Simon Read: Credit unions can help beat expensive payday lenders
There was good news for credit unions this week after the Government revealed it is splashing out £38m to help the mutuals take on expensive payday lenders.
The Department of Work and Pensions handed the cash to the Association of British Credit Unions (Abcul) to help unions expand and modernise.
It's hoped the move could save hard-up borrowers as much as £1bn in loan interest repayments by March 2019. That's the extra amount they would have been charged if forced to turn to the short-term, high-cost lenders, such as Wonga which famously quotes an APR of 4,214 per cent.
Credit unions are mutual financial co-operatives – usually set up in workplaces or local communities – which take deposits and give loans to their members.
The credit union sector in the UK is still relatively small compared with other countries such as the US and Canada, with only around about 400, although that adds up to around 470,000 members. However, there are big successes across the country in Wales, Scotland and notable areas in England such as Bristol, Newcastle and parts of London.
Indeed, I reported on initiatives in the North-east and North London involving credit unions in this column recently.
The new cash is intended to help credit unions attract a million more members in the next six years. That would only be a good thing, in my view.
Rules around credit unions have been gradually relaxed, allowing them to compete more effectively with banks by offering current accounts or even a considerably cheaper form of payday loan.
Many now offer decent savings returns that can be attractive to us all, not just the vulnerable.
If we all get involved, we will effectively help in the battle to reduce some people's reliance on horrendously expensive payday lenders.
With credit unions offering loans at much more ethical interest rates, they can help struggling people, rather than penalise them.
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