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| About Credit Unions | ||||
| Red Kite Credit Union 20 Market Street Builth Wells Powys LD2 3EA 01982 551000 01597 824000 General enquiries: |
What is a Credit Union? A Credit Union is a mutual financial organisation owned and run by its members. Although Credit Unions are world-wide, in the United Kingdom they are governed by the Industrial and Provident Societies Act 1965 and the Credit Unions Act 1979 and subsequent legislation, and since July 2002 have been subject to the Financial Services and Markets Act 2000 and have to be Authorised and Regulated by the Financial Services Authority (FSA) as Deposit Takers, click here for more information on FSA or use the link to the right. A Credit Union is essentially a vehicle for savings and low cost loans. The savings from members form the pool of funds from which the loans are made, and the interest from the loans, after certain statutory deductions and running expenses, is paid as a dividend to the members. There are no absentee shareholders, profit takers or carpetbaggers pulling the strings from distant tax havens. It aims to be a Credit to the Community. The Law applies limits to total savings by a member and the size of loans, to increase overall security, and credit unions can be seen as mainly applicable to the lower end of the financial market. A credit union can be of service to those whose financial needs and capabilities are too small to be of interest to the main stream high street banks and lenders. It can provide a much better deal than the doorstep instant loan organisation whose interest rates are generally much higher. The Financial Services Authority applies Rules and Requirements to each credit union that are aimed at securing the financial security of the credit union and thus the safety of the members' deposits. Who runs a Credit Union? A Credit Union is run by a Committee of Management or Board of Directors elected from the membership by the members at Annual General Meetings. The Directors are volunteers and unpaid, although an honorarium can be paid to the Treasurer (Red Kite does not). Other Committees elected by the members, for example a Credit Committee to control loans, will report to the Board. An 'internal audit' committee is a requirement of the law and FSA and may be drawn from the Board or be totally independently elected as a Supervisory Committee as is the case with Red Kite. A large Credit Union may be able to afford to pay for additional staff to assist in the operation of the credit union but such paid staff do not dictate the policy of the credit union. Who can join a Credit Union? Each Credit Union has a defined 'common bond' which defines the persons eligible to join it. There are various types of common bond under the law but for the purposes of this web site and discussion the only type considered is a geographical common bond where eligibility is to reside within this area and in many cases is extended to include those employed within the area (known as 'live or work'). There will normally be a small non-returnable entrance fee (typically £1 or £2) and a requirement to hold always a minimum savings deposit (typically £1 to £5). Applicants may have to be proposed and seconded by existing members of the credit union and approved by the Directors. A credit union is not a 'public' service. Savings with a Credit Union Savings with a credit union are known as shares; each £1 buys one share. There are no additional privileges to a member from the number of shares held; each member with at least one share has one vote at General Meetings of members. Any pattern of savings from a member is generally acceptable although a credit union will encourage a regular saving regime, especially if the member wishes to take out a loan. The Law applies a limit to the savings of any one member, typically £10,000 for a small credit union. Subject usually to an age limit, a member's shares are covered by life insurance so that if the member dies their shares are effectively doubled; in some cases a sliding scale may apply as the age limit is approached; this is not the case with Red Kite. Loans with a Credit Union Before a member can take out a loan a credit union will generally require the member to have saved regularly for a period, typically three months, and this will then qualify the member for a loan of typically two or three times the amount of their savings repayable over one year. This procedure aims to protect the savings of the other members, from which the loan monies have to be drawn, and demonstrate that the member is able to make the repayments and will not be getting 'out of their depth'. The Law applies a limit to any one loan based on the size of the credit union's assets, again aimed at protecting members' savings. It also applies a limit to the interest rate that a credit union can charge; this legal limit is 2% per month on the reducing balance of the loan but Red Kite Credit Union charges only 1%. No loan is too small for a credit union and there are no arrangement charges or charges for early repayment. For some tables of typical credit union loan repayments and total costs click here. Subject usually to an age limit, loans are covered by life insurance so that the loan is paid off if the member dies and is not a burden on their dependants. How secure are savings in a credit union? The regulatory regime imposed by the Financial Services Authority (FSA) under the Financial Services and Markets Act 2000 is aimed at safeguarding members' shares (savings) so as to ensure that each share remains worth £1. The main risk to the shares fund is that of bad debts, and the FSA requires a credit union to make adequate provision against doubtful loans by in effect withholding some of its profit in case loans have to be written off, and applies limits to larger exposures. The FSA has the power to withdraw authorisation from a credit union, in effect closing it down as it cannot legally operate without this. In such an event of a credit union failing to meet its commitments members' savings are covered by the Financial Services Compensation Scheme set up by the FSA to an extent at least as good as that for high street banks. |
How to save and borrow with Red Kite Credit Union Geographical coverage for Red Kite Credit Union About Credit Unions Regulatory bodies |
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