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The new credit union boom
Dan Hyde, This is Money
2 September 2008
Guide
Customers disillusioned with traditional banking in the wake of the credit crunch are turning to credit unions in search of a safer, more ethical place to save and borrow, it has emerged.
Some big banks took too many risks, lending aggressively during the boom years. Their actions may yet provoke a UK recession and credit unions look set to benefit.
'Credit unions are a very good way of keeping banking in check,' says Mark Lyonette, chief executive of the Association of British Credit Unions Limited.
'Since the Northern Rock crisis, we've seen a lot of people gravitate towards the neutrals of the banking industry and there are already a number using these schemes to great benefit.'
Credit unions work as 'neutral' organisations in which customers and shareholders are one and the same, united through a 'common bond' such as location or employer.
'This structural advantage means credit unions are able to serve their members exclusively,' says Lyonette.
'With conventional banks there is a difference of interest between shareholders and customers; by steering clear of this, credit unions are able to avoid pitfalls such as those the banks have experienced with the credit crunch this year.'
Several leading UK credit unions have enjoyed surging interest in the last few months as growing numbers of individuals struggle to finance their day-to-day expenses.
Leeds City Credit Union, which now has over 20,000 members, is one of those that has prospered.
'The banks are increasingly pointing people in our direction as the credit crunch bites because we offer a more rounded assessment of credit rating than banks do, which can really help individuals,' says James Hook, head of marketing at Leeds City.
A more recent development for credit unions, though, is the interest being shown from more affluent sectors of society, many of whom are making a lifestyle choice in the search for a 'more honest' form of banking.
'Concern for ethical issues has always been there for some, but it is now becoming more widespread,' says Karen Fraser, a leading consumer research strategist.
Hook agreed: 'The current economical climate means that we are able to promote ethical financing, as all the money that comes in [to the union] goes back out into the community,'
A traditional drawback with credit union borrowing has been the rates offered. Unions often struggle to compete with bank loans and offers vary significantly between providers. Most charge a maximum of 1% interest per month on the money they lend to their members, although by law this can be up to 2% a month, which would work out at between 10% and 24% APR. Currently, many rates are around 13%.
http://www.thisismoney.co.uk/saving-...6&in_page_id=7
Dan Hyde, This is Money
2 September 2008
Guide
Customers disillusioned with traditional banking in the wake of the credit crunch are turning to credit unions in search of a safer, more ethical place to save and borrow, it has emerged.
Some big banks took too many risks, lending aggressively during the boom years. Their actions may yet provoke a UK recession and credit unions look set to benefit.
'Credit unions are a very good way of keeping banking in check,' says Mark Lyonette, chief executive of the Association of British Credit Unions Limited.
'Since the Northern Rock crisis, we've seen a lot of people gravitate towards the neutrals of the banking industry and there are already a number using these schemes to great benefit.'
Credit unions work as 'neutral' organisations in which customers and shareholders are one and the same, united through a 'common bond' such as location or employer.
'This structural advantage means credit unions are able to serve their members exclusively,' says Lyonette.
'With conventional banks there is a difference of interest between shareholders and customers; by steering clear of this, credit unions are able to avoid pitfalls such as those the banks have experienced with the credit crunch this year.'
Several leading UK credit unions have enjoyed surging interest in the last few months as growing numbers of individuals struggle to finance their day-to-day expenses.
Leeds City Credit Union, which now has over 20,000 members, is one of those that has prospered.
'The banks are increasingly pointing people in our direction as the credit crunch bites because we offer a more rounded assessment of credit rating than banks do, which can really help individuals,' says James Hook, head of marketing at Leeds City.
A more recent development for credit unions, though, is the interest being shown from more affluent sectors of society, many of whom are making a lifestyle choice in the search for a 'more honest' form of banking.
'Concern for ethical issues has always been there for some, but it is now becoming more widespread,' says Karen Fraser, a leading consumer research strategist.
Hook agreed: 'The current economical climate means that we are able to promote ethical financing, as all the money that comes in [to the union] goes back out into the community,'
A traditional drawback with credit union borrowing has been the rates offered. Unions often struggle to compete with bank loans and offers vary significantly between providers. Most charge a maximum of 1% interest per month on the money they lend to their members, although by law this can be up to 2% a month, which would work out at between 10% and 24% APR. Currently, many rates are around 13%.
http://www.thisismoney.co.uk/saving-...6&in_page_id=7
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