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Preparing for Universal Credit – the credit unions

jam jar accountsLast week I wrote about the problem of Universal Credit which will eventually affect all tenants receiving benefit.

I looked at an article in the Property Investor News magazine which recommended landlords arrange for their tenants to sign up to credit union accounts to ensure payment of their rent.

But what are credit unions and how do they operate?

Credit Unions and their background

Credit Unions developed from the co-operative movement which in turn had its roots in the philanthropic ideas about the conditions of the workers after the industrial revolution and the writings of Robert Owen.

The co-operative movement started in Rochdale with the Rochdale Pioneers in 1844, but has spread throughout the world.  Indeed co-operatives are often considerably more important in other countries, for example Ireland, Canada and the Caribbean.

Here is a definition of credit unions taken from Wikipedia:

A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.

How credit unions can help landlords

One of the services offered by credit unions is what is known generally as the ‘jam jar’ account.  These are a way to help people on benefit budget and pay their most important bills, without these being put at risk of being swallowed up by other debts.

Basically the benefit is paid to the credit union into a special account, parts of the benefit then being ring fenced and paid out to important creditors such as landlords – meaning that their homes will not be at risk.

There is normally a modest monthly charge for this service, such as £5 pm, but generally credit unions are more supportive and flexible than the big banks.

For example here is a You Tube video from a credit union in the Eastern Region, Rainbow Saver Anglia Credit Union about their new credit union shop in Peterborough:

Where to find out more

Credit Unions will generally only take customers from their local area.  So if you are looking for a credit union, you need to speak to people such as your local CAB who will know who they are and will be able to put you in touch with them.

I also have a Credit Union list on Landlord Law which lists all of the Credit Unions I am aware of, which operate jam jar type accounts.

They come highly recommended for both landlords and tenants.  As it said in the video – they are a good way to help tenants avoid loan sharks.

If anyone reading this is from a credit union, please feel free to let me know about your company so I can add you to my list.

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Important note. If you are reading an old post, remember that the law may have changed since it was written.

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2 Responses to Preparing for Universal Credit – the credit unions

  1. A solitary view but I cannot see the advantage a jam jar account (in itself) would have over free basic bank accounts (with standing orders/direct debits) for someone who obtains budgeting advice either from an advice agency or by self help.

    To a person in debt, I’d be hard pressed to recommend a fee paying account unless s/he was likely to need low cost loans from a credit union

  2. If someone has a properly functioning bank account that has successful standing orders /direct debits, then you are right, there would be no big advantage in having a jamjar account.

    BUT all the Universal Credits pilots (or whatever fancy name they are giving them ) show that a small percentage of tenants do not have suitable bank accounts.

    In the main these are:

    1) people with a post office card account – no so/dd possible at all;

    2)people who have a failed dd/so from a basic bank account find the bank refuses to reinstate it again (already happening)

    3) people who keep exceeding their overdraft limit will not have sufficient funds when the rent date arrives.

    Ignoring the last group as its impossible to quantify them we already know that between 5% and 15% of housing association tenants will have these issues. Even if its only 5% that is a lot of people!

    At Rainbow Saver, for the last 5 years since LHA came in, we have been working with about 80 private sector landlords whose tenants are “underbanked” people, and that is why the landlords like working with us and the landlord pays the monthly fee.

    On your last point, accessing other credit union services is indeed a bonus, lots of people go on to use our prepaid Debit VISA card – again showing that the banks are refusing to offer them full service bank accounts, not so much the loans as they are on benefits and we don’t offer large loans to people on benefits.

    But budgeting accounts, saving for Christmas, Junior accounts and processing wages or benefits is beginning to look like a real alternative to the basic bank accounts that the banks reluctantly provide.



About the post author:

Tessa Shepperson

Tessa is a lawyer and specialises in creating products and services which help landlords and letting agents learn and understand landlord & tenant law. For example, she runs the Landlord Law website (now in its 14th year) and is a director of Easy Law Training Ltd and Your Law Store. Tessa also sits on the Property Redress Scheme Council. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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Tessa is an English lawyer specialising in residential landlord and tenant law.

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