Changed powers should add to credit union membership

Credit unions expect a membership boost in Scotland next year as they are given new powers, helping them compete with high street banks and building societies.

Changes coming into force on 8 January will allow unions to serve more people and market their savings offers more widely. The new legislation is expected to have a particularly significant impact in Scotland, home to the UK’s largest credit union – Glasgow – and several others ranking among the sector’s big players.

The reforms, supported by consumer groups and rubber-stamped by the UK parliament in November, will allow credit unions to expand beyond their traditional customer base.

As it stands, membership of credit unions – owned and controlled by their members – is restricted to people living or working locally or belonging to certain organisations, such as churches or trade unions. But from next month credit unions will also be able to accept members from groups such as tenants’ associations and, significantly, employees of national companies.

For example, Glasgow Credit Union members must live or work in the G postcode area and the Capital Credit Union is limited to people living or working in Edinburgh, the Lothians or Borders.

They will also be permitted to pay interest on savings deposits for the first time, rather than the retrospective dividends to which they are restricted by the current rules. The introduction of interest rates will mean credit unions can be included in the “best buy” tables on product comparison websites, allowing them to compete for savings business.

Their savings proposition is to be enhanced by a separate government initiative giving credit union members access to their savings through Post Offices.

The moves are aimed at providing a more effective alternative to both high street banks and high-risk lenders, such as payday loan firms.

Keith Dryburgh, social policy officer at Citizens Advice Scotland, believes the changes are a “step in the right direction”.

“We have long argued for greater availability of affordable credit options, and there is no doubt that responsible credit unions offer a sensible borrowing option for those who really have no choice but to borrow money,” he said.

“It’s also important that all credit unions abide by the most stringent regulations however, and set an example to other lenders in the way they treat their borrowers.”

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

“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 Scottish communities,” said Lyonette.

Scotland’s 109 credit unions have a total membership of more than a quarter of a million. Around one in 20 Scots are members, including one in five in Glasgow, compared with a rate of one in 65 across the UK as a whole. Most offer savings accounts and loans and some now provide mortgages and current accounts.