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Credit union loans held back by burdensome rules

New rules that would allow credit unions to compete with payday lenders to give consumers an alternative do not go far enough, according to a think tank.

The Institute for the Study of Civil Society, or Civitas, has urged the government to do more, calling the restrictions placed on credit unions ‘burdensome’.

This week, the government has raised the monthly-interest cap on short term loans offered by the unions from two per cent to a maximum of three per cent from April 2014.

It said that they must be given powers to charge more and take bigger deposits if they are to become a credible alternative to payday lenders.

Currently, credit unions make a loss on many of the short-term loans they offer, the think tank said, something which is usually heavily subsidised by large loans that do bring in a profit.

“Credit unions cannot be expected to be a real alternative to payday lenders until they are equipped to offer short-term loans on an economical basis,” said Joseph Wright, researcher for Civitas.

John Fieldman

Having worked in the city for 19 years, John's main focus is interest rates and corporate financeADNFCR-2776-ID-801599992-ADNFCR



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