LONDON (12/31/12)--The government of the United Kingdom (U.K.) this month started a formal consultation on increasing the maximum interest rate cap for credit union loans to 3% per month from the current 2% per month.
The consultation on the proposals will continue through March 15, and any changes are anticipated to take effect in April 2014 (Mortgage Strategy and Press Association National Newswire Dec. 18).
Under current rules, the 2% limit means credit unions often sustain a loss on smaller shorter-term loans they make because of the high administrative costs, compared with the relative value of the loan, the publications said.
By raising the interest rate credit unions can charge on monthly loans to 3%, credit unions will be able to operate more efficiently, become more stable and make more money available to members, the Economic Secretary to the Treasury, Sajid Javid said.
Credit union loans will remain significantly cheaper--even with the 1% increase--than the alternatives for consumers who often find it hard to procure mainstream sources of finance, Mortgage Strategy said.