Waiver helps UK credit unions take on payday lenders
By Matt Scuffham
LONDON (Reuters) - A new type of loan insurance could help Britain's credit unions take on payday lenders charging sky-high rates and go some way to plugging a protection gap left by the country's worst-ever mis-selling scandal.
Cuna Mutual, the world's biggest credit union insurer, is working with UK lenders to provide a 'debt waiver' facility for borrowers which ensures they do not have to make repayments on loans if they fall ill or lose their jobs.
The product increases the attractiveness of loans offered by credit unions and comes at a time when they are being urged to grow at the expense of payday lenders such as Wonga, which charges an annual interest rate of 5,853 percent.
Paul Walsh, Cuna's chief executive who was previously an insurance executive at Barclays (BARC.L: Quote), says adopting the waiver could heighten their popularity.
"I think it's a very credible way of transforming the attractiveness of their products. It makes them more innovative and more relevant to certain types of customers," Walsh said.
Cuna has been offering similar waiver products in the United States for the past 75 years, where it has been adopted by the Navy Federal Credit Union, a savings club attached to the United States military, which has a $35 billion loan book.
Credit unions, or community-run savings clubs, are less developed in Britain but are expected to grow in number as the authorities see them as an alternative to payday lenders, which have surged in popularity since banks tightened lending activity after the 2008 financial crisis.
Britain is clamping down on the previously lightly-regulated short-term lending market and the Archbishop of Canterbury has vowed to drive them out of business by using the Anglican church to build up a network of credit unions. Last week, he hired Britain's former top financial regulator to lead a task force as part of the campaign. Continued...