WHAT IS A CREDIT UNION?

Introduction

Credit Unions are financial co-operatives offering their members an easy and convenient place to save and access to low cost loans when required. They offer a valuable service to everyone - business people, families, employed or unemployed, young people or those who have retired.     They encourage their members to make regular contributions into savings accounts which create a central pool of funds. This is used to provide loans back to the membership at very favourable rates. The interest generated from the loans is used to cover administrative costs, with any surplus returned to members as a dividend.

Who Benefits?

Credit Unions are registered financial organisations that make economic sense to their members. Loans can be granted for anything from a new car to settling an electricity bill to avoid disconnection. Larger Credit Unions have been able to grant bridging loans, business loans and also fund student grants. Loans are repaid with interest charged on a reducing balance, with no penalties for early repayment and no hidden extra costs. The standard rate of interest is 2% per month (equivalent to 26.82% APR) although it may be as low as 1% per month (equivalent to 12.68% APR) in specific circumstances). Therefore, with interest rates considerably higher for most unsecured loans, with other charges on top of that, Credit Unions make financial sense to everyone.     Credit Unions do not have hidden costs - no arrangement fees, no charges for setting up overdraft facilities, penalties for early redemption or for official letters, etc. No additional charges are levied over and above the 2% per month interest rate. In fact automatic loan protection cover which can add up to 10% more on the cost of a loan is provided free of charge to members against death and disability (subject to certain age restrictions).

Credit Unions and Savings

Loans are not available without savings. A member must save regularly, usually for a three month period before becoming eligible to apply. This encourages a savings habit. The loan is then made proportionate to the amount of savings.     A Credit Union offers people the opportunity to put their savings into their own community. As shareholders in a Credit Union, members have control over their own savings and can have a say in which local enterprises and with whom their money is best invested. A Credit Union gives people a measure of responsibility for the economic development of the communities they live in. Not only do Credit Unions offer competitive returns on savings to their members, they also provide life insurance at no extra cost (subject to certain age restrictions).

Common Bond

A Credit Union is formed around a recognised group of individuals who share a common interest or 'bond'. This Common Bond can exist between people who live in the same locality, belong to the same association or work for the same employer. All the credit unions in Powys are community based common bonds.     This common bond establishes a degree of mutual accountability amongst the membership which minimises the risk of default on loans, as well as encouraging active support and a responsible attitude from the members towards their Credit Union.

Credit Unions as Co-operatives

Because Credit Unions are co-operatives, they are democratically controlled and owned by their membership. As shareholders, all members have equal voting rights and an influence over Credit Union operations and services.     The Credit Union is managed by a Board of Directors elected from within the membership. Their role is to manage the Credit Union, to formulate policy and to ensure it is operating legally. Alongside this is a credit committee which assesses loan applications and monitors the savings accounts.     A supervisory committee acts as internal auditors to the Credit Union, reporting to the board of directors and the members at the Annual General Meeting. Credit Unions are monitored by the Registry of Friendly Societies who require an annual audit by an external qualified auditor.     Credit Unions have been running in the UK since 1960 and there are now more than 500 with over 250,000 members. In Wales there are around 35 registered Credit Unions. Twenty one of these have been established in the last three years.     In many other countries they have a much longer tradition and are much more established as a result. In the United States, for example, there are around 60 million members of 15,000 Credit Unions and in Canada over half the population are members of a Credit Union.     Ireland has a very successful movement which serves over a quarter of their population. World-wide there are over 90 million members in 71,000 Credit Unions.

Credit Unions and Community Development

Credit Unions offer a real opportunity for local people to become directly involved in their local community. They are able to take part in a piece of collective action that has the potential to make a real difference to the quality of life in their local community.     Through involvement with the Credit Union, volunteers and members are able to participate democratically in an organisation which they both own and manage. They can influence and assert control over economic and social issues that directly concern them as members of the community.

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