Payday loan alternative needs more flexibility says Bank of England
The Bank of England has called for credit unions to be granted more flexibility to operate, which would allow them to carry out a wider range of services.
The current rules have been labelled as “rigid restrictions”, with the proposals made by the Bank’s Prudential Regulation Authority (PRA) set to cover all credit unions.
For the larger unions, it could result in their boards having greater control on how they serve their local community. One of the main intentions of the changes is for consumers to have more confidence that they will not lose money, if their credit union fails.
Credit Unions have received backing as an alternative to payday loans, particularly by Church groups, which have caused many financial difficulties for a number of people over the years who became trapped in spiralling debt.
Usage of credit unions in the UK is very limited compared to in the USA, where 46 per cent of consumers use credit unions. Only 2 per cent of adults in the UK are members of credit unions, of which there are almost 400 in the UK.
“These changes will introduce a more risk-based and flexible regime for credit unions, with prudential standards that reflect the diverse business models they now operate,” said the Head of PRA, Andrew Bailey.
“The new rules will raise standards where required.”