12 Jun 13
ABCUL has welcomed HM Treasury’s decision to introduce legislation to raise the interest rate ceiling on credit union loans.
The cap is set to increase next April from 2% to 3% a month on the reducing balance of the loan (around 42.6% APR), allowing credit unions to choose whether to increase the rate they charge on small, short term loans for which they may currently struggle to cover their costs.
Economic Secretary to the Treasury Sajid Javid MP said: “Credit unions provide an invaluable service to people on lower incomes, offering sound financial advice and responsible lending. Allowing the maximum rate of interest to increase will help credit unions become more stable and allow them to offer reliable, affordable credit to consumers who may have to resort to more expensive means.”
ABCUL Chief Executive Mark Lyonette said: “We welcome the Government’s response on the interest rate consultation and the decision to give credit unions more flexibility to charge a higher interest rate.
“It is clear from the range of interest rates credit unions currently charge that this won’t mean a blanket rise in the cost of all loans – credit unions’ loan rates currently start at around 8% APR for larger loans and as low as 4.25% for mortgages – and many credit unions won’t change their rates at all. But some credit unions may choose to raise the interest rate on smaller, short term loans if this will enable them to sustainably offer an affordable and ethical alternative to more people whose only other choice may be doorstep loans at 400% APR or payday loans at 4000% APR.”
The Government response to the interest rate ceiling consultation is available here.
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