Double your rates, report tell credit unions

The report, Creating Wealth in the West Midlands through Sustainable Credit Unions, was published on behalf of the Association of British Credit Unions by Paul Jones, a senior lecturer at Liverpool John Moores University, on 2 February. Although based on the West Midlands, it made recommendations for unions nationwide.

Its key recommendation is that credit unions should be allowed to vary the interest they charge to “high risk” borrowers on low incomes in order to meet growing demand. Rates could rise from the current upper limit of 13% to 25.4% to generate extra income to lend to more people. The report said the additional funds would mean more people on low incomes could benefit.

Jones said: “If credit unions are to realise their potential to serve low-income communities effectively, they must adopt a more businesslike and professional approach.”

Amanda Winkworth, manager at Portsmouth Savers Credit Union, welcomed the report. She said: “We need flexibility in order to be sustainable, meet our costs and prevent our savers from investing their money elsewhere. We are a business and we need to bring money in.”

But some credit unions feared raising interest rates went against the spirit of the organisations, which were often set up to cater for people on low incomes.

Sally Chicken, compliance officer at Ipswich Credit Union, said: “We have mixed feelings about this idea as we see ourselves as ethical and fair. We have always made a big thing out of treating everybody the same.”