The Government is to help hundreds of thousands of hard-up borrowers avoid the trap of high-cost loans by boosting the influence of credit unions.
A £38 million pot is to be given to the Association of British Credit Unions (ABCUL) to help the not-for-profit institutions establish themselves as a credible "antidote" to payday lenders and loan sharks.
It is hoped that the renewed importance of credit unions will see them help up to one million hard-pressed consumers out of the trap of paying thousands of percent on short-term loans.
Millions of consumers struggling to make ends meet have often found themselves turning towards payday loans, where annual interest rates can exceed 4,000%.
Credit unions, owned by their members, are unable to charge more than 26% APR on their loans – little more than the average credit card.
The contract is expected to help the less-well-off save up to £1 billion in loan interest repayments by 2019 compared to the charges they would have faced through high-cost lenders, the Government believes.
The £38 million fund will facilitate a modernisation programme to help the unions offer products including current accounts, savings accounts and affordable loans to a greater number of struggling consumers.
"Ambitious" and "Timely"
The chief executive of Abcul, Mark Lyonette, said that the body was "delighted" to undertake an "ambitious and timely project" that will help to raise the profile of credit unions as well as support consumers.
"More credit unions will offer a wider range of products including current accounts, Cash ISAs and innovative budgeting accounts," he said.
Welfare reform minister, David Freud, said: "Credit unions offer an alternative to vulnerable people who have few safe options to get cash when they need it most.
"They are the antidote to predatory loan sharks or high-interest lenders."
Keith McDonald
Which4U Editor
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