A credit union is, in principle, a voluntary organization run for the benefit of its members rather than for profit. Credit unions initially developed in Ireland as agricultural-based land banks. Land banks fated away in the 1930s. The first modern credit union commenced operations in the late 1950s. At that time, credit unions were governed as industrial and provident societies.
Following a government-appointed committee’s support and co-operation, the Credit Union Act 1966 was enacted, providing the modern basis for credit unions. The legislation was amended and updated in the Credit Union Act 1997.
By 1999, there were approximately 400 credit unions with approximately £2 billion invested. By 2010, there were approximately 2.9 million members, 500 credit unions, and assets of approximately €11.9 billion. The strength and size of the credit union movement in Northern Ireland is relatively unusual relative to the rest of the UK.
As of 2012, it appeared some credit unions may have solvency issues. The Minister of Finance appointed a commission of credit unions in June 2011, which reported in 2012. Substantial changes were made in 2012 legislation which is the subject of other articles.
Credit unions are mutual organizations comprising members operating on a non-profit basis. An applicant for credit union registration must apply for registration to the Central Bank. The rules must be signed by at least 15 members. The Central Bank must be satisfied that the rules comply with the credit union legislation.
Legislation requires that the credit union has a number of objectives, including
- the promotion of thrift among its members,
- creation of credit for the benefit of its members,
- use and control of members’ savings for mutual benefit,
- members’ training and education in the use of money.
There must be a common bond between members. The bond may be linked to a particular locality or occupation. Most Irish credit unions are based on a common bond of localities. The credit union must operate under the approved registrar. Credit unions must participate in a savings protection scheme and have insurance against loss and liability suffered as a result of fraud or dishonesty of its officers and volunteers.
A person may qualify to be a credit union member by fulfilling the requisite common bond and having a share in the credit union. Members can be any age, although members below 16 years may not participate in management. Companies and associations may be members of credit unions provided that a majority of their members will be eligible for membership of the credit union.
Members of credit unions may nominate persons as successors to their accounts. In this case, they may succeed without production of a grant of probate. In the absence of a nomination, persons entitled at law under the will or intestacy apply are entitled.
Formation and Organisation
A credit union is a body corporate with its own legal identity. Credit unions have powers to raise funds through a number of mechanisms. They may raise funds by issuing shares to members. Shares may be withdrawable or non-withdrawable.
A credit union is formed by application to the registrar. A minimum of 15 persons make the application and the rules. The Credit Union Act does not provide model rules. The ILCU publishes model rules, which are almost invariably used by its members.The Credit Union Act does not provide model rules. The ILCU publishes model rules, which are almost invariably used by its members.
The Irish League of Credit Unions provides substantial support, expertise, and advice to the credit union movement. The vast majority of credit unions are formed under the League’s standard form rules.
The rules cover the name, registered office, membership criteria and common bond, entrance fees, minimum shareholdings, members of directors, particulars of Supervisory Committees, and a wide range of other matters.
A member’s liability is limited to their shareholdings and outstanding loans owed by them.
Becoming a Member
Applicants for membership must comply with the terms of the rule, including eligibility under the common bond. They complete an application form and purchase a share for a relatively nominal amount. Applications are approved by the directors or a membership committee if there is one.
Minors may be members under certain conditions with restrictions. Loans and deposits for minors may be granted subject to an indemnity being given. Other entities may become members if the majority of their members are themselves eligible.
Individuals refused membership are entitled to appeal to the District Court. The District Court may uphold or overturn the refusal of membership and direct that the person be a member.
Individuals who no longer satisfy the common bond requirements may remain as non-qualifying members. Loans to such members are restricted to 10 percent of the total loans, subject to potentially higher percentages being approved.
Common bond requirements may stem from various bases. They could be members of a specific occupation, reside or be employed in a certain locality, be employed by a particular employer, or be a retired member of that workforce. There may also be a common bond related to membership in a bona fide organization. The mere fact of association itself cannot solely establish a common bond. Other types of common bonds may also be approved.
Family members are generally considered within the terms of the common bond, unless the rules state otherwise. The ICLU model rules are generous in allowing extensive degrees of relations to qualify. Once registered, members are bound by the terms of the rules.
