LONDON–Credit unions in this country are at a crossroads, according to a new report.
Credit unions in the U.K., which have a far lower profile than in the United States, hit a peak of about 700 in 2001, but have since declined to around 240, similar to the merger trendline in the U.S. But assets and membership hit a record high of £2.6 billion and 1.5 million respectively, in 2023, according to The Guardian.
Nevertheless, the Guardian reported that those CUs that remain “have been put on notice” by the Bank of England, which in October 2023 “flagged serious concerns about poor governance, liquidity risks and their ability to withstand the current economic downturn.”
‘Thrown into Question’
That cautious note has come at the same time the country’s Labour party has pledged to double the size of the entire mutual and cooperative sector if it gains power.
“However, without careful management, the future of the country’s credit unions, which have provided a financial lifeline for vulnerable households, could be thrown into question,” the Guardian said. “Some still rely on volunteers to govern or run their everyday operations and tend to focus on personal loans as small as £50, particularly for the less well off, who are often considered too risky by mainstream banks.”
Loan Caps & Good Deal
Interest is capped at an annual percentage rate of about 42.6% across most of the U.K. – approximately 3% a month – “which can be a good deal for those borrowing small amounts over short periods, who would otherwise be driven to loan sharks or extortionate payday lenders,” the Guardian said.
Also like credit unions in the U.S., CUs in Great Britain are feeling liquidity pressures unlike any credit unions have felt in the past, according to a report by the country’s Financial Conduct Authority.
While the country’s central bank has also issued a warning, Robert Kelly, the CEO of the Association of British Credit Unions, said the CUs have heard the concerns and that it’s only between 5% and 10% of credit unions that face any real challenges.
‘More Professional Industry’
“Many credit unions are now reviewing recruitment and risk management strategies, while others may consider introducing more paid staff,” Kelly told the Guardian. “Creating a more ‘professional’ industry may also be necessary in light of landmark changes contained in the Financial Services and Markets Act that take effect this summer. Credit unions will be able, for the first time, to offer car financing, mortgages, credit cards and general insurance.
“While this change is meant to create more affordable products for members, it will also help diversify income streams,” the report added.
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