covid-19 response – procedural document for Loan flexibility for Borrowing members

– 17th March 2020

ContentsExecutive Summary...............................................................................................2Process for Handling Potential Arrears...................................................................3

1. Web Form....................................................................................................32. Triage Cases................................................................................................33. Call with Member to collect detailed information........................................44. Assessment of Flexible Repayment Options................................................4

Considerations for Credit Unions...........................................................................5Temporary Loan Flexibility Options....................................................................5Choosing the Options available to Members......................................................6Choosing the Best Option for Each Member.......................................................6

Appendix 1 – Restructure events per Guidance on the CCR..................................7Appendix 2 – Information Collected from Member...............................................10

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Executive Summary

Because of the crisis measures taken nationally in response to the Covid-19 outbreak, an estimated 140,000 workers have been laid off in Ireland as businesses have been asked to shut1.

The situation is developing rapidly and our society is in unchartered territory. We do not know how long crisis measures will be in place and we cannot yet quantify the financial impact these measures will have on our Members, the economy and credit unions themselves.

This Procedural Document, together with the supports described herein, have been developed by CUDA to support credit unions because the harsh reality is that Members will be impacted by Covid-19, some severely, and it is incumbent upon credit unions to support those impacted to the best of our abilities.

This Procedural Document covers;

1. The process for dealing with accounts that may go into arrears due to Covid-19 impact

2. How and what the credit union communicates 3. What the credit union seeks by way of financial information4. The assessment completed by the credit union5. The resolution

We have, and continue to, engage with the CCR division of the CBI who are currently dealing with a significant number of enquiries from all financial institutions relating to the probability of increased arrears as a result of COVID-19. CCR Division have indicated that they will publish a communique to all financial institutions including credit unions. CBI have no plan to make any changes to their CCR IT platforms to reflect this possible spike in arrears cases.

Following these discussions with CCR Division, CUDA would ask that you please continue to follow the regular “Restructure” process as set out in Section 4.6.3 of Guidance on the Central Credit Register for Credit Information Providers [see Appendix 1 below]. The full guidance document is accessible via your credit union CCR logon on the “private lender pages”.

To assist in determining your approach to forbearance for the genuine cases that present themselves to you, it is important to consider the credit union’s reserve position and the longer-term impact that this crisis might have. While the credit union will clearly be on the side of their members, and while it’s encouraging to see Government support by way of

1 https://www.rte.ie/news/coronavirus/2020/0316/1123480-coronavirus-ireland/

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Please be understanding that the Covid-19 response is a rapidly evolving event. This document will be kept under review and updated as

appropriate

welfare changes, it will be important to consider the credit union’s exposure to the sectors likely to be most impacted and try determine the extent of assistance that can be provided over a period of months for members without putting the credit union in jeopardy.

Process for Handling Potential ArrearsBecause of the large number of people impacted directly by the Covid-19 containment measures, many members whose loans are currently performing will come under imminent financial pressure. For the purposes of this document, these are the possible arrears cases discussed. For existing arrears, the standard credit control procedures should apply.

Given the nature of the containment measures in place, this process has been designed to operate remotely so as to eliminate unnecessary social interactions.

The process for handling arrears cases arising as a result of the Covid-19 outbreak is;

1. Web Form Each CUDA Member Credit Union will be provided with a Loan Flexibility Request

Webform with the URL www.cucovid19.ie/XX where XX is the name of the credit union. This URL can be linked with websites or social media accounts or members can be referred to the form over the phone. CUDA can assist credit unions in creating links from websites where necessary.

The purpose of this web form is to standardise the requests being received for loan flexibility by members who have been impacted directly by the Covid-19 containment measures.

The web form will collect the Members personal information together with basic information about how imminent their arrears case will be. This is so the Credit Union can prioritise cases that will be impacted in the short-term.

CUDA will be in touch with each Credit Union to ensure that submissions made through the web form are routed to the most appropriate email address.

2. Triage Cases From the web form, a member will inform the credit union whether their ability to

make a loan repayment will be impacted in the immediate future (before 31st March 2020) and how the member expects to be impacted, for example, loss of employment, reduction in income or an increase in costs like childcare.

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1. Member submits webform requesting call

back

2. Credit Union triages cases and prioritises call

backs

3. Credit Union calls Member to collect more

detailed information

4. Credit Union assess each application, offering

flexible arrangement where necessary

Where there is a very high volume of requests, the credit union should use this information to triage the highest priority cases, i.e. those facing imminent arrears and/or those facing the biggest impact like loss of employment.

3. Call with Member to collect detailed information The Credit Union should endeavour to have a standardised approach to obtaining

information from Members. An example of the information that could be collected is contained in Appendix 2 of this document.

Depending on the volumes of requests, the credit union may need to divert additional resources to conduct telephone calls with Members to collect financial information. This information should then be transferred to a credit control officer for assessment. A copy of the statement completed should also be made available for the Member, by secure document sharing where available. If there is a guarantor on the loan, they should be notified of any restructuring.

The credit union officer should be aware that there will be a lot of uncertainty around the information they are seeking to collect, events are evolving rapidly, and no firm timelines are available as to when the containment measures will end.

