Opinion:After a long period of recriminations, credit unions now appear to be donning a more responsible financial mantle, writes  Bill Murdoch

The annual survey by BusinessPro Credit Bureau shows that credit unions are now obtaining more judgment against their customers than at any time in their history.

In 2006 they notched up 2,321 judgments, the highest of any credit group, higher even than the 2,075 obtained by the Bank of Ireland and, crucially, well ahead of the 2,231 recorded for 2005.

Most of the judgments (2,056) are unregistered, with just 265 being registered. What is surprising is the size of the average judgment, which amounted to €11,767.

Viewing the individual judgments is revealing. Take Monaghan Credit Union, which has had so much controversy surrounding it, for example. According to the survey it recorded 316 judgments last year.

The highest was for €36,700 but many were in the €20,000 range, which throws a different light on the sizes of some credit union loans.

Even the Garda Credit Union, with all its law enforcement members, has not been immune to non-payments of debts. Some 25 members had judgments obtained against them, but here the amount outstanding was much lower than for the Monaghan Credit Union.

The number of judgments varies considerably between the different credit unions.

The Cork Credit Union, for example, had only two judgments issued against its customers. And a number of credit unions had no judgments against their customers.

It could be argued that the large global number of judgments reflects a general malaise among credit unions. But more importantly, it indicates that they are starting to tighten up on their delinquent loans.

Obviously bad debts are a substantial drain on a business. UnionCheck, a part of BusinessPro, reckons that with an interest rate of 7.5 per cent, a 4 per cent cost of capital and a

1 per cent cost of administration, a credit union needs to underwrite a loan of €400,000 to compensate for a bad debt of €10,000.

UnionCheck also reckons that credit unions have been writing off some €20 million in bad debts per annum, And if credit unions average a 3 per cent yield on their portfolios, a monstrous €667 million of loans are underwritten just to cover the bad debts, which represents what must be an unsustainable 10 per cent of all credit unions loans.

Credit unions do not use the Irish Credit Bureau, used by the banking system, to check out the financial record of customers. Instead, many of the major credit unions are now checking the financial credentials of potential customers through a system with BusinessPro.

In this way they can find out about wayward borrowers without any influence from the competing banking system. Indeed, credit unions who are prepared to share information are best qualified to deal with problems.

The credit unions regulator has been highly critical of credit unions' debts and arrears, and earlier this year said "many of these problems have arisen from a predictable pattern of a failure of governance, which permits inappropriate business lending to be conducted by individual officers without adequate supervision by the boards of these credit unions.

"It is not acceptable that members' savings should be lost by the operation of inappropriate lending practices by certain officers or by the negligence of their boards in not supervising their activities adequately." Stern stuff indeed.

He also made the point that investments by credit unions now account for almost half of their operating assets and in some cases as high as 80 per cent, which poses certain fundamental policy questions for the credit union movement. Clearly any substantial change in the value of these investment would have a crucial impact on those most exposed.

Credit unions rightly started to move into other service areas in 2006 and this process is continuing this year. Following a review of their practices, credit unions will, from June 1st, be able to offer more long-term loans.

They will then be able to lend up to 40 per cent of their total loan portfolio for more than five years now, compared with 20 per cent; and 15 per cent, compared with 10 per cent, for more than 10 years.

This development will allow credit unions to enter an important and lucrative end of the market, such as house extensions.

However, some credit unions are already lending outside their lending limits. They should be brought to heel promptly as they are giving them a bad name. There should be plenty of checks in place to ensure that the right credit unions get approval, while those with questionable operations do not. Each credit union, for example, will have to receive specific approval from the registrar. Non-compliance with the new rules should result in withdrawal of the registrar's approval, together with financial sanctions against those who are not compliant.

Another development is the provision of mortgages. Some 25 credit unions have formed alliances with established building societies.

This, however, is just a halfway house as they, in effect, merely act as agents.

Pensions, mortgage protection insurance and the use of ATM machines are also developments.

However, the credit unions can only be as strong as their financial structures. There are plenty of strong credit unions - for example, those linked to their members' employment.

Others, however, while set up in well-meaning circumstances, can be inadequate when dealing with risk managements.

The judgment data for 2006 clearly shows inherent problems.

With almost 90 per cent of the judgments unregistered, 2,056 of the wayward customers have not had their names registered, for all to see, in Stubbs Gazette, and only 265, or a mere 11.4 per cent of the total, were accorded the full treatment.

Wouldn't it be much more transparent if they were all named, or at least the persistent offenders, in the gazette?

Significantly, the Revenue, the now very successful collector and which holds few prisoners, registered 44 per cent of their judgments last year.

Sources close to the credit unions admit that many of their judgments will never be paid. All the more reason to shame those customers - if that is possible - in their local communities. Indeed, wouldn't that alert others to be wary of them!