MORE CREDIT FOR THE CREDIT UNIONS

Proposals Published to Help Credit Union Movement Develop

A package of measures to boost credit unions and help those less well-off in our communities has been announced today by the Economic Secretary, Patricia Hewitt.

In a consultation document, "Proposed Amendments to the Credit Unions Act 1979", a series of measures are set out which aim to help expand the credit union movement while maintaining its focus on the poorer members of society.

The measures are:

allow credit unions to borrow from external sources,
other than authorised banks and other credit unions e.g. building societies, insurance companies;
allow credit unions to offer interest bearing share
accounts;
allow credit unions to charge fees for providing basic
services e.g. bill payments;
abolish the #750 maximum limit on youth accounts,
bringing it into line with the #5,000 adult limit, and
lower the minimum age for joining credit unions;
make the common bond requirement more flexible i.e. the "living or working" rules which allow people qualifying to join a credit union;
remove the current 5,000 maximum membership limit;
allow credit unions more flexibility to dispose of re-
possessed collateral; and
extend repayment periods for secured and unsecured loans.

Commenting on the proposals the Minister said:

"We have one of the most competitive and sophisticated financial services sectors in the world - but some people are still missing out. And for those people financial services mean cheque-cashing shops and illegal loan sharks.

"Credit unions have been doing invaluable work by providing savings facilities, low cost credit, and financial education to the less well off, giving them the chance to build up a good credit record.

"The Government is determined to encourage the sector and these proposals aim to build on the vital work that credit unions do, particularly in poorer communities."

Most of the proposed changes could be made through a Deregulation Order under the Deregulation and Contracting Out Act 1994.

The Minister also published proposals for the future regulation of the credit union sector. The Government has asked for comments on two options:

transfer to the Financial Services Authority the existing functions of the Chief Registrar; or
bring credit unions within the scope of the FSA's full
regulatory and supervisory powers. This would involve repealing some of the provisions of the 1979 Act, leaving the FSA free to lay down new, or amended, requirements under its rule-making powers.

Commenting on the proposals the Minister said:

"We have to find the right balance for credit union regulation - allowing the sector to develop while ensuring there is adequate protection for savers.

"We will also be looking to the FSA to come forward with a fee structure that meets credit unions' needs."

The consultation period ends on 12 February 1999.

NOTES TO EDITORS

1.Credit unions are mutual savings and loans organisations, registered and regulated under the Industrial and Provident Societies Acts 1965 to 1968 and the Credit Unions Act 1979. Members save by subscribing for non-transferable shares deposited with the credit union. They make take out loans, at a maximum rate of interest of 1% per month, and, for the majority, up to #5,000 in excess of their shareholding. The dividend on their shares is restricted to a maximum of 8% a year.

2. There are over 600 registered credit unions, with new registrations averaging around 50 a year. Total assets now exceed #100 million and are growing at about #20 million a year. Loans amounted to #92 million in 1996. Membership is around 200,000 concentrated in the North of England and Scotland, although there is increasing growth in the South and West of England, and in Wales.

3. The objectives of credit unions are defined by the 1979 Act:

the promotion of thrift among the members by the
accumulation of savings;
the creation of sources of credit for the benefit of the
members at a fair and reasonable rate of interest;
the use and control of the members' savings for their
mutual benefit; and
the training and education of the members in the wise use of money and in the management of their financial
affairs.

4. Membership of a credit union is restricted to those who meet the qualification - the common bond. The common bond may be one of four main types: residence in a locality; being a member of, or association with, an organisation; working for a common employer or in a locality; and following a particular occupation.

5. Media copies of the consultation document are available from Fiona Hamilton in the Treasury Press Office on 0207 270 5185.

6.Non-media copies are available from Zubeda Esmail on 0207 270 4487.

Press Notices 1998 July to December Index