The Government is splashing out £38m to help credit unions take on 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 is hoped the move could save hard-up borrowers up to £1bn in loan interest repayments by March 2019. That is the extra amount they would have been charged if forced to turn to short-term, high-cost lenders such as Wonga, which quotes an APR of 4,214 per cent.
David Freud, the Minister for Welfare Reform (pictured) said: "Credit unions offer an alternative to vulnerable people who have few safe options to get cash when they need it most. They are the antidote to predatory loan sharks or high-interest lenders."
Credit unions are mutual financial co-operatives – usually set up in workplaces or local communities – that take deposits and give loans to their members.
The UK has about 400 credit unions, so the sector is still relatively small compared with other countries such as the United States and Canada, although those 400 unions add up to about 470,000 members.
It is hoped that the new cash will help the credit union sector attract a million more members in the next six years. Credit union rules have been relaxed, allowing them to compete more effectively with banks by offering current accounts or even a much cheaper form of payday loan.
Last December the Government announced plans to make it easier for credit unions to offer small short-term loans to lessen some people's reliance on payday lenders. Abcul's chief executive, Mark Lyonette, said: "More credit unions will offer a wider range of products including current accounts, Cash ISAs and innovative budgeting accounts.
"The centralisation and streamlining of day-to-day tasks and the introduction of innovative modern access channels will make credit unions a much more attractive proposition to many more people and secure a solid future for the sector."Reuse content