The Credit Union Loan Beyond the Common Bond
A credit union with assets of €25m has a common bond covering a single large employer and its families. A long-standing member, Padraig, has an existing €30,000 loan and now requests a further €25,000 to consolidate a credit card and a moneylender loan at 187% APR. The credit union's lending policy caps unsecured loans at €40,000 and requires loans above €20,000 to be approved by the credit committee. Padraig's income is €38,000 and he has a poor repayment record on the existing loan, with three missed payments in the last year. The credit committee is short of a quorum and the manager wants to approve the loan himself 'as an exception' before month-end targets.
1. Assess the credit, governance and member-protection issues in this loan request and recommend how it should be handled.
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Credit issues. The request would take Padraig to €55,000 unsecured - above the €40,000 policy cap. His income is €38,000, so the exposure is roughly 1.4 times income, and he has three missed payments in a year. Affordability is doubtful. Consolidating a 187% moneylender loan is superficially attractive, but rolling unaffordable debt into a larger credit union loan may simply extend the problem unless his underlying budget is addressed.
Governance. The loan exceeds the €20,000 threshold, so the credit committee must approve it. The committee lacks a quorum; the manager cannot approve it alone 'as an exception'. Doing so breaches the lending policy and the credit union's governance rules, and the manager's month-end target is an irrelevant and improper motive. The board should be informed of any attempt to bypass policy.
Member protection. The credit union should assess affordability properly, consider a smaller restructured loan, and signpost budgeting support. It must not lend beyond policy to hit targets.
Recommendation. Decline the €25,000 as requested; reconvene the committee with a quorum; offer a restructured, affordable facility within policy and refer Padraig to money advice. Record the decision and the manager's conduct.
2. Padraig argues that because he has been a member for 20 years, the credit union 'owes' him the loan. How should the credit union respond, and what principles apply?
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Length of membership does not create an entitlement to credit. The credit union's duties are to all members and to the safety of members' savings; lending must be prudent and within policy regardless of loyalty.
Principles:
- Prudence and the common bond. The credit union exists to serve members, but it must remain financially sound. A large unsecured loan to a member with a poor record threatens the common fund.
- Fair and consistent treatment. Exceptions based on sentiment undermine the lending policy and are unfair to other members.
- Responsible lending. The credit union must lend only what the member can afford to repay; over-lending to a struggling member is not a favour.
Response: acknowledge Padraig's loyalty, explain the policy and affordability reasons clearly, offer alternatives (a smaller consolidation loan, a repayment plan on the existing loan, referral to free money advice), and document the conversation. The credit union should also review why the existing loan fell into arrears and support him to get back on track.