Priority or Non-Priority Debt: Credit Union Loans

Credit union loans

If you are behind on a credit union loan, you might feel stuck. Credit unions are often the most affordable way to borrow, and you may worry that falling behind will cut off your only source of credit. That concern is understandable, and we can help you work out what to do.

Credit union loans are usually a non-priority debt. This means they are treated the same way as other unsecured debts, like credit cards or personal loans. However, it can sometimes be in your best interests to treat credit union debt differently, especially if the credit union is your only form of affordable borrowing.

What credit unions may say

Some credit unions may put pressure on you to prioritise their repayments over other debts. They may say they will not accept reduced or token repayments. They may also threaten to bar you from membership services, such as Christmas savings schemes, if you are in arrears. This can be confusing, but it does not necessarily mean you should prioritise their debt above everything else. Get advice from us before agreeing to anything.

How credit unions recover debts

Credit unions recover debts through a structured process. Here is what may happen, roughly in order of severity:

• Direct contact. The credit union will first try to contact you by letter, email, or phone to arrange a new repayment schedule
• Offsetting (also called "Right of Set-off"). Credit unions have the legal right to take money from your savings (sometimes called "shares") held with them and use it to pay off your outstanding loan arrears
• Deductions from benefits. If you receive benefits, the Department for Work and Pensions (DWP) can make deductions directly from your payments to repay the credit union. This can happen if you have failed to make payments for 13 weeks and the credit union has sent you proper, documented warnings
• Debt collection agencies. If you do not engage with the credit union, they may pass your debt to an external collection agency
• Court action. The credit union may apply to court for a County Court Judgement (CCJ), which is a court order confirming you owe the debt and setting out how it should be repaid
• Attachment of earnings. The court can make an order requiring your employer to deduct payments directly from your wages and send them to the credit union

What you can do

• Do not ignore the debt. The credit union has several ways to recover the money, including taking it from your benefits or savings
• Contact the credit union. If you are struggling, let them know. They may agree to a repayment plan you can afford
• Do not agree to prioritise the debt without advice. Even if the credit union says their repayments must come first, that may not be the right approach for your overall situation
• Check if deductions from your benefits are correct. If the DWP is making deductions and you are struggling to cover your essentials, contact us straight away
• Get free advice from us. We can look at all your debts together and help you decide the best order to pay them

Get help

• Email us at info@youthlegal.org.uk
• Call us on 020 3195 1906
• Fill in our contact form and we'll get back to you

All our advice is free and confidential.