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Clarification on Interest Rates, Loan Fees, and Leadership Process - PHCCU
Issue 1: Excessively High Interest Rates Burden Our Officers
The current 2% reducing balance interest rate imposed by PHCCU is financially crippling our union members.
PHCCU ANSWER TO THE PETITION QUESTION ONE
The industrial average rate of interest on loan per CUA standard is 3% per month translating to 19.5% per annum. However per the Board’s vision of financial freedom for our members, the rate is pegged at 2% per month giving an annual rate of 13% which makes PHCCU the second credit Union in Ghana charging the least rate of interest on loan, although the union only existed for only 15years.
Reducing Interest rate 2% per month is calculated initially on the Total Loan amount and subsequently on the remaining loan balance, this rate decreases as you pay off the principal amount. This means you pay interest only on the outstanding loan amount equating to a rate of 13% for the year.
The Police Hospital Co-operative Credit Union (PHCCU) offers a loan interest rate of 13% per annum, or 2% monthly on reducing balance basis, which is among the best in the financial market. At PHCCU, every member is a shareholder and enjoys equal rights, regardless of share capital. The reducing balance method means that a relatively high percentage of repayment amount goes into interest payment for the first month of the tenor period of the total loan and subsequently declines.
With the above examples given is misleading because 56.6% charge for the first month of loan repayment do not represent interest charge on the Loan per month or every month.
Issue 2: Lack of Transparency in High Loan Processing Fees
PHCCU ANSWERS TO PETITION QUESTION TWO
As part of our regulatory requirement, PHCCU, charges loan processing fees (LPF) of 0.75% of the Total Loan AMOUNT,and a loan protection plan (LPP) best known as loan insurance of 0.125% OF TOTAL LOAN AMOUNT MULTIPLY BY THE LOAN REPAYMENT PERIOD (TENOR). Every loan is insured against death and permanent disability, with the Credit Union Association (CUA) being the regulatory body of credit unions in Ghana. However, during the loan disbursement, both the loan processing fee (LPF) and the loan protection plan (LPP) charges are put together as one and debited against member savings just as stipulated in our loan policy. However, the Management Board of PHCCU may review this concern raised and may consider separating the charges with respect to their percentages or how it is being done. The board may also consider reviewing the percentage charges in the loan processing fee if it will favor both the survival of the union and member interest. Attached is a loan chart.
Below is the respective Charges on GHC 50,000.00 as given
| AMOUNT | DURATION | LPF(0.75%) | LPP(0.125%) | TOTAL(LPF+LPP) |
| 50,000 | 12 | 375 | 750 | 1,125 |
| 50,000 | 24 | 375 | 1,500 | 1,875 |
| 50,000 | 36 | 375 | 2,250 | 2,625 |
| 50,000 | 48 | 375 | 3,000 | 3,375 |
BELOW IS ILLUSTRATION OF LPP& LPF ON GHC 50,000.00 LOAN AMOUNT
LPF (0.75% of GHC 50,000) = GHC 375
LPP (GHC 50,000*0.125%) X 12 MONTHS = GHC 750
LPP (GHC 50,000*0.125%) X 24 MONTHS = GHC 1,500
LPP (GHC 50,000*0.125%) X 36 MONTHS = GHC 2,250
LPP (GHC50,000*0.125%) X 48 MONTHS =GHC 3,000
SUMMARY OF LPF AND LPP ON THE GHC 50,000.00 FOR RESPECTIVE YEARS
NOTE: THE INSURANCE COVERS FULL AMOUNT (PAYABLE) REGARDLESS OF THE OUTSTANDING BALANCE WHEN THE EVENTS OCCURS
Police Hospital Co-operative Credit Union
Police Hospital Co-operative Credit Union (PHCCU) has expanded its common bond, now welcoming all police officers in Ghana into its fold.