B.C. credit union urges customers to pay more
Vancity asking members to accept higher interest rates
Canada's largest credit union is under fire from a group of customers who say they are being pressured to pay higher interest rates on lines of credit than they originally agreed to.
Vancity has sent letters to 18,000 of its members, urging them to sign amendments to their credit line agreements. The new paperwork would allow the credit union to hike their rates unilaterally, which is not legally allowed under most of its existing contracts.
"Why are they asking us to do such a thing?" asked Vancity member Ross Paul. "It's not right. This isn't acceptable. We have an agreement."
By contrast, Canada's banks can raise credit line rates without permission — as most have in recent weeks — as long as the customer is given proper notice.
Old pricing 'no longer competitive': Vancity
The credit union wants the right to raise rates by one percentage point now, plus make future adjustments without having to ask for customers' consent. The letters tell members the "rapidly dropping prime rate," currently at 2.25 per cent, makes Vancity's existing fees — set as low as prime plus zero — "unsustainable."
"We found that the pricing of our lines of credit is no longer competitive with the market," said Vancity CEO Tamara Vrooman. "This particular product line is not profitable for us — so we feel it is reasonable given what else is happening in the market to go to our members [with the requested amendment]."
Paul pointed out that if the tables were turned and the prime rate moved higher, he would have to pay more, as outlined in the original credit line agreement.
"It seems like they want their cake and they want to eat it too," said Paul. "They are essentially ripping up our agreement."
The original letters asking customers to agree to the credit line amendment went out in June. Vancity indicated that about half of the affected members have now agreed to those amendments. Customers were urged to sign, to "keep access to your lines of credit and avoid any disruptions." If they didn't, Vancity warned, it "may take further action" on their accounts.
"That 'further action,' we have been told verbally, is that they are going to call in our loan," said Paul. "This is you sign it — or else."
Vrooman, however, insists Vancity will not call in the loans.
"We will not call their loan," she said. "I think that [warning] was really just to make it clear that we do have some obligations to make sure that we can continue to support this product at the current rate. It is an unsustainable product at the current rate financially and so we are just trying to really inform our members."
Still, many customers said they are uneasy about being asked to sign the proposed amendment.
"They have a lot of power," said Paul. "They have our money and they can do with whatever they want to do with us … And that can put us in jeopardy because I mean we would have to pay off a large amount of money in an instant and this is how they are threatening us."
Paul and his wife have been Vancity members for 19 years and have several accounts there. He said they would have to pay an extra $100 a month if they signed the amendments.
"Changing an amendment of a contract is not just 'sign this and let's go,'" said Paul. "For some people … you now it's maybe $200 or $300 a month and it is going to make a big difference to them."
200 complaint calls received
Bruce Cran, president of the Consumers Association of Canada, said his group has fielded about 200 calls from upset Vancity customers.
"I find this extraordinary — when the central bank rate in Canada is half a per cent," said Cran.
"It seems absolutely ludicrous that Vancity would be going for an extra per cent or whatever it might be and jeopardizing what customers think of them," he added.
Vrooman explained the credit union is losing money on the lines of credit, because the rates it pays out for deposits have not dropped by as many percentage points as have the rates it charges for lending.
"There is a financial reason why we are doing this so we obviously have an incentive to make sure as many members sign as possible," she added.
However, Vrooman stressed the credit union is not in financial trouble. Vancity's profits are up nearly 50 per cent over last year.
"We continue to show profits and we are able to give back to our community at a record rate of over $15 million last year alone," she said.
'I would not sign,' contract expert says
Sandra Robinson, a contract expert at UBC's Sauder School of Business, said the customers who refused to agree to the amendments may end up being better off.
"If it were me, I would not sign and see what happens," she said.
If the amendments are entirely optional, Robinson said, then the 9,000 members who already signed are now stuck with higher rates than those who have objected.
"Now you've got 9,000 people who are going to be really outraged," said Robinson. "Probably those 9,000 were the ones that were least upset — which is why they signed perhaps — and now they are going to be the people most upset."
"I will imagine anyone who came up with these decisions might have some regret right now wishing they have approached it differently," she added.
Vrooman acknowledged some customers are criticizing the move because Vancity has a reputation of being more community-oriented than banks.
"Vancity isn't like the banks," she insisted. "We are proud to be able to say that we are actually talking to our members about these changes. We are not unilaterally making this choice on behalf of our members. We are asking our members permission to make this change."
Ross Paul said he and his wife will not sign the amendment request — and have spoken to a major bank about taking their business.
"This is cold. This is not community-oriented. And its just not right," he said.