Ever since the earliest credit unions were first founded, membership has never been an open-door policy. Instead, it has been restricted to those joined by a “common bond” – a shared connection through employment, occupation, association or geography. Historically, this principle provided a degree of trust and social accountability that helped credit unions lend money at affordable rates while providing security against bad debt.
Over 175 years later, the common bond remains one of the credit union movement’s defining characteristics, helping distinguish it from ordinary banking. However, credit unions today operate on a vastly greater scale, and are increasingly serving members who may have little or no direct relationship with one another. Despite this, the common bond remains embedded in legislation in both Britain and Ireland – and continues to determine who can participate in credit unions.
With the UK government having announced plans to lift the cap on the common bond from three to ten million people earlier this year, one question is becoming ever more relevant to today’s credit union sector: is the common bond fit for purpose today?
A 2026 report from the Swoboda Research Centre takes a critical look at this question, and explores something so embedded in the credit union movement that it has rarely been subjected to serious scrutiny. Published in May and written by Chris Smyth, former CEO of Leeds Credit Union, The Common Bond Enigma examines the history of the common bond and queries its original rationale for restricting membership in the 21st century – asking: should legislation require a common bond at all?
What is the common bond for?
According to the report, when credit unions first emerged in 19th-century Germany, the answer was relatively straightforward. The close relationship between members was a form of social capital: people knew one another, reputation mattered, and the prospect of both social and economic consequences encouraged borrowers to repay their loans. With credit unions offering loans at relatively low interest rates – while having little room to absorb bad debt – that shared connection provided a vital layer of security.
But the report argues that, for many credit unions, the original purpose of the common bond has largely disappeared.
“For most credit unions, the common bond no longer has any, or only minimal, relevance to its original purpose of providing surety when offering credit,” Smyth writes. “Either the membership size of credit unions or the availability of modern loan decision making tools, including those such as credit scoring, has made the original purpose of the common bond irrelevant for many credit unions.”
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Smyth argues that the common bond has instead taken on a different significance – one tied less to the fundamental mission of credit unions and more to their legal and institutional identity. In many parts of the world, the ‘common bond’ has simply become part of what distinguishes credit unions from other financial institutions, given that it is so closely tied to their identity as member-owned, community-focused organisations.
The result is a paradox: a feature that may no longer be particularly relevant to the practical business of lending has nevertheless become central to the way the movement understands itself. “The four main types of common bond, by locality, by occupation, by employer and by association have worked well over time,” explains Smyth. “However, they may no longer be fit for purpose.”
Smyth also argues that, outside the credit union movement, people often have little understanding of the common bond.
For prospective members, he suggests, eligibility may matter considerably less than the quality and relevance of the products and services on offer.
When a bond becomes a barrier
The report argues that the question becomes increasingly pressing when common-bond rules begin to constrain the growth of credit unions. In Britain, for example, the locality common bond remains subject to a three million-person population cap – even if a credit union holds locality common bonds in multiple areas. Given that non-geographical common bonds have no equivalent population cap, the restriction is also uneven; occupational credit unions, for example, can have potential fields of membership far exceeding three million. Smyth argues that the locality common bond limit is therefore a barrier to both mergers and transfers of engagements, preventing credit unions from scaling their operations and improving their sustainability and competitiveness.
The report also questions the logic behind this cap itself, highlighting a 2021 statement from the Financial Services Authority that, once membership exceeds one million, it treats the common bond as “meaningless”.
If the purpose is to manage risk, Smyth argues, modern regulation does this; if it is intended to preserve member participation and democracy, digital tools mean that members no longer need to live within a tightly defined geographical area to engage with their credit union.
The government’s proposed increase from three million to ten million – put forward under former PM Keir Starmer – addresses some of these problems, but Swoboda argues that it doesn’t answer a more fundamental question: why should there be a statutory limit at all?
Britain is far from the only jurisdiction wrangling with this question. Some countries retain tightly defined membership criteria, while others give credit unions much greater freedom to determine their own fields of membership – and in some cases, have effectively abandoned the common bond altogether.
Australia, for example, has no federal legislation requiring credit unions to have a common bond, with many having removed the requirement from their rules. Meanwhile, in Quebec, credit unions have historically been given considerable discretion to determine who can become a member. These examples show that the statutory common bond is not the only way of preserving a credit union’s distinctive identity or underlying mutual principles.
Smyth’s conclusion is therefore not necessarily that the common bond itself should disappear, but that the legal requirement for every credit union to have one should be removed. This way, individual credit unions that consider the bond central to their identity could continue to retain it – while those that see it as an unnecessary constraint would have the freedom to operate without it.
“Although I would always defend the right of a credit union to choose to have a common bond if it wished to, I have concluded that there is no need for the regulatory requirement to have a common bond in Britain in our current digital world,” writes Smyth in the report’s preface. “Its abolition as a legislative and regulatory requirement, would free managers from an unnecessary administrative constraint and enable them to focus on expanding the reach of credit unions within British society.”
Access the full report at swobodacentre.org
