There’s a sea-change sweeping Britain’s 400 Credit Unions!
The UK Government has relaxed some of the rules governing them while simultaneously offering a multi-million pound shot in the arm. Both measures are designed to support Credit Unions in offering their borrowers a real alternative to the spectre of payday lenders.
The benefits of this decades-old, friendly and mutually owned business model remain as strong as ever and is being heralded as the perfect antidote to the modern day plague of super-high interest lenders, criticised for their ruthless pursuit of profit.
So what are Credit Unions, who are they for and what do they have to offer?
They are co-operatives owned by the same people who use them. Members are encouraged to save and are entitled to borrow money at a fair rate with profits distributed among members in the form of a dividend. And there are no shareholders to appease or fat-cat bankers to reward with over the top bonuses. Instead, volunteers are elected to sit on the board of directors. Critics of payday loans point to Credit Unions as the route to fair credit – not just because loans are cheaper, but because they foster a savings culture and offer support to those who need help managing their money. Customers won’t necessarily be shunned if they cannot afford a loan but the credit union might, for instance lend a smaller, more manageable sum.
About a million people in Great Britain use a Credit Union, but the Government suggests seven million potential members could be missing out. This led the Department for Work and Pensions to recently award £38 million for modernisation and growth to the Association of British Credit Unions Limited (ABCUL), which represents about 70% of the industry. This expansion project aims to draw an extra million members into the fold and save consumers up to £1 billion in loan interest repayments. So far 31 member Credit Unions have signed up to the scheme.
How have Credit Unions evolved?
Members typically have a common bond such as where they live or the type of job they do. For example, there are Credit Unions for the police and NHS staff. However, rules have been amended allowing Credit Unions to reach out to new groups and boost membership. The more robust Credit Unions can now pay a guaranteed rate of interest on savings (previously a dividend could only be paid retrospectively). Proposals to lift interest rate caps mean loans offered to members should become more profitable to a Credit Union. However, it would still be far more affordable to borrowers who might otherwise turn to payday lenders. Members are 100% protected under the government-backed Financial Services Compensation Scheme, which covers customer deposits up to £85,000 per person, per institution. Credit Unions are clearly upping their game and appear determined to bring their services up to date.
Mark Lyonette, ABCUL’s chief executive, says: “The £38 million investment gives us an opportunity to work with Credit Unions to transform the products they offer and the way consumers can access them using the latest online technology. Credit Unions can provide a real alternative to high-cost lenders on the one hand and large commercial banks on the other.”
What services can you get from a Credit Union now?
Credit Unions offer current accounts, savings accounts (including cash ISA’s and Christmas accounts), prepaid cards, loans and, in some cases mortgages. Current accounts are basic with no overdraft facility, but they are a decent option for people on low incomes or with poor credit histories or simply people that wish to support the Credit Union movement in principle. And don’t overlook the fact that some savings accounts rival (and sometimes beat) the high street! In the past customers would have needed to save for at least three months before being able to borrow (and this is still the case among some organisations). However many new members can now access loans straightaway, but may still need to save at least a token sum from day one. Better deals might also be reserved for those with a longer savings record of 12 months or more. Smaller sums can be borrowed and increasingly these mutuals are trying to appeal to customers who would otherwise fall into a payday lender’s trap.
Acumen Strategic Partners promote access to secure local saving services and fairer credit, and Credit Unions are a key way to achieve this.
To find and support Credit Union near you visit www.findyourcreditunion.co.uk
or call ABCUL on 0161 832 3694.
