Credit unions in the United Kingdom

Last updated

Credit unions in the United Kingdom were first established in the 1960s. Credit unions are member-owned financial cooperatives operated for the purpose of promoting thrift, providing credit and other financial services to their members.

Contents

Credit unions in the UK now offer a wide range of services to their members; including current accounts, payroll deductions, standing orders and insurance.

Co-operative or mutual organisations engaging in cooperative banking, such as building societies, have existed in the UK since the 18th century.

History

Institutions known as mutual societies grew out of the friendly society movement of the 18th century, with the first mutual insurer, Equitable Life, being founded in 1762. Formalised under the Friendly Societies Act 1819, mutual institutions predated the welfare state and were formed to meet the needs of a growing urban working class. This communitarian self-help movement allowed small regular individual contributions to be pooled for mutual collective benefit, obtaining the same economies of scope and scale necessary for providing insurance and financial products. Mutual societies helped to raise funds for housing and consumer durables at a time when commercial banks were still exclusively commercial lenders. [1] Building societies were formed as small temporary societies by worker co-operatives, pooling resources to build local houses and subsequently allocating them among members by drawing lots. Once all members were housed, these organisations were typically wound up, although some became permanent societies in an effort to promote wider home ownership, as exemplified by the Leeds Permanent Building Society. [2]

The first recorded credit union in the United Kingdom was formed in Derry, Northern Ireland, in 1960. Inspired by the formation of the first credit unions in the Republic of Ireland, six individuals pooled their savings and formally established the Derry Credit Union. [3] In Great Britain, modern day credit unions emerged in the mid-1960s in London and Scotland. The first recorded British credit union was the Hornsey Co-operative, established 1964 in North London by Caribbean families, and is the foundation of what is now London Capital Credit Union. [4] Credit unions were popular in the Caribbean and large numbers of first generation Caribbean-British would become members of credit unions. By 1998, 38% of Caribbean British adults were members of credit unions. [5] In Scotland, several credit unions were established by immigrants from Ireland. [6] In Glasgow, credit union coverage and membership remains broad: one in six Glaswegians is member of a credit union, with nine employee credit unions and 25 community credit unions serving the city. [7]

The Credit Unions Act 1979 for the first time regulated credit unions in the UK. [8] The Act required that all credit unions in Scotland, Wales and England register with the Registrar of Friendly Societies, who was responsible for ensuring that credit unions had a "satisfactory" common bond and adhered to common set of rules. The registrar was tasked with monitoring the activities of credit unions, who had to submit quarterly and annual returns to the registrar. The Act allowed the registrar to suspend a credit union's operations, strike credit unions off the registry and prosecute illegal financial activity by a credit union. [9] In the years immediately following the passing of the Act, the number of credit unions increased significantly. In 1982, 73 credit unions were registered. From the late 1980s to early 1990s the registration of credit unions surged, increasing fourfold between 1987 and 1994. Between 1994 and 2000 a large number of small credit unions closed or merged with other credit unions. In 2000, 660 credit unions were regarded officially registered. A further 220 credit unions had failed to submitted their annual return to the Registrar. [10]

In 1980, the first credit union was registered in Wales. The St Therese's Credit Union served the Catholic community living on a housing estate in Port Talbot. In the 1990s membership of credit unions in Wales grew as credit unions helped to deliver anti-poverty and financial inclusion policies in cooperation with local authorities and national charities. By 1997, 31 credit unions were registered in Wales. Following mergers between smaller credit unions the number of registered credit unions in Wales reduced to 26 by 2010. Between them the 26 credit unions achieve all-Wales coverage. [11] According to Bank of England figures, the number of credit union members in Britain nearly doubled from 562,000 in 2004 to almost 1.04 million in 2012, while total assets increased from £432m to £956m. However, the number of active credit unions in Britain fell from 565 in 2004 to 390 in 2012. Some merged with rivals but others ceased trading, at least fourteen of them between January 2012 and July 2013. [12]

