The Plight Of The Irish

You think credit unions have it tough in the United States? Try running a credit union in Ireland.

In Ireland,credit unions are not permitted to make business loans or mortgage loans.The loan-to-share ratio there averages about 40% with anemic investment opportunities and about 25% percent of the loan portfolio is delinquent. Mergers in Ireland can take two years to complete, and CUSOs are only permitted by special permission of the regulator, permission that can take years to obtain, if at all. The country’s credit union regulator has said that any credit union with less than 10% capital is in jeopardy of being the subject of a forced merger.

The Irish Credit Union system is under study now by a Restructuring Board that will make recommendations regarding changes to the system and merger criteria.Faced with the knowledge that the economy will not be improving in the foreseeable future and that there will be many forced mergers, the Irish credit union community is looking for options to re-structure the industry to save the independence of as many credit unions as possible.

The Centre for Collaborative Studies at the University College of Cork invited me and four credit union and CUSO executives (Mark Zook, Ray Crouse, Kirk Drake and Jeff Russell) to hold a day-long seminar in Cork, Ireland, on Sept. 8 on U.S. credit unions industry’s experience with CUSOs.The group also presented at the Credit Union Manager Association Meeting in Athlone, Ireland on Sept. 6.

We urged the reform of the laws to provide the legal framework for the creation of CUSOs without the need for lengthy regulator review and to speed up the merger process if a forced merger is necessary. Excessive delays will reduce and nullify the benefits of collaboration and mergers.

We told them that mergers did not address the fundamental problems.Without the ability to generate new sources of revenue and bring the benefits of scale from within and outside the credit union industry, the underlying credit union business model is not sustainable. Financial institutions all over the world can no longer rely upon operating on a net interest margin.The situation is aggravated in economies that are distressed. All mergers do is move capital among credit unions to cover losses and that solution will cease to work when the industry runs out of excess capital and viable merger candidates.Just making credit unions larger through mergers does not create lasting benefits.A bigger dog is still a dog.

We urged them to develop the means to earn alternative income sources. Many U.S. credit unions have been able to stay financially viable through non-interest income and increased lending opportunities generated through CUSOs. Examples of significant reductions in operating costs were discussed through scale created by CUSOs that also created better service levels.

We told them to rely on others to solve the problems for them. Credit unions initiate and drive successful collaborations, not regulators or trade associations. We urged them to start with small groups of trusted colleagues and begin with simple service offerings to build the confidence to expand into more complicated collaborations.

The attendees left excited about the potential of collaboration and the availability of actions they can use to favorably influence the future of their credit unions. If the government will give them the tools to collaborate, they have more than a fighting chance to weather this storm. The Irish has proven that they are very good at surviving difficult times. They are great people. We wish them well and will continue to provide assistance as needed through NACUSO and the US CUSO community.

Guy Messick is an attorney with the law firm of Messick & Lauer P.C. in Media, Pa., and NACUSO’s General Counsel. He provides legal and consultation services to credit unions and CUSOs. His firm maintains a website at www.cusolaw.com.He may be contacted at 610-891-9000 or gmessick@cusolaw.com.

May 30, 2014

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