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Isle of Man – New Regulatory Regime and Amendment to Loan Interest Rate

Firstly, can I thank you for inviting ABCUL to respond to your consultation on the regulatory regime and loan interest rate for credit unions in the Isle of Man jurisdiction.  ABCUL is the main trade association for credit unions in England, Scotland and Wales representing around two thirds of credit unions.  However, we do not represent credit unions in the Isle of Man.

We have reviewed the proposed regulatory structure for credit unions in the Isle of Man and it seems reasonable, fair and appropriate.  It is broadly in line with the regime in the relevant jurisdictions of the UK and Ireland.  We are particularly encouraged by the 8% upper capital requirement for larger credit unions which is the level at which we would prefer the Prudential Regulation Authority set its requirements.   We firmly believe this is the correct level.

In terms of the question of the interest rate cap, the 3% cap in England, Scotland and Wales was set with a view to supporting credit unions to lend to those with limited options for small amounts and in higher risk categories of borrowers more sustainably.  We believe that this is justified and the evidence suggests that it is used appropriately by credit unions and larger, longer-term loans are charged at more competitive rates given the market they are in.

We would suggest that this would be an appropriate cap if provision of credit to the financially excluded and those using payday lenders is a motivation behind the creation of a credit union regime.  We would also suggest that a more complex sliding-scale cap would be difficult to administer and unduly costly to apply and therefore would be counter-productive.