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Sunday, July 06, 2014

UK Government assist Credit Unions to take on Pay Day lenders

The Independent reports on a useful initiative from the UK Government that will enable credit unions to take on pay day lenders directly.

Of course no credit union can offer the sort of product that many of the big companies such as Wonga provide and nor should they, but the ability to instantly approve loans should help offer an alternative:

Excluding Northern Ireland, the UK has 400 credit unions with about a million members in total. By March last year, members had saved £843m with the credit unions, around £620m of which was on loan. The Government is keen to raise these numbers. Credit unions tend to be more lenient than high street banks towards people with bad credit histories. Their highest APR is still around 40 per cent, though some charge as little as 7 per cent, making them a good alternative to payday lenders.

The Government has put £38m into the Credit Union Expansion Project, which launches next April. Under the scheme dozens of credit unions will pool their resources to cut down on administration costs.

The project is run by the Association of British Credit Unions Ltd (Abcul) and will vastly improve the industry's use of IT, enabling instant credit scoring. More than 80 credit unions, representing around 400,000 members, are interested in signing up, and another 20 are considering it.

A shared system will let credit unions approve loans online. It is thought that many people go to payday lenders not just because of poor credit histories, but because they need the money quickly and have nowhere else to turn.

However, they must repay the money after just a few days or weeks. Credit unions let borrowers pay back their loans over a longer period.

The more that can be done to provide alternatives to pay day lenders the better, and the use of new technology is one way forward. Perhaps the Welsh Government should learn from this initiative and instead of spending over £600,000 on a pointless advertising campaign, use its limited resources to expand the capacity of Welsh credit unions in much the same way.
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