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Credit Union

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James Mead edited this page Aug 19, 2014 · 8 revisions

Although a credit union is a type of Industrial & Provident Society, there is no need to register as an IP&S separately. In general a I&PS must be either a "bona fide cooperative" society or a society acting for the "benefit of the community":

  • Bona fide cooperative - trades for mutual benefit of members - judged with reference to the co-operative principles
  • Benefit of the community - trades for benefit of wider community i.e. not just members - judged with reference to charity law

A credit union will be of the "bona fide cooperative" type.

Study group

  • Credit union precursor
  • Name the credit union (study group is known as the "XXX credit union study group")
  • Candidate common bond for credit union
  • Access to a hidden "members' area" on association websites
  • Contact FCA to inform them of intention to setup CU
    • "Firms" telephone number: 0845 606 9966
    • FCA appoints a named contact to work through the process

Fees

  • UKCU charge a one-off membership fee of £5 for a study group to join them as a "member"
  • ABCUL charge £50

Training

  • UKCU offer training at a rate of £600 per day excluding travel & accommodation

Model rules

  • UKCU will supply model rules once you are a member

Registration/authorisation

Questions/comments about the application form

  • What is an applicant firm?
  • How much would an accountant/auditor cost?
  • Could we borrow aspects of Makeshift's business plan to form the basis of our own?
  • What's the minimum org chart we can get away with?
    • NOTE. It states that a single person can perform multiple roles
  • IT Systems - What are the money laundering and data protection requirements?
  • Insurance - How much would we expect to pay?
  • Should we consider grants in order to help start the credit union?
  • We're up to section 8.1, policies and procedures.
  • Treating customers fairly - FCA and FSA

Requirements

  • Minimum of 21 like minded people
  • Minimum initial capital of £10K - this needs to be in the form of grants or donations, it can't include members deposits.

Difference between v1 and v2

A version 1 credit union can only lend up to £15K per member, but a version 2 credit union has no such restriction.

Common bond

Fees and costs

Initial

New credit union authorisation fees - £300 for a v1 credit union; £1,800 for v2 credit union.

Recurring

The FCA provides a Fee Calculator which calculates:

  • FCA Periodic Fee
  • PRA Periodic Fee
  • Money Advice Service Periodic Fee
  • FSCS Levy
  • FOS Levy

There seems to be a "first year" discount and I think you only pay pro-rata if you join part way through a financial year. It's quite hard to get a feel for the kind of fees that a very small credit union would pay, but it looks as if the absolute minimum would be in the order of £200.

Fidelity bond insurance

This type of insurance covers losses caused by dishonest employees. UKCU offer a policy and suggest that the minimum annual premium would be about £183.

Data protection registration

The cost of your data protection registration depends on your size and turnover, but for most businesses it costs £35. You'll only need to pay £500 if you have: a turnover of £25.9M and more than 249 members of staff or if you are a public authority with more than 249 members of staff.

Trade association

  • UKCU fees charge 75p per quarter per £1000 of shares and 25p per quarter per £1000 of loans.
  • Other trade bodies charge fees per member.

Software providers

Progress Credit Union Centre

  • Provides online banking functionality for a bunch of credit unions, including London Capital CU which Chris has applied to join.
  • Their services are hosted on securecu.co.uk and you can see a list of their customers by searching Google for site:securecu.co.uk.
  • They have a deal with ABCUL whereby ABCUL members can sign up for Progress' online banking service.

Kesho Systems

  • Provides online banking functionality for a bunch of credit unions, including London Community CU which James has applied to join.
  • Their services are hosted on securecuserver.co.uk and you can see a list of their customers by searching Google for site:securecuserver.co.uk.
  • UKCU suggest that their Curtains application costs £10K+ plus an annual maintenance fee.
  • Claims to provides Curtains and Curtains Too Windows software to 80% of credit unions.

Fern Software

  • UKCU mention their Abacus application.
  • UKCU suggest it costs £16K+ plus an annual maintenance fee.

Electronic Channel Financial Services

  • UKCU mention their back-office Conaccess and front-office FOCUS applications.
  • UKCU suggest that these cost £5K+ and £8K+ respectively plus an annual maintenance fee.

Credit union associations

These associations are all able to provide a set of "model rules".

Banks offering accounts for credit unions

  • The Co-operative offer their Community directplus account for credit unions
  • Lloyds TSB offer credit union accounts.
  • HSBC offer a Community Account that offers free banking up to £100,000
  • Natwest offer a Community Account that offers free banking up to £100,000
  • Nationwide don't appear to offer a suitable current account. They do offer a Treasurers Trust Savings account that's for small clubs, charities and societies but it's operated using a passbook so I'm not sure that'd be suitable.
  • Barclays say that they offer accounts for clubs, associations and societies but that you have to enquire in a branch to find out more.

Co-operative bank Community directplus

A Community Directplus account offers:

  • Free banking if we have a turnover up to £1,000,000 and annual deposits of up to £100,000.
  • Credit interest on the account with more than £2000.
  • Free business online banking.

It currently takes about two weeks to open the account from the time the application is presented.

If the free online banking software doesn't give us what we want then they also have the paid for Financial Director (FD online). In addition to the functionality offered by business online banking, FD online also offers:

  • CHAPS payments (both UK and Euro)
  • foreign payments
  • secondary approval for payments
  • bespoke reports.

Should we be interested, the FD online helpline is 08457 616616.

ABCUL's credit union prepaid cards

ABCUL's credit union current accounts

  • I couldn't get full information as we're not a member of ABCUL.
  • They use volume based pricing.
  • They use some of the Co-op bank's infrastructure to host/run the current accounts but they're not provided by the Co-op.
  • The cost of the current account and administration overheads mean that they're not viable for smaller credit unions.
  • It might be possible to offer current accounts if we have a lot of capital investment that we can use.
  • It's possible that the Credit Union expansion project might lead to additional current accounts/similar products.

Links

The Credit Union Current Account (CUCA) provides a fully functional debit card facility to members of the 25 credit unions that provide it. The system sits on the Co-operative Bank‟s banking platform and is centrally administered by ABCUL.

Business plan ideas

Credit unions are primarily focussed on helping people save, using those savings to lend money to other members and covering their costs using interest payments on those loans.

We're mainly interested in offering a current account so that we can start building a great online banking experience.

  • Credit unions aren't necessarily well understood / looked down upon.
  • We can highlight the difference between traditional opaque banks and transparent credit unions.
  • We can offer a great online banking experience that focuses on fixing/improving some of the common problems we experience with traditional online banking apps.
  • We can offer our members/everyone access to the source code for the online banking software so that they can potentially fix problems/improve the software themselves.
  • We can appeal to/attract people in the software industry.

Credit union consultancy

Prepaid cards

HM Treasury consultation

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