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Expansion credit union industry target payday lenders

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More than 30 credit unions are taking the fight to payday lenders by signing up to a landmark expansion project that is hoped to save Britain's low earners £1billion in loan interest repayments.

It is hoped that the Association of British Credit Unions-led project will attract a million new members over the next five years, with the help of a £35.6million investment previously pledged by the Government to transform the sector.

More are expected to join the first wave of 31 credit unions that have signed up, with customers expected to benefit from the 'economies of scale' that will allow the unions to offer lower interest rates on loans, better rates on savings, and an improved online and smartphone presence.

Fighting payday lenders: Manchester-based Voyager Alliance Credit Union services Britain's passenger transport industry, and is one of the 31 organisations involved in the expansion.

Credit unions are community-based not-for-profit co-operatives where members pool their savings to offer each other credit. You need to be member to borrow from a credit union, and some will require you to be a depositor to join.

Last year, rules on credit unions were relaxed, freeing them up to more effectively compete with banks, with reforms including allowing them to grow by accepting new types of membership.

  More... Credit unions to offer more cheap loans to in battle against loan sharks and payday lenders Keep getting slammed with overdraft charges or turned away from banks? The best of the basic bank accounts Our loans picks: This Is Money's five of the best personal loans Find the best savings accounts Looking for a loan? Find the lowest rates

Their loans rates are typically higher than those offered by major High Street lenders, but they are infinitely lower than the astronomical fees charged by payday lenders and are a useful outlet for those on low incomes or with bad credit ratings who would otherwise be turned away for loans.

  CHEAPEST RATES ON £7,500+ LOANS

Provider APR 1 Sainsbury's 5.0% 2 Derbyshire 5.0% 3 M&S 5.0% 4 Clydesdale 5.1% 5 Tesco 5.1%

The project will see certain 'core tasks' for unions moved to a 'centralised hub', again freeing up more resources to offer better rate for customers.

It comes at a time when the payday lending industry continues to dominate headlines for all the wrong reasons, charging customers who are unable to get credit elsewhere exorbitant interest rates for short-term loans.

Vincent Thomas, chair of the London Plus Credit Union - which is one of the 31 involved in the expansion - said: 'This is inspirational project will help us to reduce costs and expand our product range as well as helping us to provide the fast and efficient services people expect these days.

'As well as being better able to compete with less ethical lenders, it will allow us to offer services to the whole community - not just those on lower incomes.'

 

The UK's credit union sector is much smaller compared to the USA and Canada, with just over 400 unions in operation, but it is hoped this expansion will attract new customers and turn them away from the potentially devastating effects of high-cost borrowing.

Barry Duggan, manager of the Voyager Alliance Credit Union - which serves the passenger transport industry in England, Scotland and Wales - said: 'We are really pleased to have been selected as one of the first wave of credit unions to join the project.

'This scheme will help us to grow further and offer more and better services to our members. It is an exciting time for the credit union movement and we are looking forward to the opportunities and challenges ahead.'

ABCUL is the main trade association for credit associations in England, Scotland and Wales. Credit unions in mid-2012 managed £776million of savings on behalf of over a million people in Britain, and had over £600million out on loan.

Mark Lyonette, chief executive of the Association of British Credit Unions (ABCUL), said: 'This is a landmark project fir credit unions and a once-in-a-lifetime opportunity which will help place the credit union movement in Britain on a similar footing to leading credit union movements around the world.

'We will be supporting credit unions to offer a much wider range of great value products to many more members from a broad range of income groups.

'Consumers will soon be able to benefit from the latest online technology to sign up to credit union services such as current accounts, budgeting accounts and Cash ISAs.

'Credit unions will retain their local status and community focus, but work together where they can benefit from pooling knowledge and resources. This will give members the best of both worlds.'

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