New credit union legislation will help the sector grow in a sustainable way, John Glen, economic secretary to the Treasury, told delegates at an industry conference last week.
Addressing the annual conference of the Association of British Credit Unions (Abcul), the minister said the government was keen to support the sector but it was up to credit unions themselves to make the most of the new legislation.
The changes to the existing Credit Union Act will allow credit unions to offer a wider range of products and services to their members, in a bid to increase their role in financial inclusion. The move was announced in the recent budget but is still to be passed by Parliament, which faces disruption from the Covid 19 outbreak.
Praising credit unions for their authenticity and strong bond to local communities, Mr Glen said the sector could help parts of the society that other financial institutions cannot reach. Credit unions can also help tackle the scourge of loan sharks and payday lenders by winning the trust of low-income borrowers, as well as providing consumers with an ethical home for their savings.
But he warned that the credit union sector is not as strong or as successful as it could be. “Too many credit unions fail,” he said. “Too few grow in a way that is sustainable. Many have struggled with matters of governance, leadership and regulatory compliance.”
And while he thinks there are many “shining examples” of “credit unions doing great things”, he believes “the sector somehow remains less than some of its parts”.
Mr Glen said the sector’s diversity is a strength as well as a weakness: collectively, credit unions have found adapting to new technologies and consumer needs difficult. “Together you struggle to have your voice heard and as a result the sector remains in the margins when it has the potential to do so much more,” he told delegates.
What needs to happen to unleash the sector’s potential? The minister said credit unions should continue to cherish their values while offering a wider range of products to serve changing consumer needs and expectations. He encouraged credit unions to work together to develop solutions to shared challenges faced, harnessing latest technology, including open banking.
Last year the government launched a pilot Prize-Linked savings scheme for credit unions, to help people improve their financial resilience while boosting awareness and membership of credit unions. This saw 15 credit unions across the country launch prize linked saver accounts; 7,000 new accounts were opened and 53 members won prizes. The minister confirmed the pilot will run until next March when the government will assess the outcome.
Another initiative, the Affordable Credit Challenge, supports partnerships between UK community lenders and fintechs developing innovative technology to increase access to affordable, responsible credit. The government allocated £2m for this project, which is run in partnership with the Nesta Challenges foundation.
The budget speech announced the three winners of the challenge, each of which will receive a further grant of £200,000 to take their ideas forward. These include Police Credit Union’s partnership with Credit Kudos, and Capital Credit Union’s partnership with fintechs Nivo and Soar.
Mr Glen also highlighted the Fair4All scheme to increase access to affordable financial products and services, which is funded by dormant assets money for financial inclusion.
Last October, the Bank of England announced proposals to cut capital requirements for credit unions, a measure the movement had long been campaigning for.
“There is a lot of action under way on many fronts,” said Mr Glen – but he warned that “it is not for government to bring about the change the sector needs.”
He added: “Even if it could, it runs contrary to what credit unions are about. Your success is driven from the bottom up, not the top down. The responsibility, and the opportunity, rests in the hands of you, and your members.”
Speaking of Abcul’s new Vision 2025, a five-year vision to drive its strategy until 2025, the minister said it “represents a clear set of objectives around which credit unions can unite”. He called on credit unions to start working on making the vision reality.
“I’m encouraged by what I’ve seen and heard in recent weeks. You have the people, the passion and now you have a plan, too. Don’t let it gather dust on a shelf – make it happen,” he said.