Credit union law change provides access to charities and social enterprises
January 2012
Changes to the Credit Unions Act 1979 passed through Parliament on 8 November 2011 and came into force on 8 January 2012
The Legislative Reform (Industrial & Provident Societies and Credit Unions) Order 2011 (LRO) removes restrictions in the current law and allow credit unions to choose to:
Comments
- reach out to new groups by serving more than one group of people
- provide services to community groups, businesses and social enterprises
- offer interest on savings, instead of a dividend.
Other changes will allow credit unions more flexibility to charge for additional services and enable more people who move jobs or home to continue to receive services from the credit union. These changes will make credit union services available to many more people. The changes will come into force from 8 January 2012.
The changes
Allowing credit unions to serve more than one group of people
Main points
• Credit unions will no longer have to prove that everyone who can join a credit union has something in common. This means they will be able to provide services to different groups of people within one credit union.
• A ‘field of membership test’ would make sure it is possible for all potential members to be served by the credit union. Credit unions whose ‘common bond’ includes a geographical area will be limited to two million potential members.
What will this mean?
• Credit unions will be able to open up membership to new groups, such as tenants of a housing association or employees of a national company, even if some tenants/employees live outside the geographical area that the credit union serves.
• For instance, a credit union providing services to anyone living or working in Manchester would be able to extend its reach to provide services to tenants and staff of a housing association with properties across the North of England. There will be no limit to the groups that a credit union can provide services to. This will make it much easier for credit unions to extend their services to new groups of people and make the most of partnerships with housing associations, charities and employers.
Allowing credit unions to provide services to community groups, companies, charities and social enterprises
Main points
- Credit unions will no longer be limited to providing services to just individuals.
- Credit unions will be able to choose to offer membership to unincorporated associations and corporate bodies such as companies, partnerships, chariites and social enterprises.
- Non-individuals will only be able to make up a maximum of 10% of a credit union’s total membership hold a maximum of 25% of shares in the credit union and be granted a maximum of 10% of loans
- Credit unions will be able to choose whether to offer ordinary shares – ownership of which will bring all the benefits of credit union membership, or deferred shares, which will only be repayable in restricted circumstances and which will count towards the capital of a credit union.
What will this mean?
- Local community organisations such as tenants’ associations and social clubs attached to workplaces will be able to join a credit union and use its services.
- Local companies and social enterprises will be able to join credit unions and support their local community.
- Organisations such as housing providers, religious groups and local authorities will be able to help increase the supply of affordable credit in a community by depositing money in a credit union.
Mark Lynette CEO of the Association of British Credit Unions (ABCUL), said:
“These changes are a major breakthrough in the delivery of credit union services to organisations around Britain. The new rules mean that, for the first time, credit unions will be able to offer services directly to charities, social enterprises and community groups, allowing credit unions to compete more effectively with banks and other lenders to provide fair and affordable financial services. The changes will also help credit unions build stronger relationships with the staff, members and service users of organisations, helping them to develop a savings habit – which can only be good for communities.”
More information on measures the government is taking to support mutuals and credit unions, including the LRO, are available at the HM Treasury website.
For further information, please contact enquiries@abcul.org.
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