Experts warn that credit union rule reforms will "encourage people to take on more debt"

EXPERTS have warned that widening access to affordable finance in credit union rule reforms will “encourage people to take on more debt”.

More people will benefit from affordable loans and savings as the government changes the rules so more people can join credit unions, helping households with the cost of living, it has been announced.

The government is today setting out reforms to the rules on who can join credit unions in the UK.

By making it easier for credit unions to serve more people in their communities, the changes will support families, workers, students and retirees to access fairer financial products and build financial resilience, the government said.

It said that credit unions offer affordable, community based financial services and play an important role in promoting financial inclusion. 

Enabling credit unions to expand and broaden their membership will help ensure that more people can access fair, lower-cost alternatives to high-cost credit. 

This will strengthen the provision of responsible financial services and support households with the cost of living.

Economic Secretary to the Treasury Lucy Rigby said: "These reforms will help more people get access to affordable credit and a safe place to save, so families have a real alternative to high-cost credit.

“We’re delivering on our manifesto pledge to grow the mutual sector by backing credit unions to expand and serve more communities. It’s another step in making financial services more accessible and supporting people to build financial resilience.”

But Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said the government is encouraging people to take on more debt.

She added: "Expanding credit union access may help some people avoid high cost lenders, but it still fundamentally encourages people to take on more debt. The real issue is not access to credit, it is weak real incomes, declining purchasing power and an economy already carrying too much debt. Modern economies are trapped by excessive debt. 

"In that framework, the danger is that policymakers keep treating a solvency and purchasing-power problem as though it were mainly an access-to-finance problem. Credit unions may offer fairer terms than payday lenders, and that is clearly a positive, but cheaper credit still leaves households borrowing against incomes that have already been eroded in real terms. 

"So the reform may soften symptoms without repairing the underlying loss of purchasing power. But it will not work in any transformative sense if wages, productivity and real economic momentum remain weak, because more borrowing capacity does not by itself create stronger household balance sheets."

Michelle Lawson, Director at Fareham-based Lawson Financial, said the policy is not a good idea.

She added: “Debt is already overused and causing far too many problems for households to manage responsibly and sensibly. Encouraging more, in my opinion, especially from some of whom may the the most vulnerable in society, isn't helpful or good practice. 

"Labour's own borrowing is spiralling out of control and affecting households. The root cause needs to be dealt with and the way out isn't via more debt.”

But Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, said the move is positive.

He added: "Credit unions are one of the few parts of finance built for people, not fees. Widening membership should help, but only if the government fixes the boring bits that actually decide whether this works: onboarding, compliance capacity and access to funding. If credit unions cannot do fast digital ID checks, open accounts in minutes, and make clear affordability decisions, consumers will still default to buy now pay later and high cost credit. 

"In practice, the risk is a policy headline that pushes demand into organisations that are under resourced, then blames them when service or risk controls buckle. The upside is real: cheaper credit, better saving habits, and local resilience. The downside is mission drift if growth becomes the goal. Success looks like transparent pricing, strong safeguards for vulnerable borrowers, and proper investment in modern operations."