Miscellaneous Credit unions
Credit unions are small financial co-operatives owned by their members. Most credit unions in Great Britain have less than £5m in assets. The largest credit union has around £210m in assets and 55,000 members.
	In Great Britain, credit unions are governed under the Credit Unions Act 1979 (the 1979 Act). The 1979 Act is restrictive in that it sets out the purpose of a credit union and specifies the products and services that credit unions can provide. It lists four "objects"20 which sets out their purpose. These are:
The promotion of thrift among the members of the society by the accumulation of their savings;
The creation of sources of credit for the benefit of the members of the society at a fair and reasonable rate of interest;
The use and control of the members’ savings for their mutual benefit; and
The training and education of the members in the wise use of money and in the management of their financial affairs.
	In addition to this, credit unions have a set of rules, agreed by members, which set out their relationship with members and their governance structures. For example, credit unions set out their mandatory objects, as well as broader restrictions around topics such as membership, minimum shareholding requirements, or if the credit union should allow corporate members.
	The current content of the 1979 Act has meant that credit unions primarily offer savings accounts and loans to their members, with some offering a slightly wider range of products and services such as mortgages. In the 2020 Budget , the Chancellor committed to bringing "forward legislation to allow credit unions to offer a wider range of products and services to their members, supporting their vital role in financial inclusion."
	The Association of British Credit Unions Limited (ABCUL) ran a sector-wide consultation in 2019 named "Vision 2025". The consultation highlighted that credit unions were interested in offering other products and services beyond those allowed under the 1979 Act. There was strong interest from credit unions in being able to offer car finance (70%) and insurance distribution (49%).
	The Act gives credit unions in Great Britain the ability to offer hire purchase and conditional sale agreements to their members, for example as a form of car finance agreement.
	Hire purchase agreements and conditional sale agreements have different structures but are similar in that members of the credit union will be able to choose a product and pay a deposit to a credit union. The credit union will then buy and own the asset while the member uses it and makes payments to the credit union until it is paid off. The member will typically repay the credit union the value of the item plus interest in instalments or periodic payments. The agreements usually include the condition that the goods do not belong to the member until they have paid the final instalment and the credit union may be able to repossess the goods if the member falls behind with payments.
	Specifically, a conditional sale agreement is an agreement where a credit union purchases a good on behalf of a member and the member then pays the credit union in instalments as agreed for the product until it is paid off. The credit union retains ownership of the good, but the member uses it during the period of repayment.
	Hire purchase agreements are agreements where the credit union purchases the good on behalf of the member, and the member makes periodic payments on the good until it is owned by the member, often based on compliance with payments and full repayment.
	Hire purchase agreements and conditional sale agreements will be subject to credit unions obtaining permission from the appropriate regulator in the same way as other providers, and secure approval from their members. The Act caps the interest a credit union can charge on the outstanding balance due under these finance agreements at 3% interest per month but gives the government the power to raise this cap to provide flexibility for credit unions. This interest rate is in line with what credit unions can charge for loans and mirrors the power HM Treasury already has for setting the interest rate cap for loans in the 1979 Act. Additionally, the Act allows credit unions to offer these agreements to corporate members. This is subject to this being set out in a credit union’s rules, which requires member agreement at a general meeting. The legislation also requires that no more than 10% of the total outstanding balances due to be repaid under these agreements can be owed by corporate members. The Act also ensures that the 10% limit can be amended via statutory instrument.
	The Act enables credit unions to offer insurance distribution services to their members. This means, subject to receiving permission from the appropriate regulator to carry out any regulated activities, a credit union will be able to help its members take out insurance policies with partner insurance firms and charge the partner insurance firm for their services.
	The Act gives HM Treasury the power to add further services to the 1979 Act in the future via secondary legislation, subject to the affirmative procedure, i.e., the approval of both Houses of Parliament. HM Treasury will be required to consult with relevant stakeholders before exercising this power. Given that the 1979 Act is prescriptive, as described above, this power provides HM Treasury with greater flexibility to support the credit union model to adapt more quickly to changing demands in product offerings, remain competitive as a sector, and continue to serve their members effectively, while still maintaining the lighter-touch regulatory benefits of the prescriptive regime by ensuring there is still scrutiny over which products and services may be offered.
	The Act introduces two additional changes to the 1979 Act, following engagement with the Financial Conduct Authority and the Prudential Regulatory Authority. Firstly, it introduces a legislative requirement for credit unions to submit annual returns to the Financial Conduct Authority, and adopt year of account provisions in the Co-operative and Community Benefit Societies Act 2014 to specify the accounting period, to reinforce good governance practices in credit unions and bring credit unions in line with other societies registered under the Co-operative and Community Benefit Societies Act 2014. Credit unions in Great Britain are currently required to submit a copy of their audited accounts to the FCA in accordance with the FCA’s rules, rather than under legislation.
	Secondly, the legislation also clarifies the ability of credit unions to lend to/borrow from other credit unions, even when there is no membership link, to provide legal certainty over this activity. Credit unions are already able to undertake this lending and borrowing, and the legislation previously made explicit reference to temporarily borrowing from another credit union under the original drafting of section 10 of the 1979 Act . This new amendment provides further legislative clarity over this practice.
	The Act also ensures that the new legislative changes do not retrospectively apply to the practices of lending to and borrowing from other credit unions, or to submitting annual accounts to the FCA, and adopting year of account provisions before the Act comes into force.