How can credit unions combat competition from payday and low cost bank loans?

The condemnation of payday loan companies by the Archbishop of Canterbury provided fantastic media exposure for credit unions across the UK. As the government takes steps to cap payday loan interest rates and introduce tougher regulations, how can your credit union continue to capitalise on this adverse publicity and promote the services you provide?

What is your credit union doing at the moment which could generate more publicity?

  • Are you looking to move premises?
  • Do you have a new loan product?
  • Do you have new board members?
  • Have you reached a milestone target in member numbers, share or loan balances? 

As you can see there are numerous ways in which you can generate publicity, all the time spreading the message that 1000% plus loans can be avoided. This process of marketing needs to be carefully managed however to ensure you are attracting your ideal members. For many credit unions, this is not only about targeting potential members who are part of the common bond, but about dispelling the belief that credit unions are only an option for the financially excluded. In order to do this, is it important to move into financial inclusive models or do credit unions just need to tighten up on their loan policies? It all sounds very simple but the balance of creating profits is tough if policies are too tight and income isn’t being generated, but it is sound advice to have strict loan policies in place. The rewards, in terms of dividends, then have to be created to help attract financial inclusive members to put their money into the credit union for anticipated returns.

How strict is your loan policy?

Many of the payday loan providers protect their business models not just by charging excessive interest rates, but by using strict loan agreement clauses. What can the credit union sector do to ensure that, where they are not providing such clauses, they do not ruin their business models through poor lending and bad debt?

  • How is your credit union managing lending?
  • Who is authorising loans?
  • What is the impact of delinquency?
  • You’re in the business of lending money, but what impact do declined loans have on the business? 

Could corporate lending be an opportunity for credit unions?

Apart from the payday loan companies, there is also competition from the banks. The adverse publicity that banks have received since the beginning of the recession in 2007/08 should have created opportunities for the Credit Union sector, but recent low-cost lending from the Bank of England has enabled banks to lend businesses lower cost loans. Is this now the time to exploit the adverse publicity the banks have received or is this a step too far, too early for the credit union sector? Corporate lending is now an option for credit unions and should be carefully considered. Our later blogs will go into detail about corporate lending, as detailed policies are needed to ensure this area is covered by constant monitoring and potential security.

Capitalise on Growth

On a final positive note, the PRA recently published the figures on growth in the sector since 2004, which was produced from the annual returns of credit unions. It is certainly encouraging reading, and suggests that there are numerous opportunities for credit unions to exploit the growth in the sector. The figures can be viewed here:

There are plenty of challenges for credit unions, but which make for great opportunities?

If you have a challenge you would like to discuss with an experienced adviser, please contact Philip Jones at Hallidays on
0161 476 8276 or email

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