Credit unions ‘more secure’ with new laws

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THE number of credit unions failing dropped last year thanks to new laws which helped to make them more secure, according to an organisation which represents them.

The Association of British Credit Unions Limited (ABCUL) said changes to Financial Services Authority (FSA) rules in early 2012 were among a number of factors which led to a drop in the number of failing credit unions from eight in 2011 to six in 2012.

Also playing a part was a change to the Credit Unions Act 1979, allowing them to bring new groups into membership and offer services and investment opportunities to other organisations and companies – which helps to broaden the range of members and makes it easier for credit unions to merge if necessary.

With 396 credit unions in Great Britain and a further 180 in Northern Ireland, ranging in size from fewer than 200 members to more than 20,000, it seems they are becoming an increasingly popular alternative to banks and building societies – especially as members’ savings are protected up to £85,000 in the same way as traditional accounts.

Mark Lyonette, chief executive of ABCUL, said: “Credit unions are authorised and regulated by the FSA, just like banks and building societies.

“They will continue to be regulated by the same bodies as banks and building societies when the Prudential Regulatory Authority and the Financial Conduct Authority take over the regulation of financial services firms in April 2013.

“Credit unions are also members of the Financial Ombudsman Service, so consumers have the same rights of complaint as they do for banks and building societies – although the number of complaints to the FOS in any year are negligible.

“Members of credit unions also have more opportunities to get involved in the governance of the credit union. As members of a financial co-operative, they can vote on changes to credit union rules, vote for volunteer directors and can stand for office themselves.”

As well as new regulations helping credit unions to grow, ABCUL is working on a series of measures to further improve their prospects.

“Credit unions are increasingly working together to improve economies of scale and build tools and services which offer more choice to consumers and help credit unions to run as efficiently as possible,” said Mr Lyonette.

“ABCUL is developing a range of products with our member credit unions, which will help them to reduce costs and increase sustainability.

“Training and information – including the Credit Union Code of Governance and the PEARLS financial monitoring system provided by ABCUL – is (also) enabling credit unions to improve their skills and governance.”

Since 2002, 66 credit unions have failed and the Financial Services Compensation Scheme has paid our more than £8.4m to just over 18,300 credit union members who would otherwise have lost their money. The most recent of those was North Yorkshire Credit Union, which collapsed at the beginning of November.

The Financial Services Compensation Scheme (FSCS) vowed to ensure the 5,000 savers, with a total of £1.9m in the union, did not lose out. However, North Yorkshire County Council has since said it will have to write off a £200,000 loan it gave to the credit union in 2009, while also contributing £30,000 to a £100,000 fund to allow a new credit union to begin operating.

In 2009, Leeds City Credit Union received an emergency bail-out of £4m from public funds to stave off financial collapse, before returning to healthier times in early 2012.

As part of its wider remit, the FSCS has protected more than 4.5m people and paid out more than £26bn in compensation since 2001, when authorised financial services firms of any kind have failed, usually acting within a few days to restore customers’ savings.