On 10 May 2012, the Department for Work and Pensions published the credit union feasibility study looking at the sustainability of credit unions. It also examined what more can be done to expand them to serve many more people on lower incomes. The study has been well received by the sector and a range of stakeholders.
Credit unions are doing a good job offering access to credit and other financial services for people on lower incomes. They provide a real alternative to higher cost credit available from the commercial sector and illegal loan sharks. Therefore, if credit unions are ready for the challenge of modernisation and expansion we are willing to support them. Today, I am announcing that the Government will take forward the findings of the feasibility study. In particular, the DWP will make a further investment of up to £38 million over the next three years in credit unions. This investment, which is in addition to the £13 million we invested in 2011-12, will be conditional upon the credit union industry meeting a number of agreed milestones for collaboration, modernisation and expansion. Our aim will be to ensure the industry’s financial sustainability by the end of the project.
The feasibility study showed that at present even the biggest credit unions struggle to meet the operating costs of making small loans to people on lower incomes. Therefore, in addition to our investment in modernisation and expansion, we plan to consult on raising the cap on the interest rate that credit unions are permitted to charge on loans, to determine whether it will help credit unions achieve financial sustainability and reach a wider range of customers.
The Department for Work and Pensions, HM Treasury, and the Department for Business, Innovation and Skills will continue to work closely on all aspects of the credit union expansion project, including the formal consultation on the interest rate cap and any subsequent legislative changes.