Report calls for expansion of credit unions

September 07 2010

A report from the Consumer Focus organisation on the pay day lending market has recommended the extension of support for credit unions and an expansion of their services through Post Offices to address problems caused by high-cost, instant borrowing.

Pay day loans are cash advances against the recipient’s next salary payment — a post-dated cheque or authorisation to take payment from the recipient’s bank account is provided as security. Typical APR can run from 2,000–3,000 per cent or more.

The report, Keeping the Plates Spinning, finds that since 2006 the pay day lending market has grown to have 1.2 million customers lending £1.2 billion last year. Those typically borrowing are under 35, living alone and with a relatively low household income.

Credit unions are recommended as part of a solution to prevent the convenience of pay day lending becoming a cycle of repeat borrowing and ballooning debts. The report states: “Credit unions provide a valuable source of affordable credit, but there are limits on their accessibility as they still operate on a relatively small scale in the UK.

“Nonetheless, credit union membership may be an option for consumers who are trying to avoid the possibility of future resort to pay day lending by saving. They would also be better placed for access to lower cost borrowing if the need arose subsequently.”

ABCUL Chief Executive Mark Lyonette, welcomed the Consumer Focus report: “While on a one-off basis, lending like this is not necessarily dangerous — where such lending becomes routine and loans are rolled over, debts can quickly mount up and become unmanageable. Credit unions offer a long-term solution to managing personal finances by striving to break the cycle of debt dependency and put people back in control of their financial position.”

Category: Credit unions

Your views:

Morris of Manchester said 534 days ago:

I believe that the vast majority of Pay Day loans are used to repay other Pay Day loans keeping the loan total building until it balloons out of all proportion. Experience among our credit unions shows an increasing number of IT literate employees are also getting sucked into the Pay Day lending trap. Two issues come out of this article: 1. The need to set a ceiling for interest rates to prevent usury. 2. The need for our nation to understand better personal finance education and ensure that our kids are better informed.

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