by Nathalie Knowles Radio 4's Money Box

Britain's financial watchdog, the FSA, is to begin regulation of credit unions on Tuesday.

The not-for-profit organisations have long played an important role in the fight against financial exclusion.

But some may now face closure as the FSA moves to protect consumers from insolvent organisations.

The groups offer valuable protection for the public against loan sharks while providing members with a financial lifeline, when banks do not want to know.

No protection

Despite the crucial role the organisations play, members have never had the protection offered to depositors at banks and building societies.

Until now, members have risked losing their savings because the union they entrusted their money to is in financial trouble.

Money Box was invited to Tower Hamlets Community Credit Union's AGM

Now all this is set to change when new FSA regulations come into force on 2 July.

Unions may close

But with the regulation comes a price. Any credit unions found to be insolvent will be forced to close.

Money Box's Paul Lewis attended the Tower Hamletts Community Credit Union AGM and spoke to Victoria Raffe of the FSA about the regulations and the effect they would have.

Victoria Raffe confirmed that some credit unions would be closed down.

"There are definitely some... that are not solvent... We have to worry about the protection of the consumers... but it is a last resort for us."

The community based organisations work by members essentially lending and borrowing from each other.

In the past they sometimes ran into trouble by lending out too much money. Savers would then have problems withdrawing large sums.

New regulations

Under the new regulations, credit unions must be solvent at all times, and must always be able to pay savers back their money.

They must ensure all loans to members are repaid on time, so that savers money is never at risk.

Managers will be held responsible for their actions and will be expected to keep proper accounts and ensure business plans and policies are adhered to.

Compensation scheme

If anything goes wrong and the union becomes insolvent, members will be protected by the Financial Services Compensation Scheme (FSCS).

The scheme is the same offered to holders of bank and building society accounts.

In the event of insolvency, savers will be guaranteed the first �2000 pounds of their savings and 90% of the next �33,000 pounds.

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For more information on credit unions and how you can join, visit the Association of British Credit Unions website:

or call them on 0161 832 3694.

There is also a lot of good information about the unions and the new regulations on the Financial Services Authority website: