The Financial Conduct Authority (FCA) is looking to encourage the expansion of credit unions as it examines the market for alternatives to high-cost credit.
Excluding overdrafts, three million consumers use high‑cost credit in the UK according to the regulator’s latest report, which recommends that the Treasury should consider reviewing legislation relating to credit unions.
It is hoped that additional powers not currently provided under the Credit Unions Act will allow unions to innovate and develop new products and services.
The regulator noted that while demand is there, work is required to raise awareness of the services credit unions and other, non-credit alternatives, provide.
Currently, credit unions are financial co‑operatives owned by and run for the benefit of their members, who are their customers. There are over 400 credit unions taking deposits from and making loans to more than 1.8 million members across the UK. Credit unions lend around £1.5bn to their members per year.
Consumer awareness of credit unions is relatively low, the FCA found, especially when compared to many high‑cost lenders.
It added that consumers’ awareness of alternatives could be improved by more relevant and timely information. This should cover both general information about the types of providers, for example credit unions and reuse centres, and more specific information about providers in the local area.
Matt Bland, head of policy and communications at the Association of British Credit Unions, said: “We and are our members are delighted to see the FCA recommend that Treasury overhauls credit union legislation in its report on alternatives to high-cost credit.
“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. 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.”