Fairytale end for Cinderella image

Fairytale end for Cinderella image

Visit the centre of any town in Ireland and one of the most bustling shops will be the credit union, run by local people for local people. Perhaps British building societies were once like this, embedded in their communities before (like Northern Rock) they fancied themselves as international banks.

Credit unions exist in Britain - there's around 400 - but have something of an image problem.

Credit unions are the charity shop end of the savings market, often staffed by volunteers. Eight have gone bust in the last year. The surprise is, not more have.

But their Cinderella status is about to change. British credit unions are governed by almost Victorian regulations reflecting their "industrial" heritage. Credit unions members are required to have a "common bond". That means a credit union is limited to serving a specific locality or an affinity group such as a trade or a profession. Rather curiously, their savings accounts don't pay interest but pay a "dividend" instead, often set at the end of the year and depending on how well the operation is progressing.

The concept of a common bond has the attractions of communitarianism, while the dividend evokes the co-operative movement.

It has its drawbacks; when a small building society fails, that industry is quite good at persuading another local society to absorb it and prevent any loss of confidence among savers and borrowers. But a credit union can't acquire another, as that would.....continued below

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mean stepping beyond the terms of its "common bond". So, for example, the Leeds credit union can't absorb Streetcred because that failed organisation is based in Rochdale. And Leeds, it seems, has no common bond with Rochdale.

The biggest trade association of credit unions, Abcul, has been campaigning against these restrictions, and assuming the government can find space in its legislative calendar, the fetters will soon be removed.

The best credit unions have gone largely unnoticed, precisely because they have remained true to their original promises. Derry in Northern Ireland has the largest membership - one in four of that city's population, with Newry credit union not far behind. They are modern, progressive local champions, whose customer base stretches from the very poor to the very well off.

The Scottish Police credit union is another shining example. When I tested its loan deal, it came out better than Barclays' much-promoted Loan Star 6.8% offer. Barclays fell down because its online quote automatically adds payment protection insurance (PPI).

Let's hope most people have woken up to the nonsense of PPI.

Let's hope that newly flexible credit unions also won't pick up the vices of their stockmarket-quoted cousins and learn from the likes of SCPU and Derry instead.

Standing in a coffee shop queue, the well-heeled gentleman in front of me uses a debit card for a £1.79 bill. Rest of us hang around while the PIN is processed. For a £1.79 flippin' frappucino. You have a Martin Amis moment and consider the appropriate punishments - instant vaporisation, etc. Perhaps I'm a tad impatient. But bring on the new era of "wave and pay" and let's ban debit cards for bills under a fiver.

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