Bringing back the credit unions

Dorraine Baines can't put money into her bank account. If the former Vancouverite wants to deposit a cheque, she sends it to her mom in Ladysmith, BC.

Dorraine Baines can’t put money into her bank account.

If the former Vancouverite wants to deposit a cheque, she sends it to her mom in Ladysmith, BC.

Baines’ mom then transfers the money from her own credit union account to her daughters’, who uses another credit union called Vancity.

“It’s a very long process,” said Baines.

The hassle stems, in part, from a 30-year-old gap in Yukon financial regulation.

We’re the only place in Canada where credit unions aren’t allowed to operate.

“Vancity can’t even open up an ATM here,” said Baines.

She and other credit-union boosters are taking their cause to the legislature after circulating a petition around Whitehorse in the last few weeks.

They’ve amassed dozens of signatures, and now the New Democratic Party has picked up the torch.

“We should be tabling a motion in the next few weeks,” said MLA Todd Hardy.

The NDP’s motion would ask the government to introduce new legislation permitting credit unions to operate here.

“We feel we need access to alternative banking,” said Baines, who moved to Whitehorse from Vancouver three years ago.

“The legislation is a big barrier for anyone who wishes to start a credit union here,” she said.

One in three Canadians uses a credit union, claim the petitioners.

They’re popular because, as a member, you get a say in how the money is saved and spent.

You can review the credit union’s lending practises to ensure loans are cheap enough for the poor. Or you can direct profits to be invested in the community.

“There’s no way a bank could have that personal relationship,” said Baines, who now works at Volunteer Yukon.

The law expressly prohibits credit unions in the Yukon after the only one in the territory’s history failed in 1980.

The Whitehorse Credit Union Limited, which opened its doors in 1957, was Hardy’s first bank.

“I was around 12-years-old and my parents were members,” he said.

The credit union was popular when it first started in the 1950s, gaining hundreds of members early on.

But when a tough economic recession hit Canada in the late 1970s, its finances began to strain.

It was a member of the BC Central Credit Union, the umbrella operation.

While Ottawa regulates banks, the provinces and territories regulate credit unions.

All provinces have a central credit union that offers wholesale services, like major loans and other financing tools, to regular credit unions. The central credit unions provide financial security to the little guys, which can number into the hundreds depending on the province.

Last year, BC Central merged with Ontario Central Credit Union, creating Canada’s largest central credit union, known as Central 1.

Baines’ credit union, Vancity, is a member of Central 1.

Back in the late 1970s, BC Central was doing everything it could to keep the Whitehorse Credit Union afloat.

But in 1980, it was forced to close its doors.

The 2,700 members’ accounts were transferred to the Royal Bank and the credit union’s loan portfolio was taken on by BC Central directly.

The Yukon government and the Canadian Co-operative Credit Society had to shoulder the debt.

That sparked an acrimonious debate about the financial security of credit unions, said Hardy.

The government of the day soon prescribed law that would prevent a similar mess.

“It was very aggressive and I’m not sure why they did that,” said Hardy. “I don’t think it was called for, but I think it was probably the easiest thing to do.”

It’s still too early to know what the government might do if it decides to follow the NDP’s request.

“It’s all theoretical at this point,” said Baines, who added that the petition organizers aren’t interested in setting up a credit union themselves.

But any legislation would have to tackle the rules surrounding four main issues: establishing a Yukon-based credit union, opening the territory to Outside credit union chains, installing credit union

ATMs, and branching up with an Outside central credit union.

The creation of a Yukon-based credit union without Outside help is unlikely, considering the amount of capital involved.

Nor would it be that useful for people like Baines, who want to continue using credit unions they’ve joined down south.

A Yukon-based credit union wouldn’t be able to provide regular service to a Vancity member.

“The opening of a Whitehorse credit union per se wouldn’t do it,” said Ian Smith, a spokesperson for Central 1.

Putting money in a Yukon-based credit union and getting it into Vancity’s coffers would be just as complicated as using a normal bank because they’re separate banking institutions.

“If you wanted these transactions to be seamless, you would need a Vancity branch,” said Smith.

But Vancity isn’t likely to open up a branch in the Yukon.

Vancity is governed by provincial law and wouldn’t be allowed to expand out of province, said Vancity spokesperson Jane Nunnikhoven.

“The laws to allow inter-provincial operation are still somewhat in their infancy,” said Smith.

“There aren’t any examples of credit unions operating outside their own provinces right now,” he said.

Besides, there isn’t much interest because there are so few people who keep their credit union membership and move out of province.

Both Nunnikhoven and Smith agreed the number of out-of-province members on average would be small.

“It’s only a handful,” said Nunnikhoven.

Another option would be for a Yukon-based credit union to join the credit union ATM network.

Known as the Exchange, it includes all BC credit unions.

“If a financial institution is a member of the Exchange, in other words, if it has contributed its ATMs to that network, its customers can make surcharge-free withdrawals and deposit money to their own financial institutions,” said Smith.

That way, a Vancity member in Whitehorse could deposit cash without any problems at a local credit union.

The Exchange also services several banks, including HSBC, Canadian Western Bank, National Bank and ICICI Bank.

So if one of those banks opened a branch here, a Vancity member could use them too.

Credit unions in Ontario, Atlantic Canada are also linked up to the Exchange.

“What that means for me is I could go to a credit union in Halifax and deposit money to Vancity through that,” said Smith.

It would be the easiest way for members of Outside credit unions to have normal service here.

“There are more ATMs than branches and it’s a fairly straightforward way of doing it,” said Smith.

The rest of a person’s banking can be done online, like account transfers and paying bills.

“It would make sense – if there were credit unions in the Yukon – for them to join this network, because it gives their members access to these kinds of services all across the country,” said Smith.

A Yukon-based credit union would then have to finance itself.

And while regular credit unions can’t branch out of province, the larger central credit unions can.

BC law doesn’t prohibit Central 1 from operating in Yukon, but the Yukon legislation would have to say it’s OK.

“What would be required is for the Yukon regulator to say that Central 1 is an appropriate place for the Yukon credit unions to deposit their reserves,” said Smith.

“We would have to amend our constitution and our bylaws to allow Yukon credit unions to join, but that’s an internal administrative matter,” he said.

That leaves the Yukon regulator to figure out the conditions on how the local reserves are kept.

Like provinces, it would determine how much money a credit union must keep and the suitable places for it to be stored.

Regulators decide whether the central credit union is safe enough for reserves, or whether a regular bank could be used instead.

During the merger of Ontario and BC’s central credit unions, regulators in both provinces had to approve Central 1, which is BC-based, as the new reserve.

Before that, the BC regulator only allowed its central credit union to be a reserve while Ontario allowed major banks to hold credit union cash.

“If the same question arose in the Yukon, I’m sure the Yukon government would be saying the same thing,” said Smith.

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