Attachment of Shares

What do we mean by attached shares?

Attached shares are shares which cannot be withdrawn because the credit union member has an outstanding loan in excess of his/her shareholding.

Are attached shares the same as secured loans?

No. The fact that shares are attached does not convert an unsecured loan into a secured loan. A loan may only be secured on shares if: the member has applied for the loan to be secured, with the loan clearly defined as secured in the loan agreement; the member has shares equal to or greater than the loan; and the member is not allowed to withdraw those shares in any circumstances for the duration of the loan repayment.

Disclosure to members

All credit unions attaching shares should clearly set out, in each new loan agreement, the extent to which shares will be attached. Credit unions are able to set out how this will be done in several ways, including specifying the monetary value or the proportion of shares to be attached, or by treating different shares accounts held by the member in different ways. The term in a loan agreement identifying which shares are unattached (withdrawable) and which are attached (non-withdrawable) for the duration of the loan may be varied in line with contract law.

As there can be so many versions of the term of agreement it would be difficult to give a specific form of wording to cover every case but credit unions should make clear that they will secure ‘any amount equivalent to the loan or amount outstanding on the loan; whichever is the greater; and any such interest or expenses which may become due…’.

Another way of disclosing this is set out below:

It would also be good to seek legal advice on the wording of any agreement terms.

You should also introduce to your application process a clear, prominent and distinct message (written or verbal) about which shares will be attached.

What should the loan agreement include?

• all loan agreements must include a term identifying which of the member’s shares can be withdrawn and the amount that is attached;
• the loan agreement may break down the attached shares in different ways, including stating which accounts the funds are held in, or stating whether they are below a specific amount or proportion of the member’s shareholding or outstanding balance; and
• the agreement should make clear the shares already held by the credit union and state the date of the agreement and the treatment of shares received after that date.

What should credit unions do to make sure a robust policy is in place for dealing with attached shares?

• Credit unions will need to devise policies covering the terms appearing in loan agreements for unsecured loans, and the procedures that should be followed when considering whether to vary an agreement; and
• they will need systems capable of identifying at all times whether individual shares are either withdrawable or non-withdrawable, as this will feed into a number of other areas including the calculation of arrears provision requirements and the assessment of large exposures.