Regulation and policy

Credit unions in the United Kingdom have been regulated by the Prudential Regulation Authority for prudential purposes and the Financial Conduct Authority for conduct purposes since 1 April 2013, previously regulated by the Financial Services Authority from July 2002. [13] Before the Credit Unions Act 1979 was passed, there was no special legal structure for credit unions in the UK. Some of the early credit unions chose to register under the Companies Act and some under the Industrial and Provident Societies Act 1965. They are classified in two types: type 1 are the smaller credit unions while type 2 are larger.[ vague ] From November 2006, many type 2 credit unions began offering their members debit card accounts so that they could withdraw cash from any Link ATM.[ citation needed ]

In June 2008, the Treasury announced plans to encourage the growth of credit unions by broadening the common bond and removing outdated restrictions, with the intention of significantly reducing the influence of door step lenders and loan sharks. [14] Amendments to the Credit Unions Act 1979 were made by the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 (SI 2011/2687), [15] which came into force on 8 January 2012. The main changes were the removal of restrictions of membership to reach out to new groups by serving more than one group of people, provide services to community groups, businesses and social enterprises with specific business loans and to offer interest on savings, instead of a dividend, in line with mainstream banking.

Regulations for credit unions place a maximum interest rate on loans of 3% per month. [16]

Security of savings

Since October 2008 UK credit unions are covered by the Financial Services Compensation Scheme (FSCS), which protects savings in banks and similar institutions up to £85,000 (as of February 2017), covering about 98% of people; most members get their money back within a week. [17]

Credit unions offer savers considerably more protection than commercial "savings clubs", as was demonstrated by the 2006 collapse of the Christmas hamper club Farepak. [18]

Recent changes in credit unions

In Britain the number of active credit unions fell from 565 in 2004 to 390 in 2012; some merged, but others became insolvent. Six ceased trading in 2012, and at least eight had ceased in 2013 by the end of July. [12] However, the number of members has increased from 1.04 million in 2012 to 2 million in 2018. [12] [19]

Many credit unions are actively engaged in battling high interest payday loan organisations and loan sharks, offering an affordable credit alternative. [20] In 2013 the Archbishop of Canterbury Justin Welby launched a Church of England plan to support credit unions, to combat the rise of UK payday lenders charging extremely high interest rates, which gave rise to much publicity. [21]

Comparison with building societies

Building societyCredit union
Mutual society?YesYes
Not for profitYesYes
Registration actBuilding Societies Act 1986Credit Unions Act 1979
Association Building Societies Association (BSA) Association of British Credit Unions (ABCUL) but also the BSA and others
Number42Around 250
FSCSYesYes [17]
Staffed byPaid staffOften volunteers
Require a 'common bond'SometimesAlways [14]
Reward savers throughAlmost always interestGenerally dividends
Generally invest inMortgagesPersonal loans
Offer current accountsOnly Nationwide and Cumberland Yes, through Vox, Engage, pre-paid cards etc.

See also

Related Research Articles

<span class="mw-page-title-main">Building society</span> Type of financial institution

A building society is a financial institution owned by its members as a mutual organization, which offers banking and related financial services, especially savings and mortgage lending. They exist in the United Kingdom, Australia and New Zealand, and formerly in Ireland and several Commonwealth countries, including South Africa as mutual banks. They are similar to credit unions, but rather than promoting thrift and offering unsecured and business loans, the purpose of a building society is to provide home mortgages to members. Borrowers and depositors are society members, setting policy and appointing directors on a one-member, one-vote basis. Building societies often provide other retail banking services, such as current accounts, credit cards and personal loans. The term "building society" first arose in the 19th century in Great Britain from cooperative savings groups.

