What are Credit Unions?
Credit Unions are basically a sort of “community bank” – not-for-profit financial co-operatives owned and controlled by their members. Although they are not strictly a "bank", they are regulated by the same body(s) that regulate banks, building societies and other Financial Organisations. Credit Unions offer accessible savings and affordable loans, plus they are local, ethical and know what their members want.
Each credit union has a “common bond” – the thing all members must have in common – to determine who can join it. The common bond may be for people living or working in the same area, people working for the same employer or belonging to the same association, such as a church or trade union.
Since 2002 UK credit unions were regulated by the Financial Services Authority (FSA). This body has been recently replaced by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) who now regulate all Credit Unions. Successive governments have been committed to helping people benefit from credit union membership to reduce reliance on loan sharks and doorstep lenders.
How do Credit Unions work?
The members of a credit union pool their savings together to provide a fund from which loans can be made to other members.
So that it can attract savings, a credit union often gives savers a return on their money (this is known as a dividend). The money paid in by members is lent out to others, who pay interest on the loan.
From the interest it gets from loans, it must pay its operating expenses and make a profit so it can put some money into reserves and pay any dividend.
All profits go toward developing the business or are returned to members as a dividend; the only shareholders in a credit union are the members who use its services.
Who runs the Credit Union?
The credit union is managed and controlled by a volunteer Board of Directors. All officers of the credit union are members who have been elected by the membership at an Annual General Meeting. All members have one vote – regardless of the size of their savings.
While credit unions often employ some staff to manage the business on a day-to-day basis, control lies firmly in the hands of the members through their elected members, the Board of Directors.