House of Commons BIS Committee - Debt Management Inquiry
We welcome the opportunity to respond to this consultation on behalf of our 275 credit union members in England, Scotland and Wales.
Credit unions provide safe savings, affordable credit and other financial services to over 900,000 people in Great Britain.
Credit unions are the only lenders in Britain which are subject to an interest rate cap – limited to lending at no more than 2% a month on the reducing balance, which equates to an APR of 26.8%. Many loans are made at less than this rate.
We responded to the Government’s 2010 review of Consumer Credit and Debt and called for actions to be taken to help support credit unions to sustainably and responsibly extend affordable credit to its members and help steer consumers away from high cost credit options. The main suggestions were:
- Consideration of a ‘wealth warning’ on advertising for high cost loan products, ideally directing people towards sources of information about lower cost credit, including credit unions.
- Scrutiny of the pricing practices of rent-to-buy retailers, where the stated APR is misleading as extra costs including insurance and high starting costs inflate the cost to a high cost level.
- Consideration should be given to the fact that APR is a poor indication of interest charges on short-term, small-sum credit and that a total cost of credit charge – in monetary terms per £100 borrowed would be a better indicator
- Improve the credit history data that is available through credit referencing agencies such as including debts to all high cost credit, rent-to-buy purchases, social housing rent arrears, tax arrears and utilities arrears
- Increasing the capacity of social lenders
- Penalty charging for current account services needs to be reformed and made more transparent
- Full recognition is required for credit unions and other ethical lenders in the debt and insolvency system.
The full response is available to download on the right of the screen.