Where possible, the credit union officer should seek supporting documentation from the Member, this may be information like a letter from the employer confirming that employment has been suspended. The credit union should seek submission of supporting documents via a secure portal.

At the beginning of each call, a disclosure statement should be read to the member explaining that data will be collected and processed for the purposes of considering temporary flexible loan repayment options and the member should be asked if they consent to this. The member should also be informed where the call is being recorded.

Please note that it is essential that each member contact should be noted somewhere (ideally Hive or XLS). Not all members will have the documentation now or perhaps the recollection later, so you will need evidence that the conversation took place.

4. Assessment of Flexible Repayment Options The Credit Union should engage with its IT supplier to understand the flexible

repayment options the IT banking system can provide, and please ensure these have been tested by you. Please keep CUDA informed of these options available to you and we will factor into future documentation, or seek to assist you find more solutions.

The credit union should set a target response time for considering temporary alternative repayment arrangements. High priority cases that could enter arrears imminently should be prioritised.

The credit control officer will examine each case on its individual merits. The assessment will be based on the full circumstances of the member including:

a) The personal circumstances of the member; b) The overall indebtedness of the member; c) The information provided in the phone call;

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d) The member’s current repayment capacity, ande) The member’s previous repayment history

Temporary arrangements are by their nature suitable as short-term measures only. If Covid-19 containment measures are extended, or if the Member is impacted beyond the time measures are in place, the credit union may need to work with the Member to find a more appropriate long-term solution.

Considerations for Credit UnionsTemporary Loan Flexibility OptionsBelow is a table summarising the main temporary loan flexibility options. Please note, that in a scenario where the Covid-19 containment measures extend for longer than expected, these may need to be combined with longer-term solutions like term extensions.

Solution Description Positive Negative

Interest Only You pay only the interest portion of your loan repayment for a period of time.

Because you are not paying anything towards your capital balance (the amount you borrowed), your repayments will be lower.

Repayments are lower for a short period of time to allow you the chance to return to full repayments

Because you have not been making payments against capital for the duration of the arrangement, when you return to making full payments;

- Regular repayments may increase to make up for the lower payments made under this arrangement.

- Your total cost of credit can increase because the capital balance was not reducing as quickly as expected.

Reduced Repayments

For a limited period of time, the amount of your regular repayments will be reduced to a lower amount.

Repayments are lower for a short period of time to allow you the chance to return to full repayments or enter a long-term solution.

Because you have not been making full repayments for the duration of the arrangement, when you return to making full payments;

- Regular repayments will increase to make up for the lower payments made under this arrangement.

- Your total cost of credit can increase because the capital balance was not reducing as quickly as expected.

Temporary Repayment Break (Moratorium)

For a limited period of time, your regular repayments will be suspended. This means you will not

Repayments are suspended for a short period of time to allow you the chance to

Because you have not been making repayments for the duration of the arrangement, when you return to making full payments;

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be making any repayment.

return to full repayments or enter a long-term solution.

- Regular repayments will increase to make up for no payments being made under this arrangement.

- Total cost of credit will increase because the capital balance was not reducing as quickly as expected.

Choosing the Options available to MembersCUDA would recommend the following Guiding Principles;

The Credit Union should begin an analysis at the earliest opportunity of the potential exposure within their loan book. The concentration of lending to higher risk borrowers, such as those working in the hospitality industry should be assessed.

The Credit Union should be mindful of its own cash-flow and reserve position and ensure options are not selected that would jeopardise the credit unions sustainability should containment measures be extended to impact more employment or go on beyond March.

The Credit Union should confirm the options available with their IT supplier. CUDA Owner member credit unions should consider contacting the Compliance

Helpdesk to discuss \ explore options from a legal and compliance perspective.

Choosing the Best Option for Each MemberIn choosing the most appropriate option for each Member, the Credit Union should consider;

Temporary solutions are intended as short-term interventions and may increase overall cost of credit for the Member. If the impact of Covid-19 extends beyond the short term, longer term solutions like term extensions may become appropriate.

Using savings to meet loan repayments may be the most appropriate option for a Member who experiences only short-term cash flow problems as this will mean they can avoid any increase in the cost of credit on their loan. If there is any uncertainty around when they will get back to normal however, other options should be considered.

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Appendix 1 – Restructure events per Guidance on the CCR

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Appendix 2 – Information Collected from Member

The information collected by the credit union officer should include;

Employment:

Employment sector Employer name PAYE or self-employed Full or part time Permanent or contract

Loan Type:

Unsecured personal loan Personal loan secured by, or partially secured by shares Credit Union House Loan SME Loan

Loan Duration as per Credit Agreement

Income:

Household income Expected impact of Covid-19 containment measures – has employment been lost in

full or reduced? If income has been lost or reduced, has employer specified a return date or is it to

run until further notice?

Outgoings:

Does member rent? Does member have a mortgage? If so, who is the lender? Does member have mortgage payment protection insurance? Does member have any additional borrowings or credit cards? Are there any additional costs like child care during school closures?

Other:

Is there a guarantor on the loan? If personal loan, did the borrower have PPI? Are there attached savings? Are there unattached savings available to cover repayments?

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