Government reform credit union rules to improve competition

The government have reformed the regulations that govern credit unions. They hope the reforms will help them to compete more effectively and provide a viable alternative to high street banking.

Credit Unions are not-for-profit organisations and co-operatives that are run by their members.

They do not have shareholders to pay, and any profits are kept in the community, used to develop the union and shared out to members.

There are over 400 Credit Unions in the UK, but they haven’t been as successful as those found in Ireland, the US and Australia as a number of restrictions apply that limit their operations.

Members of Credit Unions, such as those found in Leeds, Manchester and Glasgow, all currently need to have a common bond. This restricts people from becoming members if, for example, they live or work in a different geographical location. The changes, which have been brought in under a Legislative Reform Order, will loosen these restrictions and allow Credit Unions to extend their membership to include other groups of people regardless of where they live or work.

However, Credit Unions will still be limited to 2 million members.

The Unions were limited to providing accounts for individuals, but can now provide services to community groups, local companies, social enterprises, housing providers, religious groups and local authorities.

People who move out of the Credit Union’s geographical area will also now be able to retain their membership, depending on limits set by the Credit Union.

Previously, Credit Unions were not allowed to offer interest rates on savings. Anyone with a savings account could only be given dividends, dependent on the Credit Union’s performance throughout the year. This has been changed, and for the first time, Credit Unions will be able to offer an interest rate on their accounts. This will help them to compete against banks and allow the Credit Union accounts to appear in price comparison tables.

The Credit Unions will continue to be regulated by the Financial Services Authority and as such, the first £85,000 of members savings are protected.