Please send me SCA's fortnightly briefing:

September 7, 2011

Credit unions set to step up

A common perception (in the UK) of the credit union movement is that it offers limited banking facilities only for those who are denied access to the normal range of services offered by the high street banks. Given recent events, it remains a mystery there hasn’t been a mass exodus of customers from the casino side of the industry to the more ethical, mutual side of banking.  Forthcoming rule changes for credit unions could change all that

Jeff Salway


CREDIT unions have been tipped to lure more customers from mainstream financial services providers when new rules come into force next year allowing them to widen their activities. 

Membership numbers are expected to rise under changes allowing u nions to serve more people and boost their savings offers. The move comes as Scotland’s biggest credit unions benefit from increased demand as consumers seek an alternative to high street banks. 

Changes to the credit unions act 1979, set out in legislative reforms put before parliament in July, will give credit unions the ability to expand beyond their traditional customer base when they come into force, expected to be early next year. 

Credit unions are not-for-profit organisations that are owned by their members, usually drawn from those living or working locally or belonging to certain organisations. 

However, their reach is currently limited by the “common bond” that members must share, usually living or working in the same area, working for the same employer (i.e. the NHS or police) or belonging to the same association, such as a church or trade union.

For example, Scotwest membership is open only to people living or working in the West of Scotland, while Glasgow Credit Union members must live or work in the G postcode area and the Capital Credit Union is open to people living or working in Edinburgh, the Lothians or Borders. But they will soon be able to widen their membership scope by serving groups such as tenants’ associations or, perhaps more significantly, employees of national companies. 

In addition, the new rules will allow unions to pay interest on savings for the first time, as opposed to dividends, delivering a further boost to their appeal. Members will also be given access to their savings through Post Offices, under a separate government initiative aimed at boosting the sector. 

Dermot O’Neill, Scottish League of Credit Unions said “The forthcoming changes in legislation now affords Credit Unions the opportunity to be considered a genuine alternative to high street banking.  The SLCU will encourage our member Credit Unions to embrace these changes and offer a fuller member service.  Importantly, the legislative changes also include an increased solvency requirement of Credit Unions, ultimately meaning that members money will be even more protected than it is currently”

Mark Lyonette, chief executive of credit union trade body Abcul, pictured below, said: “Credit unions around the country along with their partners have been eagerly awaiting these changes, which will see increased access to safe and ethical financial services in communities and workplaces across the country, and so I’m delighted that they are on track to be in force by early next year.”

Paul Walsh, the chief executive of Cuna Mutual Europe, believes the credit union offering compares increasingly well with that on the high street.”Banks are withdrawing from localism to reduce costs; and in many cases they are closing down branches and pushing customers to online services,” he said. “As mutual lenders and credit unions offer a more personalised, local service, they are becoming even more favoured and loved by consumers.”