UK Government and FCA Push to Expand Credit Unions and Curb Loan Sharks
The Financial Conduct Authority (FCA) has launched a report aimed at boosting the UK mutuals sector, with ambitions to double its size. This initiative aligns with a Labour manifesto pledge and was announced by FCA chief Nikhil Rathi in Rochdale.
Currently, the UK mutuals sector comprises around 350 credit unions holding £4.9 billion in assets and serving approximately 2 million members. This contrasts with the US, where credit unions have over 143 million members. To support growth, the Treasury plans to review the 'common bond' rules that govern credit unions to help them adapt, and the government has allocated £30 million toward modernization efforts such as upgrading IT systems.
Campaigners have warned that loan sharks remain a significant risk unless banks are compelled to support local credit unions. Fair4All Finance reports that 1.9 million adults in Britain used unlicensed lenders in the past year. Experts, including Dr Paul A Jones of Liverpool John Moores University, emphasize that external capital is essential for credit unions to grow beyond their traditional community-hall size.
A coalition including the Finance Innovation Lab advocates for a Fair Banking Act modeled on the US Community Reinvestment Act. This legislation would require banks to serve underserved communities and partner with credit unions and Community Development Financial Institutions (CDFIs). Proponents suggest this could increase lending from the current £250 million to as much as £3 billion per year. The proposal is backed by the Co-operative Party and supported by 41 Labour MPs, including James Murray and Meg Hillier.
The failure of banks to pay a windfall tax has been cited as a reason to redirect funds toward mutual lenders. The Institute for Public Policy Research (IPPR) suggested a windfall tax could raise around £8 billion annually, with calls to invest a fraction of these proceeds in supporting mutual lenders.
Additionally, the government supports a "small sum lending pilot" through Fair4All Finance, although details concerning the scale and how it differs from existing mutual lending initiatives have not been specified.
