John Glen, economic secretary to the Treasury, pledged support for credit unions at the sector’s annual conference in Manchester on 9 March.
“I have a strong personal belief in the contribution credit unions make to this country and our economy,” he said in his keynote speech. He told delegates at the Association of British Credit Unions (Abcul) conference that he wanted to see the sector growing and becoming stronger.
Credit unions across the UK enable more than two million members to borrow or save, giving the sector an important role in financial inclusion. But Mr Glen said there was still need for action on several fronts to increase this inclusion – starting with education. The government had made financial literacy part of the national curriculum to enable young people to save and budget, he said.
Another key area of focus is cracking down on those exploiting vulnerable people. In 2015 the FCA introduced a cap on payday lenders, he said. And last year the government announced proposals to protect millions of people who use overdrafts and high-cost credit.
This month, the FCA confirmed the introduction of a price cap to protect vulnerable customers in the rent-to-own (RTO) sector, who currently pay more than four times the retail price of some goods.
And last October the government opened a consultation on a Breathing Space Scheme, which would give a 60-day pause for people struggling against debt recovery action. In addition, the government introduced a prize-linked savings scheme for credit union members, as well as a no-interest loans scheme for deprived borrowers, which could have a role for credit unions.
“The challenge for you as a sector is to ensure that social and community lenders can go toe to toe with larger, commercial competitors,” said Mr Glen.
Last August the government announced £55m funding for financial inclusion through Fair4AllFinance, an organisation responsible for deploying funding from dormant accounts.
And Mr Glen said regulation would be simplified to make it easier for social landlords to direct creditors to credit unions as alternative to high-cost credit.
He said that while the Credit Union Expansion Project had failed to reach the anticipated results, important lessons had been learnt. The programme aimed to migrate member credit unions to a new tech platform, with funding from the Department of Work and Pensions. A one size-fits all approach was unlikely to work, he added.
The government is now planning an affordable credit challenge fund worth £2m to encourage fintech firms to focus on serving credit unions and community financial institutions.
“Consider talking to fintechs about your individual needs,” he said, and urged credit unions to speak with a single voice and present a common vision for the future.
Abcul has also been working with the government on developing a pilot scheme for 10 to 15 credit unions to launch prize-linked savings accounts to encourage individual savings.
The conference saw the launch of a consultation of members to plan the next steps to secure a sustainable future for the sector. Mr Glen said the government was keen to engage with credit unions once the consultation finished.
“You are doing a wonderful job and I want to be here to support you in the next stage of your development as you serve our country,” he said.