CREDIT WHERE IT'S DUE; New Laws for Financial Unions May Help Millions Stay Afloat
Byline: TRICIA PHILLIPS
CREDIT unions could soon offer a financial lifeline to millions more low-income families.
Big changes to the Credit Unions Act 1979, will give these independent financial co-operatives the opportunity to extend their services to a whole new range of people.
Currently, credit unions have to prove all the people able to join have something in common, such as being members of a trade union, church group or other organisation.
In the future, hopefully by the end of this year, they will be able to serve more than one group and will have greater latitude to include, say, tenants of a housing association or a national firm's employees.
Mark Lyonette, chief executive of the Association of British Credit Unions, says: "Credit unions around the country, along with their partners, have been eagerly awaiting these changes, and so I'm delighted that they are on track to be in force by next year."
The changes also mean credit unions will be able to attract more savings by being able to pay interest, rather than an annual dividend. They currently pay out once a year, based on how well the credit union has performed.
This will enable them to make their savings products more attractive and competitive, bringing in the necessary funds that mean they can help more people with loans and credit facilities. Credit unions offer a credible, fair and accessible alternative to those excluded from qualifying for credit and other financial services from high street banks and building societies.
They are crucial to help stop the most vulnerable from being forced into the hands of loan sharks, who charge extortionate rates and bully people they lure into debt to get more cash. Almost a million people use one of the 425 credit unions available around the country, which are owned and controlled by their members.
However, they still come under the umbrella of the city watchdog, the Financial Services Authority - giving protection through the Financial Services Compensation Scheme. This safeguards first pounds 85,000 worth of each member's money if a problem did arise. They offer loans with interest rates of around 12% - affordable and fair and far below the rates being flogged by ruthless doorstep lenders.
And they encourage better money management and help people to budget and stay within their means.
You can only borrow from a credit union if you are a member and you can become one by opening a savings account with a union first.
But, there's more good news on the horizon that could catapult credit unions on to our high street. …