The head of the UK's financial watchdog has issued a rallying cry for the expansion of credit unions, positioning them as a vital defence against illegal loan sharks preying on cash-strapped communities.
FCA Chief Champions Mutuals in Rochdale
Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), travelled to Rochdale's Pioneers Museum to launch a new report aimed at turbocharging the growth of customer-owned mutual lenders. The move aligns with a Labour manifesto pledge to double the size of the mutuals sector, which includes giants like Nationwide and John Lewis alongside 350 local credit unions.
These community-focused lenders, which serve around 2 million members and hold collective assets of £4.9 billion, are legally required to cap their interest rates. They primarily serve low-income consumers often overlooked by mainstream banks.
The Stark Reality of Unaffordable Debt
Despite their potential, campaigners warn that vulnerable people remain at risk. Recent research by the government-backed organisation Fair4All Finance found that 1.9 million UK adults turned to unlicensed lenders or loan sharks in the past year.
"When there's an unexpected cost like that you just need to get it sorted, but you're left with no good options," one borrower told a recent roundtable in Glasgow, describing how a broken bed could force someone into the hands of extortionate lenders.
Dr Paul A Jones of Liverpool John Moores University, an expert on credit unions, welcomes government promises to review restrictive rules and a £30 million fund for modernisation. However, he stresses that a key constraint is lack of capital. "We need more credit unions to get in the fast lane," he says.
Campaigners Demand a 'Fair Banking Act'
This is where a coalition of charities, including the Finance Innovation Lab, and mutual lenders are calling for legislation. They propose a UK 'Fair Banking Act', modelled on the US Community Reinvestment Act, which would oblige major banks to support services in underserved communities.
Such an act could potentially boost lending by credit unions and similar non-profits from £250 million to £3 billion annually. The proposal has backing from the Co-operative Party, whose members include Treasury minister James Murray.
With mainstream banks having recently avoided a windfall tax, campaigners argue it is not too much to ask that they invest in the local lenders that help keep predatory loan sharks at bay.
