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Even Camilla is thinking of joining! Credit unions touted as the friendly alternative to high-cost payday lenders

Credit unions are being touted – by members, campaigners and the Government – as the friendly alternative to high-cost short-term payday lenders.

New Government funding worth nearly £36million for credit unions and the easing of restrictions on the business they do are set to transform the saving and lending co-operatives.

London Mutual Credit Union is leading the way by this week announcing that it will deliver quick and easy short-term or ‘payday’ loans, following the success of a year-long trial for its CUOK (‘see you okay’) loan.

Royal blessing: The Duchess of Cornwall is eligible for a loan

Treasurer Louis McLeod reported the news to staff and members in front of the Duchess of Cornwall at the union’s branch in Peckham, South-East London, on Wednesday.

The Duchess, who is considering joining, since residents of Westminster are eligible, met members who had turned their financial fortunes around with the help of a loan and are championing the CUOK service.

  More... Credit Union push to force out payday lenders with landmark expansion that will see local co-operatives join forces Credit unions to offer more cheap loans to in battle against loan sharks and payday lenders Compare the rates of hundreds of loans Could you get a better loan rate from lend-to-save?

The credit union actively tries to help members manage their money, and members must also save if they are to borrow.

London Mutual has processed nearly 3,000 applications and lent on average £238 to 1,200 of its 16,000 members since it launched the loan in February last year. The cost of borrowing between £100 and £1,000 is 26.8 per cent APR – the rate used to measure the overall cost of borrowing over a year. By contrast, some big payday lenders charge more than 4,000 per cent.

A £400 CUOK loan costs about £8 in interest over one month, while a typical payday lender would charge about £120.

Members can choose to repay over one, two or three months, giving themselves more breathing space, and if they get into trouble the union is unlikely to call in the debt collectors.

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With payday lenders, many customers have been locked in a spiral of debt when they find they are unable to repay after the stipulated 15 to 30 days.

They ‘roll over’ the debt into another month after which fees and interest can easily outweigh the original sum borrowed.

Critics say the fallout from the boom in payday lending has seeped into all corners of society – blighting the look of high streets as they fill with garish loan shops and saddling people  with a debt they are never going to be able to get rid of.

Regulators are now taking action. Three companies have been stripped of their credit licences in the past two months by the Office of Fair Trading, two surrendered their licences last week and three more are at immediate risk of being shut down. But the Consumer Finance Association met MPs last week to defend the interests of payday lenders.

The CFA commissioned research into the ‘diverse’ demography of borrowers and pointed to what lessons can be learnt to help customers.

It found that their ages typically range from 25 to 55 and include tech-savvy young people, families with squeezed budgets and baby-boomers with grown-up children still in need of financial support.

The Mail on Sunday will next week take a closer look at credit unions – how they have changed and what they offer members.

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