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[MSE Andrea]

This thread is to discuss the Credit Unions article.

To discuss or ask a question about this click post reply.

[baby_boomer]

Why would you save at very low interest rates with an institution whose assets are loans to borrowers who struggle to get a loan with an ordinary bank? Especially as we enter a recession.

[Milarky]

The credit unions are a curate's egg of the financial system. Martin was honest enough to admit they can pay very low 'interest rates' [dividends] as well as a theoretical 8%. My own (in the Isle of Wight) paid 0% in 2006/07 for instance, was paying 2% and 3% in previous years and last year we really hit the jackpot with 4% [won't be paying that next time!] but of course that's just a 2%+2% payment in reality.

At the same time, the government found it necessary (in boom-time conditions for credit) to increase the existing cap on loan rates. It had been 1% per month since the hated Thatcher's time - all through those inflationary periods. Yet in Bustless-Britain - in 2005 Gordon Brown quietly signed of a doubling of the cap to 2% per month. After that, the credit union literature stopped comparing itself favourably to credit card rates and the (favourable) comparator became 'door-to-door lenders'. Fair enough - but that does mark a transition in the CU 'movement' from more staid and financially stable groups (like city council workers with some job protection) to more precarious and ill-defined ones (like area bonded associations with attracting memebership from unwaged groups with nowhere much else to go)

And there have been many CUs that have failed even before the middle of last year - perhaps as a consequence of this Brownian-inspired 'deregulation' if I can put it like that.

CUs are definately 'mutual' and not in competition with each other. There is no published table of which pay the best dividend rates - because outside of the bond or area it is irrelevent - the 'general' public can't become members.

What would interest me in this dicussion is if MoneySavingExpert could set up a credit union itself [a 'cyber' credit union?] What are the legalities and the practicalities of such an enterprise? Who would the borrowers be and who the lenders, and how would the 'democratic' part operate? Why doesn't Martin Lewis spend a bit of time now researching the concept - and the potential pitfalls? For example membership is limited to 5000 I believe - which might necessitate the creation of legal sub-enties out of the orginal with separate governance and accountability after a short time. In practice it sounds as though CUs having simply been made too difficult to set up - and that - combined with general deteriorating conditions - would lead to a net reduction in the numbers currently in existence.

Therefore let's also make a request for this discussion to include remarks about how CU mergers come about.

[I'm just a 'sleeper', here, as you can probably imagine]

[weebegbie]

People have the wrong idea about credit unions!

Most credit unions and especially the big ones, have competitive rates on both borrowing and saving! Most of the larger ones were started by local authorities or large organisations as an employee benefit, so don’t have lots of “borrowers who struggle to get a loan with an ordinary bank” they loan out to people who work for the organisation’s who provide the employee benefit. It makes it easy for them to save, either direct from their wages or by direct debit on a day and date that suits them.

There are too many people out there who find it too difficult to save and credit unions are there to try and help them. Due to a lack of understanding most people are clueless about APR, AER, interest rates and the rest, and I know Martin is helping the nation immensely, giving them some education on how to sort out their finances, but for years credit unions have been helping out the people of their communities.

The idea of a money super market credit union would be a good one if it could be put in place, but I doubt it could work. The whole point of a credit union is that it is to help the community of it’s common bond, which is either the local area, or a specific workplace and because Money saving expert is open to anyone then this would make it hard for the common bond aspect to work.

I live in Glasgow and there are 2 large credit unions, Scotwest and Glasgow, that are open to me, Martin even mentioned both of them in his article. Being a member of either one of them would see me bringing in dividends of between 3% and 5% (Scotwest pays dividends quarterly) and I can get a loan from as little as 9.9%

When applying for a loan my credit history was checked so I know that they don’t just give loans out willy nilly to anyone.

Why people would want to save with a bank, and make their shareholders rich is beyond me! You can save with you local credit union and keep all profits in the community, instead of lining the pockets of all these big banking bosses, that rely upon the tax payers money when the get into trouble!

[hopeless case]

Hi can anyone tell me aboutcredit unions we have a very poor credit rating and have read a little about these but not to sure how they work. can anyone shed any light?

[FROSTYFRECKLE]

Hi,

The aim of Credit Unions is to get people saving and borrowing within their means. With my credit union you must save for at least 12 weeks prior to applying for a loan and you are credit checked. Not all credit unions are the same. Best bet is to speak to your local credit union.

[sportage1kia]

Hi there
Like the previous post has stated some credit unions are different. My local one you have to save a minimum of 8 weeks before a loan is considered, but loans for more than £2000 evidence of income is required.
Regards

[n3phi1im]

Thanks for this guys, I am sure it will be very helpful for folks.

[cubanate]

Credit Unions are great, particularly in a recession. They work well for savers and borrowers.

Put simply:-

- Where can those people on low incomes or with poor previous credit get a competative loan rate?

- Where else can you put your money that is 100% secure, that doesn't pay fatcat wages, doesn't get invested in unethical companies and actually helps other people?

Whilst the credit union does perform credit checks and checks that the person can prove a 'capacity to repay' - the worse case interest % of 26% is miniscule to those advertised elsewhere. Doorstep lenders charge between 182-400% and in the recent Ascent of Money programme on C4, a scottish loan shark was charging 25% a week - 11 million % APR!!!

A good example is a £400 washing machine loan, paid roughly over a year. The Credit Union would charge £28, and a doorstep lender would charge over £270.

