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Government Plans to Relax Rules on Credit Unions
The Government has announced plans to relax the rules on credit unions to help people on low incomes obtain credit without resort to loan sharks.
Credit unions are organisations that offer low-risk savings and cheap loans based in their local community, tending to offer those services to the less well-off.
The Government has become increasingly concerned that such people could be especially affected by the credit crunch, and may find it hard to obtain credit from traditional sources. People are being encouraged to seek debt advice instead and shop around for the best deals.
Economic Secretary to the Treasury, Kitty Ussher said: "We want to make it easier for families to access the affordable credit on their doorstep that is offered by credit unions, rather than having to turn to more expensive schemes or, at the extreme end, illegal loan sharks.”
As a result the Government has decided to relax the rules governing credit unions to assist people who are either struggling with debt or finding it hard to obtain a secured loan.
The new Treasury rules will allow credit unions to expand by broadening the so-called Common Bond.
This restricts the area within such organisations can operate, usually their own community, so a widened Common Bond would allow them to widen their area of operations.
Other proposals include allowing groups to become members of credit unions. At present only individuals can join.
Credit unions would also be permitted to pay interest on their members’ deposits and to charge for additional services such as money transfers and cheque books.
The Government hopes that many of the changes will be in place by next year, allowing credit unions to form partnerships with neighbouring organisations, housing associations and companies.
Ms Ussher told MPs that this would sweep away many of the "outdated and unnecessary" restrictions currently hedging the sector.
Britain currently has around 600 credit unions, which have some 500,000 members and hold assets worth around £400 million.
Loan News posted on 25 July 2008
