A regulatory system for Britain's 700 credit unions came into effect yesterday under the remit of th...
A regulatory system for Britain's 700 credit unions came into effect yesterday under the remit of the Financial Services Authority, in a bid to protect consumers financially from loan sharks who either cannot or do not want to use banks.
Credit unions will be required to meet solvency requirements and standards of practice, much like most other financial services companies, key personnel will have to meet standards set out in the FSA's rules for approved persons, but the key change is consumers with have access to the Financial Services Compensation Scheme should any of the companies go under.
There are said to be around 700 credit unions registered in Great Britain with more than 300,000 members and with assets of around £200 million, according to the FSA, however the number of credit unions is expected to drop now regulation is in place.
Under the Credit Unions 1979 Act, companies - whose members had to be in residence in a particular locality; a member of, or have an association with, an organisation; working for a common employer or in a particular locality; or following a particular occupation - were required to promote thrift among members, create sources of credit at fair and reasonable prices, use members savings for their mutual benefit, as well as train and educate credit union members in the wise use of money and in the management of their financial affairs.
To save through a credit union, members subscribe for non-transferable shares deposited with a credit union and may take out loans, at a maximum rate of interest of 1% per month and, for the majority, up to £5,000 in excess of their shareholding.
Howard Davies, chairman of the Financial Services Authority, says people who want financial help should now be able to get it in a safer environment.
"Saving with a credit union should be more attractive to a wider range of consumers; and higher savings will give credit unions a stronger platform from which to enhance and increase the range of services they can provide.," says Davies.
"Some credit unions will find it harder than others to make the transition to the new regulatory requirements. So at the start of the year we set up a support team to work with credit unions - and other interested parties such as the trade associations, local authorities and funding agencies - to help them meet the challenge. In the great majority of cases the outcome has so far been positive," he adds.
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