Why credit unions can help to conquer debt and poverty

IN A New Year article for the Daily Mail, the Archbishop of Canterbury, Dr Rowan Williams, expressed concern at the rising levels of consumer debt, and called for support for families caught up in the cycle of debt. He said that ‘in many vulnerable communities it can seem as though there are no alternatives to loan sharks with soaring rates of interest (and sometimes unorthodox means of collection).’ He added that ‘Credit Unions offer a realistic option that will offer people manageable credit terms and help train them in keeping on top of their problems.’

What is a Credit Union?

Credit Unions have their roots in the concept of self help – they are democratic financial co-operatives. They are owned and run by their members, for their members, to provide them with access to high quality financial services based on secure savings and low cost loan facilities. They are community enterprises, set up for and by people who live or work in their Common Bond areas. They seek to make a significant anti-poverty impact, especially in areas of social deprivation and financial exclusion – as well as providing access to financial services for all the community.

They also seek to educate members and others about the benefits of regular saving and good money management.

Here, in the area of the Oxford Diocese, study or development groups have set about the creation of Credit Unions in Milton Keynes, Oxford and Reading.

Each will be registered under a Common Bond, covering anyone living and/or working in those communities. This work is associated with a range of faith groups, ethnic groups, housing associations, trade unions, the business community and representatives of social and community organisations.

Credit Unions are ‘not-for-profit’ organisations. And whilst there will be some full time employees, the backbone of Credit Unions are its support team of unpaid volunteers, including its Board of Directors, Credit Committee and Supervisory Committee.

This means that surplus funds, after meeting expenses and setting up reserves, are distributed to the Members as dividends, a lower rate of interest can be charged on loans, and with improved services. Free life assurance cover is given.

What happens to my savings?

Members’ savings are placed in secure investments of low risk. Savings put into a Credit Union are as safe as those in banks or building societies because they are regulated by the FSA and covered by the Financial Services Compensation Scheme, as well as having fidelity bond insurance that protects Credit Unions against fraud.

Do I receive interest on my savings?

A member’s savings buys shares in the Credit Union. Once running costs have been met, the remaining surplus is paid to members in the form of a dividend. The dividend fund is paid out in accordance with the number of shares held and the time for which they have been held, just like a loyalty bonus. By law, the maximum bonus paid is 8% gross before tax per year.

What about loans?

Many people, from all walks of life, join a Credit Union because it gives them access to affordable loans – as well as helping them to save on a regular basis. Loans can be made, for small or large amounts, for periods of up to 3 years for unsecured loans and seven years for secured loans.

After members have saved regularly for a minimum period they can apply for a loan. The amount that they can borrow and the repayment terms depends upon the period of membership and the amount saved, the purpose and amount of the loan and the character of the member.

Members can borrow for a range of purposes including household purchases, back to school, holiday, repay a credit card, buy a car or computer, meet unexpected expenses, etc.

The maximum interest charged on these loans is set by law at 1% per month on a reducing balance. This works out at an APR of 12.68%. So, on a loan of £1000 re-paid in one year, the interest charged would be £65. All loans are protected by life assurance with the premiums paid by the Credit Union. This means that loans are paid off in the event of death.

Who owns and runs the Credit Union?

Everyone who lives or works in a Common Bond area is eligible to be a member of the Credit Union. The members are the owners of the Credit Union, not just ‘customers’. It is only members who can use the services of the Credit Union. It is the members who control the Credit Union democratically. Each member has one vote irrespective of how much they have in shares.

How do I join the Credit Union?

Anyone who lives and/or works in a Common Bond area, must simply complete an application form, provide proof of identity and residence, pay a small entry fee and invest a minimum of £1 into a savings account.A member must make a commitment to save regularly with the Credit Union. Every £1 saved buys a share.

Children can save with the Credit Union, but cannot become members until they are 16 years old, or qualify as borrowers until they are 18 years old. Children’s savings are held in a separate account.

David Bertram
Reading Savers Credit Union Study Group

Milton Keynes Credit Union Study Group
Fountain House,
The Square, Aylesbury Street,
Wolverton, Milton Keynes, MK12 5HX
01908 525086
grahamg@mkchristianfoundation.co.uk

Oxford Credit Union Development Office
43 St Giles, Oxford, OX1 3LW
01865 516288
oxfordcredituniondev@yahoo.co.uk

Reading Savers Credit Union Study Group,
PO Box 2368 Reading RG30 2ZJ
www.readingcreditunion.co.uk
info@readingcreditunion.co.uk