AS the credit crunch bites, people are finding it increasingly difficult to secure money from high-street lenders. This leaves people with fewer options, the least palatable of which may be to resort to loan sharks.
It seems that the Government
is concerned about this prospect and has sought to address it by relaxing the rules around credit unions.
Credit unions are financial co-operatives owned and controlled by their members. Membership is restricted to those who meet a requirement that provides a "common bond" based on criteria such as geographical area or workplace. They work as low-risk savings and loans providers, frequently for those effectively excluded from mainstream financial services.
Credit unions are registered and regulated by the Financial Services Authority. There are currently around 600 credit unions in the UK with approximately 500,000 members and assets of £400 million.
The figures show that credit unions have failed to establish themselves as effectively in the UK as they have in other Western countries.
In the UK, 0.5 per cent of the population is a member of a credit union, while the figure is over 50 per cent in Ireland and over 25 per cent in the US.
On 30 June, the Government announced plans to reform the rules governing credit unions. Most notably, the Treasury plans to broaden the common bond, as well as making it possible for groups, rather than just individuals, to become members.
The reforms, to be introduced for next year, would allow credit unions to pay interest on members' deposits and charge the market rate for services such as chequebooks.
An increase in membership will mean more people getting access to relatively low interest loans – no more than two per cent a month – as well as financial services such as ISAs and mortgages.
Wider membership would also benefit existing customers, as credit unions' "profits" are used to cut loan rates or increase the amount paid on savings.
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Caroline Maher is a solicitor at CCWThe full article contains 352 words and appears in Edinburgh Evening News newspaper.
