Kitty Ussher: Building towards a credit union and cooperative sector for the 21st century

Economic Secretary and City Minister Kitty Ussher will today signal her commitment to the mutual sector by delivering two key reform proposals requested by the sector.

Ms Ussher is in Manchester to meet with leading members of the cooperative and credit union sector.

The Minister will announce that the Government will publish a consultation paper in December 2007 setting out how it intends to take forward legislative reform for the credit union and cooperative sector.

The Minister will also announce that she fully supports calls from the sector to relax membership qualifications for credit unions – usually referred to as the common bond, and to allow electronic communication between cooperatives and their members and other stakeholders.

Currently the scope of the common bond (membership qualification) for credit unions is restricted by law to, for example, residing in a particular locality, following a particular occupation, being employed by a particular employer. For example, a housing association could not affiliate with a single credit union because its properties could be established over several geographic sites.

The lack of electronic communication for formal purposes means transactions between cooperatives and their members and other stakeholders has to be paper-based - not sensible or efficient in the modern world.

Making these two amendments are important steps in allowing the cooperative sector to develop and expand as two significant barriers that inhibit their growth and development will have been removed.

Kitty Ussher said:

“The excellent services provided by cooperatives and credit unions take place within an outdated legislative framework and overhauling this will be key to achieving a significant expansion of the sector."

“As a first step I am today announcing that we will make an order under the Electronic Communications Act 2000 to permit cooperatives to communicate with their members and the authorities electronically. I can also announce today that we will work with the FSA to include tenants and employees of housing associations within the common bond of existing credit unions."

“I want the sector to thrive and grow further, to be widely seen as a genuine alternative to proprietary companies across the country, not stereotyped as ‘old fashioned’ or confined to its Northern roots. This is a vision of credit unions as the modern day equivalent of 18th century ‘town banks’, providing a local, trusted, alternative to the national banks on every high street."

“To achieve this vision means removing barriers to cooperatives competing fairly in the marketplace, and enabling them to bring a greater range of services to a wider range of people. I’m determined to make this happen, and today’s announcement and December’s consultation paper will help us to deliver this goal.”

The consultation document announced today to be released in December 2007 will set out firm legislative proposals for reform, taking into account alternatives for implementation, possible advantages and limitations and providing clear options based on results of the first stage of the consultation.

Notes for editors

1. At the Building Societies Association annual lunch on 9 November 2006 the then Economic Secretary to the Treasury, Ed Balls announced that the Treasury, in partnership with representatives of the Cooperative sector and other stakeholders, would undertake a review of the Cooperatives legislation - the Industrial and Provident Societies and the Credit Unions Act. The consultation sought views from stakeholders on the review of the legislation for cooperatives and credit unions in Great Britain with the long term-aim of providing the cooperative and credit union sectors with a cost-effective legislative framework. The consultation began in June 2007, and ran for 12 weeks, closing on 12 September 2007. Review of the GB cooperative and credit union legislation: a consultation is available from the Treasury website.

2. Cooperatives are defined by the International Cooperative Alliance (ICA) as "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise". The majority of GB cooperatives meet these criteria.

3. Most of the Great Britain cooperative sector are registered under the Industrial and Provident Societies Act 1965 (IPSA 65) although they may also register as other legal forms including as companies (under the Companies Act), partnerships, unregistered unincorporated associations and even as limited liability partnerships.

4. As at December 2005 there were 8,132 'live' IPSs registered with the Financial Services Authority, with about 19 million members and total assets of nearly £120 billion. The most significant in terms of numbers and assets are consumer and worker cooperatives, cooperative consortiums, agricultural cooperatives and housing cooperatives.

5. Credit Unions are financial cooperative societies offering their members loans out of the pool of savings built up by the members themselves. The Credit Unions Act 1979 (CU Act 79) is the main Act of Parliament governing credit unions in Great Britain, however they are registered under IPSA 65 and are subject to most of its requirements.

6. The Government’s June 2007 consultation took place because of concerns expressed that existing legislation is out of date, and has in some instances restricted development and competitiveness of the mutual sector. The consultation sought views from the sector about the current legislative framework - how the sector could operate more effectively in the modern financial world, and provide more services to their members.

7. Kitty Ussher visited the Miles Platting branch of the Manchester Credit Union and met people who have benefited from loans funded by the Government’s Growth Fund. The Fund, part of the Government’s Financial Inclusion Fund, was set up to help the small but significant minority of people who are unable to access even the simplest financial services, leaving them vulnerable to serious debt.

8. The Growth Fund makes separate money available so that credit unions can make affordable loans to financially excluded people without access to mainstream credit. Since the Fund began in 2004 more than 100 of these lenders are now receiving funding, and over 41,000 loans have been made.

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