Site search
Login button Registration button

Legislative change for credit unions

Background and summary

Changes to the Credit Unions Act 1979 came into force on 8 January 2012. The Legislative Reform (Industrial & Provident Societies and Credit Unions) Order 2011 (LRO) removes restrictions in the current law and allow credit unions to choose to:

  • reach out to new groups by serving more than one group of people
  • provide services to community groups, businesses and social enterprises
  • offer interest on savings, instead of a dividend.

Other changes allow credit unions more flexibility to charge for additional services and enable more people who move jobs or home to continue to receive services from the credit union.

These changes will make credit union services available to many more people.

The changes

Allowing credit unions to serve more than one group of people

Main points

•   Credit unions  no longer have to prove that everyone who can join a credit union has something in common. This means they are able to provide services to different groups of people within one credit union.

•   A ‘field of membership test’ makes sure it is possible for all potential members to be served by the credit union. Credit unions whose ‘common bond’ includes a geographical area are limited to two million potential members.

 What does this mean for consumers?

•   Credit unions are able to open up membership to new groups, such as tenants of a housing association or employees of a national company, even if some tenants/employees live outside the geographical area that the credit union serves.

Allowing credit unions to provide services to community groups, companies and social enterprises

Main points

  • Credit unions are no longer limited to providing services to just individuals.
  • Credit unions are able to choose to offer membership to unincorporated associations and corporate bodies such as companies, partnerships and social enterprises.
  • Non-individuals can only make up a maximum of 10% of a credit union’s total membership hold a maximum of 25% of shares in the credit union and be granted a maximum of 10% of loans
  • Credit unions can choose whether to offer ordinary shares – ownership of which will bring all the benefits of credit union membership, or deferred shares, which will only be repayable in restricted circumstances and which will count towards the capital of a credit union.

What does this mean for consumers?

  • Local community organisations such as tenants’ associations and social clubs attached to workplaces can join a credit union and use its services.
  • Local companies and social enterprises can join credit unions and support their local community.
  • Organisations such as housing providers, religious groups and local authorities can help increase the supply of affordable credit in a community by depositing money in a credit union.

Allowing credit unions to pay interest on savings, instead of a dividend

Main points

  • Some credit unions will be able to choose to pay a guaranteed rate of interest instead of a dividend.
  • Credit unions wishing to pay interest on savings have to show that they have the necessary systems and controls in place and must hold reserves of at least £50,000 or 5% of total assets, whichever is the greater.

 What does this mean for consumers?

  • People will be able to more easily compare the rates of return available from credit unions and from other savings providers. This will be particularly useful for competitive products such as Child Trust Funds and Cash ISAs.
  • The ability to attract more savings into the credit union will mean that credit unions are able to make more affordable credit available in the communities and workplaces they serve.

Removing restrictions on non-qualifying members

  • People who move house or job and leave the ‘common bond’ of the credit union are classed as ‘non-qualifying members’ (NQMs). A credit union is currently limited to having 10% of NQMs in membership at any one time.
  • Changes will allow credit unions to set their own limits on NQMs, and will prevent many people from losing access to financial services when they change their job or home.

More information on measures the Government is taking to support mutuals and credit unions, including the LRO, are available at the HM Treasury website.

More information on the what the changes mean for partner organisations such as housing providers and employers is available here -