CREDIT unions must be given powers to charge more and take bigger deposits so they can become a real alternative to high-cost lenders such as payday firms, a think tank has argued.
Civitas is urging the Government to go further than its recently-announced plans to raise the cap on interest rates that credit unions are able to charge to borrowers in order to help the sector grow.
New legislation will increase the maximum interest rate credit unions can charge on loans from two per cent to three per cent a month, from April 1 next year.
The new rules aim to make it easier for credit unions to offer short-term loans as current rules mean that they often end up making a loss on loans under £1,000 due to the admin costs involved.
But Civitas said that the “burdensome” regulation should be lifted further, to allow credit unions to pass on their processing fees, which are typically £8, to the borrower in full. Even with the added cost, a short-term loan would remain much cheaper than the alternative options for consumers, it argued.
“Ultimately, credit unions cannot be expected to combat payday lenders if they are continually forced to make a negative or non-existent return on the same loans,” it said in a report.
Credit unions are mutual financial co-operatives that take deposits and give loans to members.