LONDON—To mark the 50th anniversary of credit unions in England, the government solicited feedback on how credit unions have setout their vision for what’s ahead, and asked for ideas on how it can help credit unions to succeed.
Here is a list of responses assembled by credit unions here that were provided to the government.
1. Starting up. Existing start-up capital requirements are too restrictive for new credit unions wishing to register. Of the 35 respondents that answered this question directly, 13 felt the initial capital requirements (3% capital:assets ratio for small credit unions, 8% capital/assets ratio for large credit unions) are unrealistic for new credit unions due to their nature as self-capitalizing institutions.
Among the other suggestions were a graduated approach to regulation and restrictions at each level, including a three-to-four-year establishment period to enable credit unions to register and build up capital. Several responses argued that the government should provide more funding to cover the start-up costs.
2. Government support. There was broad agreement from all sectors that government should not promote credit unions as an alternative to payday loan companies, as it is not sustainable for the sector to solely serve the financially excluded. But there was widespread support for the government to encourage strategic partnerships between businesses and credit unions, particularly around payroll deduction.
Trade bodies and larger credit unions thought government should support credit union savings clubs in schools to educate children about the benefits of credit unions and saving from a young age. There were also suggestions that government should promote awareness of credit unions through publicity and marketing, with respondents, predominantly from smaller credit unions and the voluntary sector, suggesting that government fund a national advertising campaign.
3. Restrictive regulation. There was some support from trade associations for the Financial Conduct Authority to delegate some of the rule-making responsibility to the individual credit union board, where they have previously sought authorization to do so from the membership. This was also supported by some larger credit unions, with respondents emphasizing that the current arrangements for changing a credit union’s rulebook are unnecessarily laborious and require simplification.
However, there were concerns from some trade bodies and voluntary sector institutions that member control should not be diluted.
4. Promoting stability. Some trade associations and credit unions called for the government to support measures that allow the credit union sector to collectively manage their financial assets. A few of the associations and smaller credit unions suggested removing the lending and depositing limits, with one trade body suggesting the restrictions on these limits could be overcome by formal partnerships between credit unions and Community Development Finance Institutions (CDFIs). There was also a high degree of support for the removal of lending and depositing limits from the larger credit unions and voluntary sector organizations, particularly for corporate members.
5. Business links. There were differing views on whether credit unions should pursue business lending, with some of the larger credit unions suggesting the rewards from business lending are not worth the risks, and with some trade associations stating that there was little interest from credit unions in expanding into this area at the moment.
However, a few large credit unions suggested that this is a direction they wish to pursue in the future. Some smaller credit unions noted that they do lend to sole traders as individuals, but one response emphasized that the restrictions placed by the regulator on such activities are onerous.
6. Merging opportunities. The majority of trade associations suggested the government should not drive mergers but instead should support increased collaboration. Some of the larger credit unions felt that mergers were necessary and that the government should take an active role in facilitating these mergers. One large credit union thought that the current situation of around 375 credit unions across the country, many of which have fewer than 1,000 members, is unsustainable and the future objective should be around 20-30 national, general service credit unions. This view was generally supported by respondents from the voluntary sector.