FCA urges expansion of credit unions to protect consumers from payday lenders
The FCA urged the government to facilitate the availability of alternatives to high-cost credit in an update on Tuesday, saying it supported the expansion of credit unions to help vulnerable consumers.
It said it was calling for a government review of credit union rules, explaining that it would contribute to raising the awareness for consumers and support other initiatives to provide alternatives to high-interest lenders.
The regulator said the move could help higher-risk customers who often turned to expensive payday loans to make ends meet.
Currently, more than 400 credit unions operated in the UK, which were non-profit cooperatives and were controlled by their two million members.
Traditionally, credit unions specialise in loans and savings for the less well-off.
They can usually loan figures as low as £50, which was in contrast to the commercial banks, which tended to offer loans no smaller than £2,000.
The FCA said that posed a high risk to customers, especially to those already struggling.
It explained that the credit union network could be a safer alternative for customers who failed to qualify for loans from mainstream lenders
“In the short-term at least, the capacity of credit unions to make credit available to a significant portion of high-cost credit users is limited,” the FCA said.
“We believe that, in the longer term, to facilitate the growth of larger credit unions, HM Treasury should consider if there is value in a review of credit union and society legislation.”
The FCA said it wanted the government to work closely with credit union representative bodies, and in the long-term see to the growth of the larger credit unions.
The Association of British Credit Unions Limited, which represents 187 credit unions, was enthusiastic about the regulator's recommendations.
“Credit unions – by a margin of hundreds of millions of pounds – are the most active and sustainable providers of affordable credit to those underserved by the mainstream and who borrow from expensive alternatives," it said in its statement.
"Our work suggests that liberalising the Credit Unions Act to broaden our powers would allow credit unions to expand and play a bigger role in disrupting high-cost credit."