Government wants to make credit unions more accessible

The difficult credit conditions that have come about over recent months have made things very difficult for those on low incomes.

Many things have affected household budgets recently, and this includes the effects of the global credit crunch, rising living costs, soaring inflation, rocketing food and petrol prices, and hiked up energy bills, amongst other things.

Whilst the interest rate has come down since December of last year, the cost of borrowing has continued to be high, and this is something that is also affecting low income consumers.

Many people with below average income are finding themselves having to turn to very expensive forms of credit at times when needs must and they need to raise finance. This could mean opting for high interest payday loans, which are only short term loans but charge high fees.

Even more worrying, some low income consumers are turning to doorstep lenders, who can be both intimidating and charge extortionate rates of interest on their loans, resulting in many falling into spiraling debt levels very quickly.

It has recently been announced that the government is planning to relax regulations with regards to credit unions in the hope that this will enable more lower income people to get access to affordable finance.

These credit unions are member run cooperatives, and are able to offer finance at extremely low rates to members. In order to be a member there is normally a shared common bond, such as working for a particular employer or living in a certain area.

The government is apparently planning to broaden the common bond and make it easier for organisations to become credit unions.

Officials hope that this will give more financial leverage to families on lower incomes, and that it will help to reduce the risk of families being taken in by loan sharks. One government officials said last year that an overhaul was needed to make credit unions more accessible.

She said: ‘The excellent services provided by co-operatives and credit unions take place within an outdated legislative framework and overhauling this will be key to achieving a significant expansion of the sector. I want the sector to thrive and grow further, to be widely seen as a genuine alternative to proprietary companies across the country, not stereotyped as ‘old fashioned’ or confined to its northern roots.’

She also said: ‘This is a vision of credit unions as the modern day equivalent of 18th century ‘town banks’, providing a local, trusted, alternative to the national banks on every high street. To achieve this vision means removing barriers to co-operatives competing fairly in the marketplace, and enabling them to bring a greater range of services to a wider range of people.’

Another official stated: ‘Many people think credit unions are just for savers. But they offer affordable loans with low and transparent interest rates. Most charge no more than 1% per month in interest. They are a safe and accessible option for many.’

Credit unions have become known as people’s banks, and they provide an excellent alternative to those that do not wish to pay the high rates of interest charged by mainstream lenders or cannot get mainstream finance.

These credit unions could help many people to avoid the pitfalls of loan sharks and doorstep lenders, and with more relaxed rules and increased access to these unions more and more people could benefit from affordable finance even when they are on a lower income.

Of course, the other main purpose of credit unions is to offer a savings facility for members, and basically the profits that are made from deposits made into the credit union by members are ploughed back in to ensure that the rate of return on savings is impressive and that the rate of interest on borrowing are affordable.

Members also get to enjoy additional benefits, such as automatic life insurance and fee financial advice.

One official recently said that credit unions can actually provide a valuable financial lifeline to many, stating: ‘Some borrowers refused credit by the banks may feel doorstep lenders are their only option. But credit unions can offer a vital lifeline, keeping consumers out of the hands of loan sharks by offering competitively priced loans and helping their members budget appropriately.’

Members of credit unions clearly feel the same way judging from their opinions, and one credit union members said: ‘I feel more comfortable borrowing from the credit union than from a big bank. I know and trust the people who run the credit union and the interest rates are very reasonable. It would always be my first port of call for a loan.’