The chief of the UK's financial watchdog has travelled to the birthplace of the co-operative movement to champion a major expansion of community lenders, seen as a vital defence against illegal money lenders.
FCA's Rochdale Visit Signals Support for Mutuals
Nikhil Rathi, the Chief Executive of the Financial Conduct Authority (FCA), visited the Pioneers Museum in Rochdale to launch a new report with recommendations aimed at doubling the size of the mutuals sector. This aligns with a key Labour manifesto pledge. The UK's 350 credit unions, which serve around 2 million members and hold combined assets of £4.9 billion, are central to this vision. These local, not-for-profit lenders offer legally capped interest rates and cater to consumers often overlooked by mainstream banks.
The Treasury has committed to reviewing the 'common bond' rules that define who a credit union can serve and has allocated £30 million to help modernise their IT systems. However, experts warn that a lack of capital remains a significant barrier to the growth needed to effectively compete with predatory lenders.
The Stark Reality of Borrowing from Loan Sharks
Despite these efforts, campaigners stress that vulnerable people continue to fall prey to illegal lenders. Recent research by the government-backed organisation Fair4All Finance found that 1.9 million UK adults resorted to unlicensed lenders or loan sharks in the past year.
"When there's an unexpected cost like that you just need to get it sorted, but you're left with no good options," one borrower told a roundtable in Glasgow, organised by the Finance Innovation Lab. Stories from communities, such as a housing estate in Stockton, highlight a depressing pattern where residents turn to loan sharks, unaware of the safer, cheaper alternative offered by a local credit union.
The Campaign for a 'Fair Banking Act'
A coalition of charities, mutual lenders, and campaigners, including actor Michael Sheen, is now pushing for more radical action. They advocate for a UK Fair Banking Act, modelled on the long-standing US Community Reinvestment Act. This law would require major banks to be assessed on how well they serve underserved communities and to publish plans for improvement.
In practice, this often leads banks to partner with and invest in credit unions and Community Development Finance Institutions (CDFIs). The coalition argues such an act could turbocharge lending by these community lenders, potentially increasing it from £250 million today to £3 billion annually.
Dr Paul A Jones of Liverpool John Moores University, an expert on credit unions, welcomes government support but emphasises the need for external investment and for credit unions themselves to aim for significant scale. "We need more credit unions to get in the fast lane," he stated.
With high street banks having recently avoided a potential windfall tax—which the IPPR think tank said could raise £8 billion a year—campaigners argue it is not too much to ask that they redirect a fraction of that sum to support the local lenders keeping loan sharks at bay. The government's recently published financial inclusion strategy, however, stopped short of imposing such firm demands on the banking sector.
