By Richard Norfolk

In our present consumer driven society, problem debts give many people sleepless nights. Worrying day after day about whether you will be able to meet your commitments is no way to ensure a peaceful life. Lenders abound of course, offering loans at varying rates and in some cases making the problem more acute by charging interest at very high levels. Is there any way out of continually paying more but getting less because interest costs pile up and have to be repaid?

The answer is yes, in the form of credit unions. You have probably never heard of them but they are well worth investigating if you are in need of financial help. You are likely to be very pleasantly surprised.

Credit Unions, under the umbrella of ABCUL (Association of British Credit Unions), are best described as financial co-operatives, working on a non-profit basis on behalf of groups of members who have a common ‘bond’. This bond may be where they live or work, or membership of a church or trade union – something which ties them together as a recognisable group.

The members own and control the credit union, working within laws laid down to protect them all. They are responsible for the election of a board of volunteer directors who run the union for their benefit.

They will offer savings facilities which are very flexible, allowing members to save as much as they wish whenever they want to. This can be paid in via designated local places such as shops or even direct from wages. An annual dividend will be paid on the amount saved; this is usually around 2-3% but can be anything up to 8%. Child Trust Fund vouchers can also be used, through an arrangement with the Scottish Friendly Society.

Loans are made available to members at very reasonable rates, usually for up to 5 years unsecured or 10 years secured. The charge can be expected to be around 1% per month on the reducing balance of the loan, rather than on the total loan taken out. This gives an APR of 12.7%, which in much simpler terms means that for £1000 borrowed over 1 year, the total repayment would be £1067. You are unlikely to get a rate anywhere near this from the usual ‘high street’ lenders. Life insurance is provided free of charge to cover the outstanding loan if you reach your ‘best before date’ with payments still to be made!

The loan charges are such that you may well find that it would pay to borrow from the credit union to pay off an existing debt, and then repay the loan at the union’s much lower rate. Note also that there are no additional charges if you are able to pay off the loan early.

Another not so obvious advantage of the credit union is that the operation is totally local, so that the money is kept within the local community. This is better than if the funds are whisked away to a relatively anonymous ‘head office’ which is probably located in a city at the other end of the country.

Details of credit union operations and on how to start a credit union in your area, can be obtained on www.abcul.org, email at info@abcul.org or telephone 0161 832 3694.To reassure you about the status of this organisation, many facts are provided at this website which serve to show its international coverage.

A listing of existing credit unions is given and you may be disappointed to find that there is not one in your area, but don’t despair – there are answers. In the first place you should check if the union nearest to you is not fully subscribed and that you do qualify under the ‘common bond’ requirement. Also, you may well find that the ‘boundaries’ of
common bonds are being extended to cover larger numbers: an expansion could be in line for your area, or you may be able to convince an existing union to do so.

Failing this, why not consider starting your own credit union. You can make a start by going to the ABCUL website and that of the Financial Services Authority at www.fsa.gov.uk and noting the requirements for starting a new Credit Union. These are quite detailed and cover a broad area but don’t panic. Plenty of people have been here before you, to start up their own.

Very briefly, to start your own credit union you need to know that to establish your union is likely to take 1 to 3 years and within the common bond you have decided upon, you initially need a minimum of 21 members. Then you will have to arrange and follow up your publicity drive to establish the demand in your area.

You would be wise to join ABCUL once you have enough backing to ensure that the project is going ahead. This will give you access to a large amount of very relevant information from ABCUL information services as well as a full manual providing guidance on how to progress. Also see the FSA website mentioned above to find out what you need for FSA approval before you can proceed further.

Members will have to choose the directors, who will require training to enable them to run the union. They will need to investigate sponsorship and obtain promises from local organisations to provide funds to cover the early years of the operation. These costs can be as high as £70,000 in the first 3 years. This could be a daunting sum, but ABCUL make the point that one of their objectives is the education of their members in the wise use of money – surely a very worthy aim. Membership in the UK (where the association started in 1979) is given as 600,000; worldwide there are said to be 40,258 credit unions in 79 countries with 118 million members in total. In Ireland (founded 1958) the coverage is given as 50% of the population and in the USA and Australia as 25%.

You can certainly proceed with confidence in the organisation!

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