HM Treasury

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191/99

16 November 1999

Enhanced role for credit unions

Moves to boost credit unions, announced by Economic Secretary Melanie Johnson today, will provide a new central services organisation and changes to the regulation of credit unions to help them to deliver a more consistent and flexible service to members.

The announcement accepts recommendations in two reports published today, by the Credit Unions Taskforce, under the chairmanship of Fred Goodwin, and by the Policy Action Team looking at ways to improve individual access to financial services. These found that credit unions can provide safe, low cost loans, which are of particular help to those in disadvantaged communities who have problems gaining access to mainstream credit sources.

Welcoming these changes Miss Johnson said:

"As Fred Goodwin's report on credit unions shows, the way in which they have previously operated has delivered benefits to members, but now needs to be updated to face today's challenges. "Taken together, these measures should ensure an enhanced role for the future. Members should benefit from the improved and cheaper services which the central services organisation can provide, from the greater freedoms proposed, and from greater protection for their savings. "These changes follow widespread consultation with the movement and will, together with other initiatives also announced today, help them to play a part in tackling the problems of financial exclusion. The establishment of a central services organisation will, by spreading best practice and drawing on the expertise and resources of banks and building societies, help credit unions to improve the delivery of their services." "The Government expects banks and building societies to play their full part, but in the end it is for the credit union movement - the hundreds of hard working and dedicated volunteers throughout the country - to take advantage of these opportunities."

Commenting on the Taskforce report, Fred Goodwin said:

"Credit unions have proved their worth around the world as financial institutions for those of modest means. The time is right for them to make a substantial contribution to reducing financial exclusion. There is much that banks and building societies can do to help them achieve this goal, and I am confident that they will rise to this challenge."

The measures to improve the regulatory framework within which credit unions operate are:

Announcing the new regulatory regime, Miss Johnson added:

"We have decided to give the Financial Services Authority the power to make rules for the regulation of credit unions, which will mean in future credit union members will have protection similar to that for bank and building society customers, including membership of a share protection scheme. "The FSA has assured the Government that it will supervise credit unions in a way which takes account of the needs of small, voluntary organisations, including their ability to pay fees. "The FSA will discuss with other financial institutions the problems which credit unions would face in meeting the costs of regulation, including compensation and Ombudsman schemes. The Government hopes that the financial industry will respond positively and constructively to these discussions. The FSA will also establish a taskforce which will work closely with the sector to ensure a smooth transition."

 

NOTES FOR EDITORS

The deregulatory measures are the result of a consultation document - "Proposed amendments to the Credit Unions Act 1979" - issued by the Treasury in November 1998 (HMT press release 192/98 ). The measures to improve the regulatory framework will be introduced in a variety of ways:

The report of the Credit Unions Taskforce, chaired by Fred Goodwin, Group Deputy Chief Executive of the Royal Bank of Scotland, is available on the Treasury website . Non-media printed copies of the report are available from 0207 270 4558.

The Credit Union Taskforce was established by the Treasury in July 1998, with a remit to explore ways in which banks and building societies can work more closely with credit unions to increase their effectiveness; look at ways to widen the range of services that are provided to credit unions customers; and encourage the continued expansion of the movement.

The membership of the taskforce is:

Fred Goodwin (Chair) Deputy Group Chief Executive, Royal Bank of Scotland Andrew Blessley - Director of Marketing and Distribution, NatWest Bank Pat Conaty - Housing Investment Consultant, Aston Reinvestment Trust Ray Donnelly - Lecturer, Heriot-Watt University School of Management Mark Donovan - Local Government Association adviser Rose Dorman - Chair, Dalmuir Credit Union Gillian Ford - Head of Corporate Affairs, Clydesdale Bank Gerald Gregory - Director of Marketing and Mutuality, Britannia Building Society Roger Hollick - Chief Executive, Derbyshire Building Society Gary Marsh - Head of Business Development and Planning, Halifax plc Geoff Rutland - Head of Financial Institutions, Midland Bank Christopher Smith - Group Public Affairs Manager, Coop Bank Ralph Swoboda - Chair of the Management Committee, Association of British Credit Unions (ABCUL)

Secretariat

David Alexander - Head of Banking Services Branch, HM Treasury Jeremy Jones - Head of Banking Supervision and Mutuals Branch, HM Treasury Graham Burbage - Mutuals Branch, HM Treasury Marion Desborough - Banking Services Branch, HM Treasury John Laydon - Head of Public Affairs, Royal Bank of Scotland Credit unions are mutual savings and loan organisations, registered and regulated by the Registry of Friendly Societies. Members save with a credit union by depositing money in the form of non-transferable withdrawable shares. Members may 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.

Membership is restricted to those who meet the qualification - common bond - for a particular credit union. 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. Most credit unions are largely run by unpaid volunteers, providing basic savings and loan services.

The maximum saving permitted is £5,000 or 1_% of the total shareholding of a credit union, whichever is the greater. It may pay a dividend on shares, not exceeding 8%. In most credit unions loans may be made to members up to a maximum of £5,000 in excess of their share capital. So a member with the maximum of £5,000 shares may borrow up to £10,000. Loans are repayable over two years if unsecured, and over five if secured. Most loans are under £1000. Interest charged on loans may not exceed 1% per month on the reducing balance (12.68% APR maximum). There are over 600 registered credit unions, with new registrations averaging around 50 a year. Total assets are £125 million, and new loans amounted to £113 million in 1996. Membership is around 220,000. Further proposals to tackle financial exclusion were announced in the response to the report of Policy Action Team 14 on Access to Financial Services, also published today (see below - Press release 190/99 Initiatives to tackle financial exclusion).

Internal links

Media copies of the both reports are available from and media enquiries should be addressed to Charles Keseru at the Treasury press office on 020 7270 5188.

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