<span class="mw-page-title-main">Friendly society</span> Mutual association for a common financial or social purpose

A friendly society is a mutual association for the purposes of insurance, pensions, savings or cooperative banking. It is a mutual organization or benefit society composed of a body of people who join together for a common financial or social purpose. Before modern insurance and the welfare state, friendly societies provided financial and social services to individuals, often according to their religious, political, or trade affiliations. These societies are still widespread in many parts of the developing world, where they are referred to as ROSCAs, ASCAs, burial societies, chit funds, etc.

<span class="mw-page-title-main">Leeds City Credit Union</span> Financial co-operative in Leeds, England

Leeds City Credit Union Limited is a not-for-profit member-owned financial co-operative, trading as Leeds Credit Union, formed in 1987 and based in the West Yorkshire city of Leeds.

<span class="mw-page-title-main">Industrial and provident society</span> Type of corporate entity originating in Britain

An industrial and provident society (IPS) is a body corporate registered for carrying on any industries, businesses, or trades specified in or authorised by its rules.

The United Kingdom is home to a widespread and diverse co-operative movement, with over 7,000 registered co-operatives owned by 17 million individual members and which contribute £34bn a year to the British economy. Modern co-operation started with the Rochdale Pioneers' shop in the northern English town of Rochdale in 1844, though the history of co-operation in Britain can be traced back to before 1800. The British co-operative movement is most commonly associated with The Co-operative brand which has been adopted by several large consumers' co-operative societies; however, there are many thousands of registered co-operative businesses operating in the UK. Alongside these consumers' co-operatives, there exist many prominent agricultural co-operatives (621), co-operative housing providers (619), health and social care cooperatives (111), cooperative schools (834), retail co-operatives, co-operatively run community energy projects, football supporters' trusts, credit unions, and worker-owned businesses.

The District of Canterbury Credit Union Limited was a savings and loans co-operative based in the cathedral city of Canterbury. In 2011, it merged with the larger Kent Savers Credit Union.

<span class="mw-page-title-main">London Mutual Credit Union</span> British not-for-profit member-owned financial co-operative

London Mutual Credit Union Limited (LMCU) is a not-for-profit member-owned financial co-operative, based in Peckham and operating in the City of Westminster and the London boroughs of Southwark, Lambeth and Camden. The primary lines of business include retail banking, deposit-taking and lending.

London Capital Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Archway and operating across London and the South East.

Hornsey (FIA) Co-operative Credit Union Limited was a savings and loans co-operative, established in the Municipal Borough of Hornsey, now part of the London Borough of Haringey, in 1964. One of the earliest credit unions in the United Kingdom, it merged with London Capital Credit Union in 2013.

Eastern Savings and Loans Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Ipswich and operating through 25 local payment and information points in the East Anglian counties of Suffolk, Cambridgeshire, Norfolk and north Essex. The credit union has 6,500 members and manages £1.4 million in savings.

The Association of British Credit Unions Limited, commonly known as ABCUL, is the leading trade association for credit unions in Great Britain.

National Fire Savers Credit Union Limited is a not-for-profit member-owned financial co-operative, based in the London Borough of Southwark and operating throughout Great Britain. It has assets in excess of £11,000,000.

NHS Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Glasgow and operating throughout Scotland and the north of England. It has 9,100 members and manages over £12m in savings.

Commsave Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Northampton in the English Midlands. In 2020, it absorbed Northamptonshire Credit Union. As at 31 March 2024, Commsave has 35,488 members with £89.5m worth of savings and £75.2m on loan to members.

Plane Saver Credit Union is a not-for-profit financial co-operative, with their main office based in Harlington, and a second office at Heathrow Airport. A member of the Association of British Credit Unions Limited, Plane Saver has over 11,500 members, over £45 million in assets, and have lent more than £100 million to date.

<span class="mw-page-title-main">Co-operative and Community Benefit Societies Act 2014</span> United Kingdom legislation

The Co-operative and Community Benefit Societies Act 2014 is an Act of the Parliament of the United Kingdom. It consolidates existing legislation relating to industrial and provident societies, as well as introducing some reforms.

