New powers for credit unions in England, Scotland and Wales will, from today, enable them to significantly expand the services they offer, and to compete directly with high street banks and other savings providers.
Under the new powers, credit unions will be able to:
- extend membership to more than one group of people, no matter where they live or work
- pay interest on deposits, instead of a dividend
- offer their services to businesses and community organisations, as well as individuals.
The changes are designed to help individuals, businesses and other organisations access fair and affordable financial services in their communities. They will allow credit unions to provide a more effective alternative to high street banks on the one hand and high cost lenders and loan sharks on the other.
Common link restriction lifted
Until now, credit unions have been hampered by restrictions which meant all of their members had to have something in common – such as living in the same geographical area or working for the same employer.
Credit unions no longer need to prove that all the eligible members have something in common, which will mean that credit union services can be extended to new groups much more easily. For instance, a credit union providing services to anyone living or working in Pontefract will now be able to serve all the employees of a company too, even if they do not live or work in Pontefract.
Interest on savings, not dividends
Previously, credit unions could not pay interest on savings, only a retrospective dividend. Credit unions will now be able to begin to pay interest on savings, which will mean that people will be able to more easily compare the rates of return with other savings providers and it will help credit unions attract more savers.
Organisations can join a credit union
Under the old rules, only individuals were able to become members of credit unions. The new rules mean that organisations themselves can join a credit union (up to a maximum of 10% of the members) and use the financial services it provides. A community group, housing association or local employer, for example, may now be able to use a credit union to manage its money, with the added advantage that the money is kept in the community.
Credit unions can now compete with banks
Mark Lyonette, chief executive of the Association of British Credit Unions (Abcul), said: ‘These changes are a major breakthrough in the delivery of credit union services to communities around Britain. The new rules mean credit unions can now compete more effectively with banks and other lenders to provide fair and affordable financial services. Credit unions will be able to reach many more people, helping them to develop a savings habit, which can only be good for communities.’
Which? supports credit unions
Which? has long supported the credit union movement and welcomes the new legislation. Britain’s 450 credit unions let people in a local community, workplace or other organisation save and borrow money. Owned and controlled by their members, credit unions have no outside shareholders to pay.
They are run by volunteers elected by the membership and any profit they make is used to develop the credit union and provide a return to savers. You can access savings accounts via credit unions, which pay decent if not market-leading rates, and are covered up to £85,000 by the Financial Services Compensation Scheme.
Credit unions also lend to people who might otherwise be tempted to consider payday or doorstep loans.