UK: Are Credit Unions Safe?

UK: are credit unions safe?Over the last few months, a number of Credit Unions in the United Kingdom have gone into liquidation. There was the Cornish Community Banking, the Severn Four Credit Union, and most recently the South Warwickshire Credit Union. More are expected to follow.

In fact, right now they are collapsing at a rate of one per month. Of course, this raises the question, ‘Is my money safe with them?’ It may actually be a rosier outlook than it appears at first.

A few important points that some financial experts have raised include:

  • The credit unions that are no longer operating were small, with only a few hundred active members.
  • They are covered by the Financial Services Compensation Scheme, which protects savings of up to £85 000. This means that about 98% of members are covered in event of any trouble.
  • Most investors in the failed credit unions had their money back within one week, or three weeks if the claim was complicated.
  • Many regular banks have also needed extra funds to continue.

With roughly 400 credit unions in the United Kingdom, only a small number have gone under. A few reasons why the credit unions have been struggling include:

  • Strict rules on responsible borrowing and lending. They can only charge 2 per cent interest a month by law. Even borrowers who are struggling can usually repay a loan because of the strict regulations.
  • Borrowers who find themselves in deep financial trouble can pay back the high interest rate loans first, and the credit unions second.
  • The courts are being very lenient to borrowers. Sometimes they only have to repay as little as £5 a week.

So, the bottom line according to the Financial Services Compensation Scheme, and the Association of British Credit Unions (ABCUL) is that credit unions are as safe as any bank or building society.

Philip

5 Comments

  1. Although I don’t live in the UK I’ve seen on the news lately about the struggles that the banks are going through. I’m sure this has put a run on the banks too, with everyone wondering if they can even get the money they already have.

  2. It looks as if the laws and banking regulations are stacked against all credit unions, not just the little guy any more.

  3. I didn’t realize that things were getting so tough for credit unions in the UK! I can definitely understand that the laws are strict on lending, especially considering how much they’ve been abused recently and let to this near collapse, but I can’t help but think that these new rules are punishing the wrong people. Smaller banks and credit unions help keep the economy healthy, rather than sick under the thumb of these huge tyrannical banks.

  4. With the economy being what it is now, I’m surprised some banks and credit union are still standing! I was glad to hear that 98% of the members are covered though, can you imagine losing everything?

    • Yes that would be catastrophic! There’s been some good news for UK credit unions recently with Barclays – one of the country’s biggest banks – offering them financial aid and trading space within their own banks. While part of their motivation is undoubtedly to get some good publicity (they are currently a highly unpopular bank), it’s still great for the credit unions and of course for the consumer.

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