A standard bank account with instant access (as per a credit union) only pays very low interest on balances, so the cost of putting your savings into a credit union is low. I would urge everyone with savings to put some into there local credit union where they can help other members of the community to achieve financial inclusion at very little personal cost (if any). Without savers (even regular small amounts that build up for a special purchase), a credit union cannot operate - and this service will dissapear from your community.

They are fully backed by the Financial Compensation Scheme, Financial Ombdusman Service and are regulated by the Financial Services Authority - doorstep lenders aren't!

My local CU is absolutely fantastic - www.lincscreditunion.org.uk - for anyone in the county of Lincolnshire.

Sorry for the long post (rant) but this is something I am passionate about!

[sportage1kia]

Thanks MSE for this new thread
This topic appears to be coming up a lot lately
Regards

[sanginella]

I have benefited from loans from credit unions at times when I was desperate . A few hundred to pay a repair bill or for a special occassion means being able to sleep at night. The regulations that Credit Unions have to abide by are re-assuring for the savings you are investing. I would recommend that people find out more - you can't just walk up and get a loan - normally you have to prove that you are capable of re-paying by showing you can save on a regular basis . It does not have to be a large payment but it does have to be regular and it can be via standing order, direct debit as well as over the counter. Everybody should know about them !

[MSE Martin]

In answer to "how do credit unions work" - please read the article this discussion is from http://www.moneysavingexpert.com/protect/credit-unions hopefully its all explained there. If not please let me know what is missing you think could be added.

As for an MSE credit union, you're not the first to say it - yet i have always deliberately shirked away from any MSE products. By doing an MSE credit union (if it were legally possible) we would have MSE loans and savings and I dont feel that is appropriate.

Martin

[jimbob10000]

I want to thank Martin for putting the article together and helping us to have this opportunity to discuss credit unions. I have been a member of a number of different credit unions for the last 7 years, as well as being involved in the running of them, so I'm delighted to see them getting some welcome exposure.

In response to the member who posted above querying the wisdom of using credit unions at times like this, I would say that your concern is understandable but, I believe, misplaced.

Unlike the vast majority of lenders around today, credit unions lend on the basis of a person's ability to repay a loan, not just their credit history. There are countless people out there who struggle to obtain credit because of a mistake they have made managing their money in the past, (or even because banks wont have them as customers due to lack of ID). This doesnt mean they are a credit risk now, (just as a squeaky clean credit history doesnt mean there is no risk in the future). There will of course be some people who simply cant afford a loan and a credit union would turn them down just as anyone else would, (although we are more likely to help them with debt advice than other organisations).

The Credit Union I am currently a member of, (Camden Plus in North West London), considers loan applications from any member without any savings period up front. First loans may well be charged at higher interest rates, but as you 'prove yourself' to the Credit Union your subsequent loans are cheaper.

Plus, as has been mentioned elsewhere, credit unions can claim to be the genuinely 'ethical' choice for savers, as the money deposited by savers stays within the local community, rather than 'leaking out' through high interest payments on loans with doorstep lending companies and loan sharks. And because of their increasing success in lending wisely, credit unions are often paying better dividends these days, (3% to 5% is not uncommon).

One final thing - there is a very interesting article in this week's Newsweek magazine about how the 'sub-prime' lending model can be very effective for organisations like credit unions. Note that it isnt credit unions that have had to go cap in hand to governments for bail outs recently!

[weebegbie]

I'm glad theres a few more people out there that see the good side of credit unions also. The most important thing for a credit union is the spread of the word in their local community! Get telling your friends and family, your credit union is only as good as your community can help make it!

[rusty-london]

After reading the article I'm considerign joining the Credit Union through the salary deduction available through my employer.

The credit union which I can join offer current accounts and I'm seriously considering closing my current account with a high street bank to open one with the credit union as I dislike dealing with banks so much

[martinp79]

A variation on the credit union model is Zopa, a social lending site. Investors make offers to lend to particular markets and are matched up with fully vetted borrowers, with a limited exposure to each borrower. The riskier markets pay a better rate than the safer markets, but all the money is private investors so they can't loan what they don't have.

[Pobby]

I do a few hours a week at our local city credit union. A few points that I would like to mention. The way we operate is very transparent. We don`t try to force loans on people and if a loan is required we are very clear about how it works. Most loans are likely to be around £250. A detailed soa is often required. All loan repayments need to be affordable.

We also encourage saving. Remember that people using the CU are often not on high incomes. One thing that springs to mind is that either myself or co workers get to know our customers. We are far more friendly than your city centre bank lol.

I like the fact that we are responsible lenders and I accept, lenders of last resort for many that don`t get into the clutches of the door step lenders. Shame the mainstream banks didn`t adhere to some responsible form of lending.

[skintbutsmiling01]

can you use youre CU to save then take out your savings when you have reached a certain amount?

[Chuffy]

I would like to point out that ABCUL aren't the only body that recognises and supports Credit Unions. ACE (Access to Credit Unions for Everyone) also offers information on other CU's not listed on the ABCUL website.

Their website is: http://www.acecus.org/.

I am not linked to them, but my local CU comes under them not ABCUL.

[AbbieS]

You can save with a credit union for whatever reason you want and take out the savings when you need them (unless they're securing a loan). Some credit unions also do special savings accounts for Christmas or other occasions so you can save in a separate 'pot' for different things you need.