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HM Treasury - Credit union maximum interest rate cap

Introduction

ABCUL is the main trade association for credit unions in Britain, representing 245 out of 395 credit unions in England, Scotland and Wales.  At the end of September 2012, our members were providing financial services to over 600,000 adult members.  
 
As well as raising the issues contained in this consultation document at various meetings and gatherings of credit unions, we also carried out an online survey to which 24 credit unions responded in part or in full.  

Respondents to the survey represented a good cross section of the sector with sizes as follows:

  • 500-999, 8%;
  • 1,000-2,499, 21%;
  • 2,500-4,999, 25%;
  • 5,000-9,999, 29%;
  • 10,000-19,999, 4%; and
  • >20,000, 4%.

We also carried out further research on credit union loan rates to back up the data received from respondents.  

We have been struck during this consultation period by the consensus among our members, especially when compared to the consultation to raise the rate for 1% to 2% which took place in 2005.  This consensus is reflected, we believe, not only in the unanimous agreement with the proposal to raise the rate from respondents to our survey, but also in the low response rate to the survey and in the general low level of discussion that this consultation has triggered among our members.  

In summary, we believe that raising the interest rate cap to 3% a month on the reducing balance will give credit unions more flexibility to offer the sort of smaller, shorter term loans that people on lower incomes need.  We do not believe that this will result in a ‘race to the top’ for credit union loan rates.  While some consumers may pay slightly more for loans, this small adverse effect will be much outweighed by the increased number of loans that credit unions will be able to make to lower income consumers, as it will be easier for credit unions to cover the cost of providing smaller, shorter term loans.  

The full response is available to download on the right hand side.