Updated 1 October 2012

Frequently Asked Questions

1. What happens next – what are Credit Unions expected to do now?

• Credit Unions need to consider the findings of the Feasibility Study and how they can work together with partners to achieve project objectives.
• DWP are conducting a public procurement exercise.
• The intent is to contract on a collaborative partnership basis and not with individual credit unions.

2. What can you tell us about the procurement exercise?

• Full details of eligible organisations, the bidding process and minimum scale and scope requirements are detailed in the Invitation to Tender.
• Supplier briefing events will be held for prospective bidders to ask questions.
• It is expected that bids will need to be completed by October 2012 with contracts due to start in January 2013. However, the timeline is indicative at this stage so could be subject to change.

3. Isn’t modernisation and expansion going to destroy the credit union ethos?

• It is recognised that Credit Unions can offer a real alternative to mainstream banking.
• The Feasibility Study identifies that it is possible to make the necessary transition without credit unions losing individual identity.
• The front facing appearance of individual Credit Unions need not change, helping to retain community identity and reducing the risk of alienating existing members.

4. Is there a role for credit unions to support the welfare reform proposals?

• It is recognised that Credit Unions have a part to play in the transfer to Universal Credit. With the move to monthly benefit payments consumers can benefit from products and services that Credit Unions can offer, for example:
  • debt advice
  • budget management
  • budget accounts
  • opening bank accounts
  • savings accounts
  • affordable credit

5. Why not run a nationwide marketing campaign immediately?

• Marketing is essential to any expansion plan.
• The Feasibility Study Report revealed that only 13% of customers interviewed were aware of what Credit Unions do.
• In advance of a national marketing campaign Credit Unions need to be ready to provide and meet the demand for the full range of services that people want to see.
• Currently service delivery differs so widely amongst Credit Unions that it is prudent to delay national marketing until the latter stages of the project when the effects of the changes will become evident.

6. What is the thinking behind your proposals to increase the interest rate that credit unions can charge?

• The Feasibility Study showed that at present even the best credit unions struggle to meet the operating costs of making small loans to people on lower incomes. The Study suggests that an increase would make a positive contribution towards credit unions achieving self sufficiency.
• Therefore Government plans to consult on raising the cap on the interest rate that credit unions are permitted to charge on loans, to determine whether it will help credit unions achieve greater financial sustainability and reach a wider range of customers.

7. Why not just remove the cap altogether?

• The interest rate cap is important because it exempts Credit Union loans from Consumer Credit regulation on the basis that they are not for profit, ethical, lending institutions that can be trusted to treat borrowers fairly.

8. Why won’t Government cap the rates other lenders charge?

• Studies show that introducing interest rate caps on higher cost loans from the regulated commercial sector carries a real risk of restricting the market and making vulnerable consumers even worse off by reducing the supply of credit.
• This may have the effect of pushing vulnerable consumers into the hands of loan sharks.
• BIS has therefore commissioned research into the impact on business and consumers of a variable cap on the total cost of high cost credit from the University of Bristol. The final report is due later this year and will inform policy making.