The Financial Conduct Authority has called on the government to update credit union legislation so the sector can expand and challenge high-cost lenders.
The report, Alternatives to High-Cost Credit, is part of its ongoing review of high-cost credit regulation, which has already seen it confirm a payday lending cap and introuduce new remedies to help consumers in in the rent to own market.
This week’s report recommends that HM Treasury should review legislation relating to credit unions to give the sector new powers, and to let it develop new products and services not currently permitted under the Credit Unions Act.
The report also commented on the need for credit unions to speak with a more unified voice.
In response, Mat Bland, head of policy and communications at the Association of British Credit Unions (Abcul), said: “We and are our members are delighted to see the FCA recommend that Treasury overhauls credit union legislation.
“As the report’s analysis makes clear, credit unions – by a margin of hundreds of millions of pounds – are the most active and sustainable providers of affordable credit to those underserved by the mainstream and who borrow from expensive alternatives.
“Our work suggests that liberalising the Credit Unions Act to broaden our powers would allow credit unions to expand and play a bigger role in disrupting high-cost credit.”
He added: “Abcul is currently running a major consultation process with all credit unions across the country which seeks to set a shared vision and strategy for credit unions to 2025 and beyond.
“As the largest trade group within the credit union sector, we are showing leadership in bringing people together from across the credit union sector and speaking to government and regulators with a unified voice.”
The report also noted the need to raise awareness of the availability of alternatives to high-cost credit, the important role of the Money & Pensions Service and social landlords in doing this as well as the wider work being delivered by government.
Mr Bland said: “We agree with the FCA on the important role that social landlords can play in referring their tenants to credit unions and other lenders to raise awareness. We were delighted that Treasury legislation to provide a clear regulatory exemption for social landlords doing this became law on 23 July.
“We would like similar legislation to be considered in relation to other partners of credit unions. Similarly, we are working closely with the Money & Pensions Service through its ongoing listening process to explore how credit unions can support its aims by expanding their affordable credit and savings facilities.
“We are also strongly supportive of the measures announced in last year’s Budget to support financial inclusion with the pilot of Prize-Linked Savings in credit unions, a feasibility study on No-Interest Loans, and the Affordable Credit Challenge Fund all well under way with strong credit union support and engagement.
“We keenly anticipate the new financial inclusion organisation, Fair 4 All Finance, beginning to invest in the expansion of community lenders, of which credit unions make up the vast majority.”