An independent think tank has claimed current rules and regulations regarding credit unions are 'burdensome' and must be relaxed to widen their appeal to consumers and enable them to compete with high-interest lenders.
Despite the Government pledging to raise the cap on monthly interest from 2% to 3% with effect from next year, the Institute for the Study of Civil Society, or Civitas, has stated that credit unions must also increase and pass their processing fees, currently averaging £8, to the consumer in full.
Scrapping the existing £10,000 deposit limit to allow companies to invest more if they wish to, will also broaden the range of products offered.
The institute claimed the current interest cap of 2% does not allow companies to break even on small loans, and argued that an increase to 3% would still not provide enough impetus to promote a product.
Researcher at Civitas, Joseph Wright, said: "Ultimately, credit unions cannot be expected to combat payday lenders if they are continually forced to make a negative or non-existent return on the same loans.
"A stronger credit union sector will help to bolster the financial market against future market failure and it is important to do this while the impetus is still there," he said.
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