From collections to prevention

Arrears across UK credit unions have risen sharply in recent years. Between 2021 and 2025, loans in arrears roughly doubled to around £235 million, while bad-debt provisions and write-offs almost tripled. Arrears grew much faster than lending itself. This paper argues that the answer lies earlier in the member journey, not in chasing missed payments harder.

Why reactive collections fall short

Members rarely move from financial stability to serious arrears overnight. The warning signs usually appear well before a payment is missed: late or partial payments, falling or irregular income, growing reliance on short-term credit, or a member who simply stops responding. Yet most collections activity only begins once a contractual payment has already failed.

A full-lifecycle approach

• Better lending at origination: real-time affordability using Open Banking, current-account behaviour and credit-reference data
• Early-warning intelligence: explainable models that flag members who may need help before a payment is missed
• Better communication: the right channel, timing and tone to encourage constructive engagement
• Sustainable alternatives: payment-date changes, reduced payments, term extensions and carefully assessed consolidation
• Collective learning: anonymised, aggregated insight shared across participating credit unions

Technology should not be used to put more pressure on members. It should help credit unions understand circumstances sooner and offer solutions that protect both the member and the credit union.

Also covered

The paper also explores support for vulnerable members, responsible use of AI and data, governance, and a practical pilot design with clear measures of success.