Credit union reforms mean expansion and competing with banks
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.
The changes, under a Legislative Reform Order (LRO), mean the financial co-operatives can now pay interest on savings for the first time and expand beyond their traditional customer base.
Credit unions are not-for-profit organisations owned by their members.
The reforms will allow them to provide services to community groups, businesses and social enterprises.
Robert Kelly, general manager of the NHS Credit Union for Scotland and the North of England, said: “The LRO is going to give us the opportunity to get closer to offering full services that are equitable and can compete with mainstream financial institutions like banks and building societies.
“It also gives us more potential for partnerships with a wide range of other organisations.”
The Association of British Credit Unions (Abcul) expects membership to increase as a result of the changes, which the UK government introduced as part of a commitment to promote mutuals.
There are currently about 420 credit unions across England, Scotland and Wales, with close to one million members.
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.”
- Credit unions explained – the Which? guide to credit unions
- Government commits more money to credit unions – £73 million to fund the expansion of credit unions