Dormant Assets Commission – Call for Evidence
Response to the consultation
This call for evidence concerns credit unions as deposits in not-for-profit financial co-operatives have the potential to become dormant over time. Credit unions have also been beneficiaries of the Big Lottery Fund to support the delivery of financial education and capability, and extending services to the financially excluded and vulnerable.
Whilst credit unions are not included in the 2008 Dormant Bank and Building Society Account Act, credit unions have their own definitions and rules for dealing with dormant accounts. Credit unions’ own definition of dormancy stems from the ABCUL Credit Union Model Rules 2012, which define dormancy as a period of 12 months without any transactions on any account held by the member.
These rules were agreed to by the Financial Services Authority (as our sector’s regulator at that time) and were felt to be the right balance between the interests of the member and the credit union. Credit unions are able to modify their rules after a two thirds majority vote at an Annual General Meeting (AGM), but any rule change is not valid until approved and registered by the Financial Conduct Authority (FCA). However, in the model rules, once an account has been inactive for 12 months, the credit union is able to hold these funds in a suspense account until reclamained, or charge an annual administration fee (set at no more than £5 or any reasonable amount which passes a vote at the AGM).
However, before the credit union may take any of these actions it must first write to the member and provide the member 6 weeks to determine whether to close or reactivate the account, and must include information on the credit union’s right to take the actions listed above. We feel that defining dormancy as a period without transactions allows credit unions to easily identify dormant accounts, whilst credit union rules require the credit union to attempt to trace dormant account holders before treating them differently to any other account.
Credit union quarterly and annual reporting to the Prudential Regulation Authority (PRA) does not distinguish between active and dormant accounts, and credit unions are required to include dormant funds in the calculation of prudential ratios. There is no definition of dormant accounts that applies to credit unions outside of their own rules and internal definition. If transparency legislation was introduced, the credit union sector could report on the number of accounts that they classify as dormant, but this would be of limited use without a standardised definition for reporting.
The credit union sector has restricted returns on assets and operates on tight margins due to their social goals of financial inclusion, a unique interest rate cap on lending, and their small size compared to other deposit takers. Therefore, whether or not credit unions would contribute to a dormant assets fund would be heavily dependent on the overall costs of contributing to the fund compared to how credit unions currently manage dormant accounts. Any expansion of the dormants assets scheme should be voluntary, particularly for organisations such as volunteer-led credit unions with limited resources, which are more significantly impacted by new operational requirements placed on them.
We do not believe the relatively small amount of funds that could be transferred to such a fund would be worth the cost to the sector of implementation, and do not currently see any benefits to credit unions participating, unless participation in the scheme could reduce the total burden of managing dormant account funds in some way.
The full PDF version of this response is available to download on the right-hand side.