The UK government needs to reform the Credit Unions Act to help expand the sector, a Conservative MP told Treasury ministers.
Bim Afolami also called for a review of capital requirements on the sector, during a parliamentary debate on the UK as a Financial Services Hub.
The MP, chair of the all-party parliamentary group on credit unions, said credit unions gave people in the most deprived areas of the country access to affordable loans and savings.
“One of the main purposes of credit unions is to provide that face-to-face advice,” he said. “Credit unions are often active in places that banks left long ago. Providing that personal information that helps people to build up their savings is important.
“Credit unions in the 10 most deprived communities in Britain are lending heavily, and they consider loans that few other lenders would consider because of the applicants’ credit scores, while also charging considerably less than any other type of financial service. Credit unions in the UK currently have £860m out on loan, and that lending is predominantly focused on those at the bottom end of the income scale.”
Mr Afolami said that once people in deprived communities are given a chance to access credit on affordable terms, they start to see patterns of improvement in their credit profiles.
“Will the minister agree to work with me on two aspects of credit unions?” he asked. “First, will he consider amending secondary legislation to broaden credit union lending powers, so that they are able to service more people from that vulnerable group? Secondly, will he work with the Bank of England to review capital requirements for credit unions, so that the sector can serve more people more effectively?”
Labour MP Anneliese Dodds, shadow minister of the Treasury, welcomed the mention of the role played by credit unions in helping vulnerable consumers. She urged the government to better integrate credit unions into the Help to Save programme.
Responding to these contributions, exchequer secretary Robert Jenrick said the government was committed to credit unions.
He said: “The number of individuals who are members of credit unions is rising – it is now over two million. There has been some consolidation in the number of credit unions, but the number of members benefiting from them is increasing. I think that they now have assets of £3.3bn.
“We are making a number of interventions in that respect, including a fintech challenge fund to see how fintech can help with some of the social problems that we have discussed in terms of access to capital.”