The words “credit union” or the Irish equivalent must appear in the name, and there must be a seal. The name must appear on all stationery, advertisements, notices, official documents, checks, invoices, etc., issued by the credit union.
The registered name must be used. There is a procedure for a change of name. The rules must specify the union’s objects or purposes, primarily to promote and facilitate savings by members and create credit for mutual benefit at fair and reasonable interest rates. Wider community purposes relevant to the common bond may also be specified.
The rules must specify the maximum interest a member may hold in shares. Shares and amounts held on deposit may not exceed £50,000 or 1 percent of the total assets of the credit union, subject to a maximum deposit of £20,000 by a member.
The rules constitute a contract between the members. Members may not be bound by rules or amendments that require them to subscribe more shares or pay more money than their unpaid share balance without their consent. Members are entitled to request a copy of the rules and any changes from time to time.
The Credit Union Act requires that the rules must provide for
- the manner of holding meetings,
- methods of notice,
- necessary quorum, and
- the description of business.
Amendments to the rules require a resolution of two-thirds of the members present at an annual general meeting or a special general meeting called for that purpose.
The initial organizational meeting must be called on formation. Notice must be given to all signatories within one month of registration. Between seven and 21 days’ notice of the meeting must be given. At the organizational meeting, a Board of Members comprising between seven and fifteen members is to be elected. They are also to form a Supervisory Committee comprising between three and five members. The functions of these bodies are laid down in the legislation.
Elections are by secret ballot. A statutory Annual General Meeting is required for every credit union. Members must be notified in writing, personally or by post at their address in the register, between seven and 21 days beforehand. Provided that over two-thirds of members are entitled to vote, and the auditor agrees in writing a meeting may be convened with less than seven days’ notice.
If the registrar accepts that it is necessary due to exceptional circumstances, notice may be given by publication in a newspaper. Proceedings are not invalidated by an accidental omission to give notice to a member.
The notice is to specify the time, date, and place of the meeting, with an agenda to be set out. Where special resolutions are to be passed, they are to be set out in full.
The general meeting must be held within the state generally during the October to January period. The quorum required is 10 percent or 30 members, whichever is less. Adjournments of the meeting to deal with unfinished business may be made, with adjournments lasting upwards of 30 days. The Secretary must keep the minutes of the general meeting.
Voting is based on one member per vote, irrespective of the number of shares, under the standard Irish League of Credit Union rule. Voting at general meetings is by secret ballot, with the voting method prescribed by the rule. Section 82 of the 1997 Act gives this statutory effect. In the event of a tie in voting, the chairman has a casting vote. Proxy voting is permissible only for corporate bodies.
The business of an ordinary general meeting is provided for by the rules, usually including the
- receipt and review of the Boards of Directors, committees, and auditor,
- the election of an auditor,
- vacancies on the board,
- and other business.
There is a requirement for directors and the Supervisory Committee to be elected. Members vote on candidates at the annual general meeting, following nomination procedures. A candidate must be proposed and seconded and be a natural person over the age of 18 years.
Members may be expelled by a two-thirds majority vote based on good and sufficient grounds. At least 21 days’ notice must be given for the proposal. The member proposed for expulsion must be given the opportunity to make representations. There is a right to appeal to the District Court against expulsion.
A credit union, by a majority member resolution, may remove a member of the Supervisory Committee, following similar provisions for fair procedures. Generally, at least 21 days’ notice is required, and the person affected may make representations, which must be read out to the relevant meeting. Circumstances may require a greater degree of fair procedure.
A special general meeting may be convened by the directors or the Supervisory Committee. ILCU Credit unions provide rules by which the ILCU may be involved in calling meetings in exceptional circumstances.
At the request of a group of members numbering not less than 50 or 10 percent of members, the Board is to convene a special general meeting. If within one month, the meeting has not been requested, any 10 members on behalf of the group may requisition a meeting. The registrar may direct in the interest of members or creditors that no Special General Meeting be held for a period of up to nine months.
Special resolutions require a majority of at least three quarters of the members present at the meeting and confirmed at a subsequent general meeting by at least half. The proposal must be specified before the first meeting. The resolution must be registered with the registrar within 21 days. Failure to do so is an offense.
Special resolutions are required for certain purposes, including transfer of engagements and amalgamations.