<span class="mw-page-title-main">London Plus Credit Union</span> British not-for-profit member-owned financial co-operative

London Plus Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Fulham and operating in the City of Westminster and west London boroughs of Hammersmith and Fulham, Kensington and Chelsea, Wandsworth and Hounslow. Wandsworth Plus Credit Union is a trading name of London Plus Credit Union working in partnership with Wandsworth Council in south-west London.

Churches' Mutual Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Gloucester and operating throughout the United Kingdom. It has in excess of 600 members and assets of £3 million.

East London Credit Union Limited was a not-for-profit member-owned financial co-operative, based in Walthamstow and operating in the east London boroughs of Waltham Forest, Enfield, Haringey, Hackney, Newham, Redbridge and the Epping Forest district of Essex. All members of the credit union were instant savers; different loans were provided depending on individual circumstances.

Thamesbank Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Hayes and operating in the south west London Boroughs of Hounslow, Richmond upon Thames, Wandsworth, Kingston upon Thames and the Spelthorne district in Surrey.

References

  1. ↑ Shay (1992)
  2. ↑ Anonymous (1994b)
  3. ↑ About Us, The Derry Credit Union
  4. ↑ Tim George Bickerstaffe (September 2001), The Significance of the Common Bond In Credit Unions (PDF), The University of Leeds Department of Sociology and Social Policy, p. 7
  5. ↑ Adele Atkinson (March 2006), Migrants and Financial Services: A review of the situation in the United Kingdom (PDF), Personal Finance Research Centre, University of Bristol, p. 8
  6. ↑ Credit Union History, Gateshead First Credit Union, archived from the original on 23 July 2013, retrieved 21 October 2013
  7. ↑ Poverty in Scotland: second report of session 2007-08, Vol. 2, House of Commons: Scottish Affairs Committee, December 2007, p. Ev 226, ISBN   9780215037817
  8. ↑ "Credit Unions Act 1979".
  9. ↑ Tim George Bickerstaffe (September 2001), The Significance of the Common Bond In Credit Unions (PDF), The University of Leeds Department of Sociology and Social Policy, p. 8
  10. ↑ Tim George Bickerstaffe (September 2001), The Significance of the Common Bond In Credit Unions (PDF), The University of Leeds Department of Sociology and Social Policy, pp. 8–9
  11. ↑ Raising the Profile: Meeting the Challenges - AN ACTION PLAN FOR THE CREDIT UNION MOVEMENT IN WALES 2010-2013 (PDF), The Welsh Credit Union Movement, November 2010, p. 5, archived from the original (PDF) on 3 February 2016, retrieved 23 October 2013
  12. 1 2 3 "Credit unions thriving even before Archbishop Welby's attack on Wonga". The Guardian newspaper. 29 July 2013. Retrieved 30 July 2013.
  13. ↑ ABCUL Archived 14 April 2010 at the Wayback Machine . Retrieved 2008-10-17.
  14. 1 2 "Credit union rules 'to be eased'". BBC News . 30 June 2008.
  15. ↑ "The Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011".
  16. ↑ "Short-Term loans". Essex Savers Credit Union. Archived from the original on 29 November 2014. Retrieved 23 November 2014. By law the maximum interest rate that a credit union can charge its members for a loan is 3% per month or 42.6% APR.
  17. 1 2 "Is your cash safe with the struggling credit unions? One a month is now going bust with more forecast to struggle". The Guardian newspaper. 11 May 2013. Retrieved 30 July 2013.
  18. ↑ "The story of the farepak savers | Joseph Rowntree Foundation". Archived from the original on 8 May 2015. Retrieved 2012-04-13.
  19. ↑ Jones, Rupert (31 August 2018). "Credit unions on the rise as membership passes 2 million". The Guardian. ISSN   0261-3077 . Retrieved 28 January 2020.
  20. ↑ "Credit Unions: Your Community's Financial Alternative".
  21. ↑ "Vince Cable backs Church plans to 'compete' with Wonga". BBC News. 25 July 2013. Retrieved 25 July 2013.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.