Bank of England plans to boost credit unions

Banking and Borrowing

Updated on 25 June 2015 | 0 Comments

Bank consulting on a new framework to bolster credit unions.

The Bank of England’s Prudential Regulatory Authority (PRA) is consulting on ways to give credit unions more powers.

It wants to revise ‘rigid restrictions’ that credit unions are bound by and introduce a more flexible framework based on how they want to serve their local communities.

Credit unions

A credit union is a form of co-operative set up to benefit a particular group or community that share a common bond. For example they may have the same occupation or live in the same area.

They allow members to save money and take out manageable loans. Some offer current accounts.

Credit unions can act as a lifeline to those shunned by traditional banks and are an alternative to expensive short-term borrowing with payday loan companies.

According to the Association of British Credit Unions Limited (ABCUL) there are 362 credit unions operating in the UK. But their success is limited. Just 3% of the population in the UK use a credit union compared to 30% in Australia, 43% in Canada, 46% in the USA and 75% in Ireland.

Earn 5% from your current account

Greater flexibility and new standards

The PRA wants to reform the way credit unions are regulated, giving them more flexibility around investments, capital levels and reporting requirements.

The PRA also wants to increase confidence in the schemes, especially their ability to pay out to depositors.

Under the plans, deposits will be capped at £85,000 per member, which is the maximum amount the Financial Services Compensation Scheme will cover if an institution like a credit union goes bust.

Andrew Bailey, head of the PRA, explained: "These changes will introduce a more risk-based and flexible regime for credit unions, with prudential standards that reflect the diverse business models they now operate. The new rules will raise standards where required."

The consultation closes on 30th September 2015.

Finding a credit union

You can find your local credit union using the Association of British Credit Unions website findyourcreditunion.co.uk.

Earn 5% from your current account

More on banking and borrowing:

The best alternatives to payday loans

Cut the cost of your personal loan by switching deals

Barclays to allow credit unions to operate in its branches

Comments

Be the first to comment

Do you want to comment on this article? You need to be signed in for this feature

Copyright © lovemoney.com All rights reserved.

 

loveMONEY.com Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FCA) with Firm Reference Number (FRN): 479153.

loveMONEY.com is a company registered in England & Wales (Company Number: 7406028) with its registered address at First Floor Ridgeland House, 15 Carfax, Horsham, West Sussex, RH12 1DY, United Kingdom. loveMONEY.com Limited operates under the trading name of loveMONEY.com Financial Services Limited. We operate as a credit broker for consumer credit and do not lend directly. Our company maintains relationships with various affiliates and lenders, which we may promote within our editorial content in emails and on featured partner pages through affiliate links. Please note, that we may receive commission payments from some of the product and service providers featured on our website. In line with Consumer Duty regulations, we assess our partners to ensure they offer fair value, are transparent, and cater to the needs of all customers, including vulnerable groups. We continuously review our practices to ensure compliance with these standards. While we make every effort to ensure the accuracy and currency of our editorial content, users should independently verify information with their chosen product or service provider. This can be done by reviewing the product landing page information and the terms and conditions associated with the product. If you are uncertain whether a product is suitable, we strongly recommend seeking advice from a regulated independent financial advisor before applying for the products.