.

Clearly they took a lot of deposits for their one year 3% cash ISA last April - and those depositors even until January were able to top these up by transfers in with almost no limits. They then of course reopened deposits again in July along with the 3 and 5 year ISAs with further window later on. So they must have taken millions (maybe tens of millions?).

On their website they have two sets of terms and conditions which aren't consistent for this one year ISA - so its unclear which applies (e.g. is the maturity date 12 monthsfrom opening or the 5th day of the month after the 12 months end e.g. 5 May). But either way they are required to inform people within 28 days of maturity what their options are - and people then have 28 days in which to withdraw the funds penalty free on their terms or if they don't they move to the new terms offered automatically. Now at present legally they aren't allowing withdrawals - so how does that choice operate in practice?

Given 6 April is only a few weeks away they are going to have to offer some sort of maturity ISA product very soon (at the latest by 7 April if the 5 May maturity applies) and potentially even this week under the 28 day terms (if its actually a proper one year product). What will the terms of that be and could they conceivably force you via that 28 day clause onto a long term ISA as they may not offer an instant access product. So you are in effect forced by their terms into a long term product you may not want?

http://www.dotcu.org.uk/creditunion/savings/1-year-3-cash-isa.html

http://www.dotcu.org.uk/creditunion/savings/terms-and-conditions.html

So they - and potentially their April 2014 ISA investors - are going to have some decisions to make very soon about the huge wave of deposits they took last April.

masonic

pafpcg wrote: »

From my reading of the letter to members dated 3-March, the problem appears quite simple: The credit union has grown to a size where the regulator's rules oblige the credit union to hold reserves (unsecured loans or deferred accounts) of greater than 5% of the total of the secured and non-deferred accounts - currently the reserves are below 5% and thus DotComUnity are not accepting any further deposits in non-deferred accounts including ISAs. They are concentrating their efforts on raising the reserves above the required 5% and will not/cannot re-open the ISA accounts until the money for the reserves has been raised.

Yes, that's a technical summary of the position they've manoeuvred themselves into. I think it could be restated, far more simply, in the following terms: they got greedy and lent out more than 95% of the money that they received on deposit, leaving them with very little for cash flow, and now the FCA does not believe they have enough cash on reserve to meet their need to repay depositors upon demand. They need to find enough funds to be able to repay at least 5% of the money deposited in order for the restrictions to be lifted. They can wait for some of the existing loan repayments to come in, or accelerate the process by borrowing money from their depositing customers.

Apparently this is the second time they've done it.

Maybe DotComUnity management should have seen the problem coming and restricted the volume of deposits in non-deferred (secured) accounts to a rate which matched the rate of growth of deferred (unsecured) reserves. The thought occurs to me that if their sales pitch last year had been "We can offer 3% on a one-year ISA, provided that you deposit an equivalent of 5% of your ISA deposit in our reserves (on which we'll pay you 4% interest but it's unsecured)". In other words, for every £10,000 we put into their ISA, we had to put £500 into their deferred account (not just a flat-rate £5). I think there'd still have been a substantial take-up and there would not have been a breach of the regulator's rules.

Or they could have controlled the rate at which they lent out the money in order to maintain the reserves. It would be unthinkable for a bank to require customers to buy a certain amount in shares for each £10,000 held with the bank. What they do is build the cost of holding some of the money in reserve into the rate offered. If the rate had been 2.85% instead of 3% I'm sure they would have had a huge uptake too.

I'd certainly agree with the call for patience. For those upset by the lack of communication, I suspect the reason for this is that there's a lawyer in there somewhere advising "SAY NOTHING!".

Perhaps, although they have a regulatory requirement to inform customers, so if they don't they may face a stiff fine, which will have to be paid out of the capital they are currently trying to raise.

pafpcg

Steve_xx, I think we're in agreement.

Assuming that the problem that DotComUnity faces is as straightforward as they imply in their letter to members last week, then the solution for those keen to be able to withdraw funds from April onwards is simple - generate enough funds in the reserves to meet the regulator's requirements and DotComUnity can go back to normal business. Perhaps if DotComUnity could come up with something innovative or at least something which doesn't require such a large commitment from individuals as the bond offered in last week's brochure, it should be easy enough to clear what seems to me from the figures given in the letter to be a relatively low hurdle.

It is after all a credit union, where we expect to share the risks & burdens as well as the benefits.

Archi_Bald

pafpcg wrote: »

The thought occurs to me that if their sales pitch last year had been "We can offer 3% on a one-year ISA, provided that you deposit an equivalent of 5% of your ISA deposit in our reserves (on which we'll pay you 4% interest but it's unsecured)". In other words, for every £10,000 we put into their ISA, we had to put £500 into their deferred account (not just a flat-rate £5). I think there'd still have been a substantial take-up and there would not have been a breach of the regulator's rules.

No way would I have agreed to a construct like this, especially as DCU does not have a brilliant financial record, and credit unions are going out of business like flies. The only reason I took out their ISA was the FSCS protection. Without it, no interest rate could have been attractive enough.

Given what we have learnt about DCU since last March, there is most definitely no chance whatsoever that I would now deposit any further money with them, protected or not, and I want my ISA transferred immediately upon maturity.

I also doubt very much that the FCA/PRA would allow any financial institution to make unsecured investments a pre-requisite to secured ones.

pafpcg

masonic wrote: »

It would be unthinkable for a bank to require customers to buy a certain amount in shares for each £10,000 held with the bank.

I agree, except it's not a bank with customers (and shareholders) but a credit union with members!

Archi_Bald

pafpcg wrote: »

Steve_xx, I think we're in agreement.

Assuming that the problem that DotComUnity faces is as straightforward as they imply in their letter to members last week, then the solution for those keen to be able to withdraw funds from April onwards is simple - generate enough funds in the reserves to meet the regulator's requirements and DotComUnity can go back to normal business. Perhaps if DotComUnity could come up with something innovative or at least something which doesn't require such a large commitment from individuals as the bond offered in last week's brochure, it should be easy enough to clear what seems to me from the figures given in the letter to be a relatively low hurdle.

It is after all a credit union, where we expect to share the risks & burdens as well as the benefits.

If you are here as an agent of DCU to suss out whether people would be agreeable to some "innovative" construct, you are doing a good job.

As far as I am concerned, the answer is: no way Jose.

I thoroughly resent any kind of moral pressure that anybody wants to put on me, and I absolutely do not "expect to share the risks & burdens as well as the benefits" just because they cleverly have set themselves up as a credit union.

They have lost any and all credibility with me, and I am not willing to give them a chance to prove that it was all due to unfortunate circumstances.

colsten

Archi_Bald wrote: »

As far as I am concerned, the answer is: no way Jose.

Never in a month of Sundays from me, too..

darren72

Archi_Bald wrote: »

They have lost any and all credibility with me, and I am not willing to give them a chance to prove that it was all due to unfortunate circumstances.

Especially when they got themselves into the same situation only a few years ago - They obviously haven't learnt from their mistakes.