The Law Surrounding Lending

The Credit Unions Act sets out fours objects for credit unions, including: “the creation of sources of credit for the benefit of the members of the society at a fair and reasonable rate of interest”.

• The Act included: Restriction on interest rate – 3%
• Attachment of shares
• Treatment of loans as secured
• Limits on amount and term of loans

Interest rate

“A credit union may charge interest on loans made by it but such interest shall be at a rate not exceeding one per cent per month, or such other rate as may from time to time be specified, on the amount of the loan outstanding and such interest shall be inclusive of all administrative and other expenses incurred in connection with the making of the loan.”

Interest rate cap now 3% per month – amended by HM Treasury in 2014.

Interest rate must include all charges relating to the loan (i.e. no fees).

Secured loans/attachment of shares

Credit Unions are not bound by the Consumer Credit Act 2006

CCA covers most unsecured lending in the UK (but not credit unions), regulated by the Financial Conduct Authority (FCA) since April 2014.

Arrears letters/notices – credit unions agreed to send out FCA standard notices with arrears letters.

However, Debtor/Creditor/Supplier agreements are subject to CCA rules.

Other regulation to be aware of

Financial Promotion rules – particularly calculating and advertising an APR

Distance marketing – right to cancel an agreement