SundayTimes - MoneyComment January 22, 2012

Posted by Jill Kerby on January 22 2012 @ 09:00

Billion euro mess-up in the credit unions

Where is that €1 billion of taxpayer’s money when you need it, credit union officials all over the country must be asking this week after the Central Bank sent a ’special manager’ in to run the Newbridge Credit Union and is expected to do the same to at least 20 others.

The Minister for Finance has set aside €250 million to pump into struggling CUs this year and next, but the total bill is expected to be about €1 billion, he said last October, as bad CU debts balloon to at least amount.

Since all the previous estimates of bad debts in the industry have been incorrect, it’s hard to imagine that the final bailout bill for the credit unions will match this prediction. Bad debts, especially those linked to property loans are a moveable feast in this falling market, as anyone in Nama can attest. 

Many credit unions are in trouble not just because members have lost their jobs; too many of the unions permitted members to borrow towards the purchase of property that is now worth a fraction of the original cost. They also allowed, for too long, old loans to keep rolling over rather than seek the repayment of the capital and the part-time and amateur financiers on the boards of some unions made poor investment decisions with their surpluses. To their horror this money then disappeared as the leveraged property deals in which they were invested collapsed in the post-2008 crash.

Poor lending practices and inappropriate investments – the same events that brought down our once-prudent high street banks – has caused this credit union crisis.  Yet I couldn’t help but laugh last week when I heard anonymous credit union ex-officials on the radio, insisting that their troubles began and ended when the Central Bank came poking their nose into their business, weighing them down with layers of new lending rules and regulation.

The Central Bank has a lot to answer for, including facilitating the political decision to bailout our bankrupt banks, but tightening up the prudential and compliance rules under which all financial institutions must trade, isn’t one of them.

Meanwhile, it’s worth remembering that credit union deposits up to €100,000 come under the state government deposit guarantee scheme, but as with the banks, you don’t want to leave your money with a credit union that is insolvent, even if the taxpayer gets stiffed picking up the tab to cover your deposit.

Read the annual report. Attend the AGM. Find out for yourself if it is a safe place to leave your money.  Demand that your CU officials proactively correct the failings of the organisation, and if they don’t, withdraw your funds and vote with your feet.

Pensioner power

Tax compliant pensioners are justifiably annoyed about being included in the Revenue Commissioner’s recent and badly organised 115,000 strong mail shot to retirees whom they claimed owed more tax than their newly expanded records – care of the Department of Social Protection – suggested they were paying.

The fallout from this hastily organised data trawl between last November and 1 January has been well reported, but the angry and very public reaction by pensioners who knew they were fully compliant and were incorrectly targeted was heartening. 

Tens of thousands who got the letters complained to their public representatives, to local Revenue and Citizen’s Information offices, to Age Action, the Senior’s Parliament and to the media. This pressure eventually forced an apology for the cock-up from the senior Commissioner Josephine Fehilly when she appeared before an Oireachtas committee.

Would such an outcome have happened in the UK, where a 2010 report of the British parliament’s Public Accounts Committee suggested that pensioners are not very well treated by their tax authorities either?

That report has some sober warnings for us. The committee found that despite being considered the most tax compliant cohort in the UK (as they are here) 1.5 UK pensioners had overpaid £250 million in tax because of the discrepancies between HMRC’s records and the records of employers and pension providers. 

HMRC’s systems, it found, were incapable of easily dealing with the multiple sources of pensioners’ incomes. Sound familiar? 

The furore over the Revenue’s latest tax trawling exercise may have died down, but the mountain of data they received from the DSP will take a lot longer than two months to revisit properly this time.

The parliamentary committee made several recommendations in their report to improve the tax service to pensioners, including how to make it less daunting for an estimated 2.4 million people to collect £200 million of deposit interest refunds, but the National Audit Office subsequently predicted that with 20 million tax codes still unmatched in the UK, the system changes would take many years.

Pensioner tax discrepancies may or may not be as great here, but the UK experience sounds like an endorsement for hiring an independent tax advisor to deal with Revenue if there is any suggestion that you owe them money… or better still, if they owe you any.


Shining example

Counterfeiting is declining, report Central Bank, fell by 19.3% in 2011 compared to 2010.  Is this because the ECB is now so enthusiastically counterfeiting the currency itself – adding as it did €500 billion to the money supply in order to provide eurozone banks with a lending facility last De ember of last resort?

 The only other reason I can think that there would be such a huge drop in dodgy €20 and €50 notes (always the biggest sellers) being printed by the ODC’s –the ordinary decent criminals of the black financial economy, is that they’re also beginning to write off the euro as a credible, or even medium form of money.

 I mean, who would want to get stuck with a pile of dodgy euro if the balloon went up and we all reverted back to our old familiar punts, drachma, lira and peso? 

 Happily for gold and silver buyers, modern day counterfeiters, whether in the lofty halls of the ECB or in some damp garage, still haven’t worked out how to duplicate precious metals, which explains why both their value and sales keep rising.

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