Credit unions performing well in the wake of the credit crunch
October 2, 2008
Over the past twelve months, since the onset of the global credit crunch, many people have become distrustful of banks, and many others have found that they no longer have access to some of the services that banks offer, such as loans and other forms of finance. According to a recent report this trend is resulting in increased custom for credit unions, which are community run institutions and offer many benefits for members.
These neutral organisations have members who all share a common bond, such as living in the same area or working for the same employer. Credit unions are able to offer a range of facilities and services, from very low rate personal loans for members to advice and help with savings, debt advice, and a variety of other financial services that members can benefit from.
One industry official stated: ‘Credit unions are a very good way of keeping banking in check. 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.’
He added: ‘This structural advantage means credit unions are able to serve their members exclusively. 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.’
An official from Leeds City Credit Union said: ‘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.’
The report added that whilst some credit unions had become insolvent many were thriving under the supervision of the Financial Services Authority, which has been governing these unions since 2002. Also, the annual dividend that is paid to the members of credit unions is unlikely to be affected too much by any changes in the base rate.
Another official said that credit unions were becoming increasingly popular all over the globe, stating: ‘All over the world in both highly developed and less economically developed nations, from Brazil to the US, credit unions are actually part of the mainstream financial landscape and are helping a broad range of people from different sectors of society. In the US around a quarter of the population use credit unions – that’s over seventy-five million in the states alone.’
The popularity of credit unions could be further fuelled by a change in regulations that will soften the rules over the common bond and could see the annual dividend replaced by interest payments. New regulations may also allow employers to make deductions direct from payroll to help consumers repay debt or save money with credit unions.
One spokesperson stated: ‘The legislation will mean that employers will be able to use payroll deduction to help people save or repay their loans each month. This will make saving so much easier for people and is something that the banks would give their right arm for – it’s such a powerful tool.’
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