The Credit Unions (Increase in Limits on Deposits by persons too young to be members and of Periods for the Repayment of Loans) Order 2001 (SI 2001 No?.)
REGULATORY IMPACT ASSESSMENT
The purpose and benefit of the Regulations
1. To raise two separate limits set by the Credit Unions Act 1979. The limit on the deposits that a credit union may take from persons too young to be members is increased from £750 to £5,000. And the periods for which credit unions may make loans.
2. Most credit unions have only been able to make unsecured loans for two years and secured loans for five years. These limits are now increased to three and seven years respectively. For those credit unions which hold a certificate under section 11C of the Credit Unions Act 1979 the permitted loan periods for loans made by the credit union at a time when it has a general reserve which is not less than 10 per cent. of its total assets have been four years for unsecured loans and ten years for secured loans. These limits are now increased to five and twelve years respectively.
Businesses Affected
3. All credit unions. There are around 700 credit unions in Britain today, with assets worth over £200 million, and new registration of about 50 each year.
Compliance Costs
4. The new limits will apply immediately.
5. Most credit unions, particularly those that have registered using a set of Model Rules, should be able to take advantage of the new limits automatically, free of charge.
6. However, a small number of credit unions - perhaps around 20 - whose rules are not based on one of the registered models, may need to amend their rules before they are able to take advantage of the new limits. The charge for a partial amendment of rules is a one-off de minimis fee of £275.
Benefits
7. Relaxing the limit on the deposits that a credit union may take from under eighteens, will remove the disincentive to younger members, and should help credit unions to grow.
8. Increasing maximum loan periods will increase credit unions flexibility to help members overcome debt problems, by making easier repayment arrangements. It should also assist some of the larger credit unions to offer their members more substantial loans, and increase their capacity to offer mortgages.
Impact on small businesses
9. The affect of these regulatory changes should be symmetrical for large and small credit unions.
Consultation with the industry
10. These changes were set out in the Treasury's consultation paper Proposed Amendments to the Credit Unions Act 1979, which was published in November 1998, and were welcomed by the credit union movement.
11. The original plan was to introduce these two changes at the same time the Financial Services Authority commence their regulation of credit unions, on 1 July 2002. However, since the two changes covered by this SI may be achieved under the powers vested in the Chief Registrar of Friendly Societies, with the consent of the Treasury - an option that was explained in the original consultation documents, the Treasury has come under pressure from the credit union movement to introduce these changes at the earliest possible opportunity.
Compliance, Enforcement and Monitoring
12. The regulations are deregulatory overall and have been welcomed by the credit unions themselves, so no additional enforcement effort will be needed, over and above the general regulation of credit unions which currently carried out by the FSA under a service level agreement with the Registry of Friendly Societies. Similarly, no bespoke monitoring arrangements are planned.
REGULATORY IMPACT CERTIFICATE
Title of regulations
The Credit Unions (Increase in Limits on Deposits by persons too young to be members and of Periods for the Repayment of Loans) Order 2001 (SI 2001 No?.)
Declaration:
I have read the Regulatory Impact Assessment accompanying these regulations and I am satisfied that the balance between costs and benefits has been appropriately struck.
Signed by the responsible Minister ??????????????????????
Melanie Johnson
Economic Secretary to the Treasury
Date: ?????..
Department: HM Treasury
