Page last updated at 16:31 GMT, Monday, 30 June 2008 17:31 UK

Credit union rules 'to be eased'

The government fears some people will struggle to get loans

The government has unveiled a plan for credit unions to help people, especially those on low wages, beat the credit crunch.

The Treasury has announced that it is to relax the rules governing credit unions - community-based savings and loans organisations.

It is designed to help people who are having trouble either repaying debts or obtaining loans from other lenders.

Ministers fear such people could become easy prey for loan sharks.

Credit unions work as low-risk savings and loans providers, frequently for less well-off customers.

Common bond

The move comes amid concerns such customers may be particularly badly hit by the credit crunch, such as by finding it increasingly difficult to borrow money from traditional High Street lenders.

Why people in Tower Hamlets use a credit union

Kitty Ussher, economic secretary to the Treasury, was outlining the proposals to the new All Party Parliamentary Group on Credit Unions.

"We want to make it easier to for families to access the affordable credit on their doorstep that is offered by credit unions, rather than having to turn to more expensive schemes or, at the extreme end, illegal loan sharks," she said.

Although any area or organisation can form a credit union, they have to operate within their own communities - known as the Common Bond.

The Treasury plans measures to broaden the Common Bond, allowing the sector to expand.

By this time next year, ministers hope to get rid of many restrictions on who credit unions can lend to, allowing them to branch out by forming alliances with other unions, employers and housing associations.

They hope that by doing this, people will be able to access cheap, secure loans which they will be able to repay.

More plans

Other proposals for credit unions include making it possible for groups, rather than only individuals, to become members.

The credit unions would also be allowed to pay interest on members' deposits and charge the market rate for services such as chequebooks and money transfers.

Ms Ussher said this would remove some of the "outdated and unnecessary" restrictions that govern the sector.

The are about 600 credit unions in the UK with approximately 500,000 members and assets of 400m.

Mark Lyonette, chief executive of the Association of British Credit Unions (Abcul), welcomed the announcement.

"In particular we will be welcoming a relaxation of the common bond. This will mean that credit unions can offer their services to more people," he said.

"Our aim is for credit unions to offer millions of people in the UK a fair, responsible and safe alternative - a trusted way to make the most of their money."

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