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Home > Regulation > UK Regulation

By Julia Bradshaw | Published Jan 09, 2012

Credit Unions freed up as restrictions relaxed

Changes to the Credit Unions Act mean these institutions are now free to provide services to new groups of customers and offer different types of products and partnerships.

Previous restrictions meant those eligible to join a credit union had to be individuals with something in common have been removed. Now, so credit unions can extend their reach to organisations such as housing providers, community groups, businesses, partnerships and charities.

They can also offer membership to employees of a national company or tenants of a housing association, even if they live outside a geographical area that the credit union services.

Restrictions have also been removed so credit unions can pay interest instead of dividends on savings, making it easier for people to compare the rates of return from credit unions with other high street savings providers.

Mark Lyonette, chief executive of the Association of British Credit Unions, said: “These changes are a major breakthrough in the delivery of credit union services to communities around Britain.

“The new rules mean credit unions can now compete more effectively with banks and other lenders to provide fair and affordable financial services to individuals and organisations. Credit unions will be able to reach many more people, helping them to develop a savings habit, which can only be good for communities.”

However, non-individuals can only make up a maximum of 10 per cent of a credit union’s total membership, hold up to 25 per cent of shares in the credit union and be granted up to 10 per cent of loans

Credit unions wishing to pay interest on savings have to prove they have the necessary systems and controls in place and must hold reserves of at least £50,000 or 5 per cent of total assets, whichever is greater.

The news came as the Financial Services Compensation Scheme announced the bailout of Handsworth Breakthrough Credit Union, which went into default on 5 January 2011.

In a statement the FSCS said most members of the credit union could expect to receive compensation in the next seven days. Any remaining claims will be paid within 20 working days.

Handsworth Breakthrough Credit Union Limited has 365 members with accounts totalling some £206,000. Members of the credit union are entitled to compensation of up to £85,000 each.

On the change in regulations, Mark Neale, FSCS chief executive said: “Credit Unions are an integral part of our financial system and provide beneficial financial support to their members.

“These changes will strengthen credit unions by giving them the opportunity to expand and will make them more accessible to individuals in the community that may not otherwise have access to financial support.”

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