The Financial Service Compensation Scheme has stepped in to cover savers’ deposits after Staffordshire Credit Union collapsed after nine years in operation.
The FSCS was set up by the government after Northern Rock, Farepack and other companies carrying investors’ savings hit the skids and triggered the financial crisis in 2008. It covers up to £70,000 of an individuals’ savings with any one firm and in Staffordshire expects to pay out around £450,000 to 1,027 of the credit unions’ members.
Now locals fear former customers may turn to local loan sharks for short-term borrowing needs. (See the full story here)
Unlike with credit unions, which are community owned and not-for-profit, borrowers have little protection if unlicensed lenders demand high (or sometimes unending) interest payments, except by involving the law. Credit unions often work best with people who have a poorer credit history because they work closer with people needing to borrow money to make sure they are really able to repay.
Most credit unions are well-managed and offer a professional but sometimes less formal service. Members often build a relationship with the local organisation by becoming a regular saver and after a time can take out small loans.
Their competitive borrowing rates knock spots off high interest lenders like payday loans companies and weekly payment stores like Brighthouse, whose hidden costs* and add-ons mean customers can spend around twice what someone who accesses a credit union loan for a TV or washing machine would spend. (*Hidden costs being those in small print or not as well-advertised as the seemingly affordable weekly payment amount.)
For working age benefit claimants who are due to move over to Universal Credit, becoming a regular saver who earns the right to take out a loan over time offers the chance to manage the transition to the welfare system that holds back all payments for a minimum of six weeks. A mix of savings and a bridging loan could make the difference between getting by and being forced to visit the local foodbank.
Click here for more on Credit Unions.
Click here for more on the FSCS.
Click here if you need advice on dealing with a loan shark.