Credit unions bid to block Central Bank’s debt plan

CREDIT unions are frustrating an attempt by the Central Bank to launch a new initiative to get banks and other lenders to deal with all the debts of a household, and not just mortgage borrowings.

The scheme could see heavily indebted households getting a write-down of some of their debts.

Credit unions and other lenders of so-called unsecured debts would be big losers, as the scheme would prioritise the paying of the mortgage.

All the main banks have signed up for the new plan, to be called a multi-debt restructuring scheme.

But opposition among credit unions is so strong that the Irish League of Credit Unions, a representative body for the majority of the local lenders, refused to turn up to a meeting in the Central Bank last Thursday attended by the chief executives of the main banks, the Irish Independent has learned.

The Central Bank has been trying to get agreement on the new scheme since it completed a pilot project involving 750 over-stretched borrowers who have multiple debts.

The pilot project was launched last May.

British debt charity StepChange has been brought in to co-ordinate the debt restructuring deals as part of the pilot plan, and has been signed up to operate a full, nationwide scheme.

The idea is that StepChange would propose a restructuring of all the debts of a household to banks, credit card providers and credit unions who are owed money.


But priority would be given to paying the mortgage to ensure people are kept in their homes.

Depending on how much the income of the household has fallen, some of the mortgage payments could be lowered by putting in place the likes of a split mortgage.

What income is left over from living expenses and mortgage payments would be used to pay off unsecured debts such as credit union borrowings and personal loans.

But credit unions fear that they will end up losing out heavily, claiming they would typically only get 10pc of their loans repaid.

And if the borrower was still in difficulty after two years, under some scenarios worked through in the pilot project, the credit union loans end up being wiped out.

The new multi-debt scheme has been championed by the Central Bank’s director of credit institutions and insurance supervision Fiona Muldoon – who is due to step down from her position from the end of this month.

One banking source close to the talks said the League of Credit Unions was fiercely resisting attempts to be pulled into the scheme, fearing loans would be wiped out.

“Every time it seems as if there is agreement on the scheme, the credit unions pull back,” the banking source said.

“There is now a good deal of frustration there among the banks and the Central Bank.”

He added that the credit unions were now demanding to be treated as preferential creditors, where they would not lose so heavily when an over-stretched homeowner was getting a debt work-out deal drawn up.

A Central Bank source insisted that some credit unions were on board.