B6 – CREDIT WHERE IT’S DUE FRANK McKILLOP, ABCUL 11 September 2013 TPAS South Conference

CREDIT UNIONS IN BRITAIN ALTERNATIVES TO HIGH COST CREDIT? CHALLENGES OF WELFARE REFORM

A financial co-operative owned and controlled by members Membership determined by a ‘common bond’ - residence, employment or association What is a credit union? Loans and savings plus newer products like pre-paid debit cards, current accounts and mortgages. Credit union ethos Providing services to people – not making money from them

Sharon Angus-Crawshaw What is ABCUL? Association of British Credit Unions Limited (ABCUL) A co-operative owned, funded and democratically controlled by its member credit unions Over 70% of credit unions in Scotland, England and Wales choose to join ABCUL The first credit unions were set up in the 1960s, by immigrants from the Caribbean who were unable to get the financial services they needed when they arrived in London. They used the model they knew from their home countries to set up credit unions over here. Other credit unions were set up in Scotland, influenced strongly by knowledge of the movement in Ireland. But it wasn’t until 1979 that credit unions got their own legislation. Most people in Britain are now covered by at least one credit union common bond. The common bond determines who can join the credit union. It can be where you live or work, or it can be who employs you or organisations you belong to that makes you eligible to join one. Over 90% of Britain is covered by a credit union common bond and many trades such as public transport, air transport and the police and fire service have their own credit unions. ABCUL President Sharon Angus-Crawshaw

What is ABCUL? ABCUL provides: Representation Information and guidance Training Conferences Networking Collective buying Collective vision and leadership The first credit unions were set up in the 1960s, by immigrants from the Caribbean who were unable to get the financial services they needed when they arrived in London. They used the model they knew from their home countries to set up credit unions over here. Other credit unions were set up in Scotland, influenced strongly by knowledge of the movement in Ireland. But it wasn’t until 1979 that credit unions got their own legislation. Most people in Britain are now covered by at least one credit union common bond. The common bond determines who can join the credit union. It can be where you live or work, or it can be who employs you or organisations you belong to that makes you eligible to join one. Over 90% of Britain is covered by a credit union common bond and many trades such as public transport, air transport and the police and fire service have their own credit unions. ABCUL Chief Executive Mark Lyonette

Credit unions in Britain 1.04 million members Including 121,000 juniors 390 credit unions £807m in savings £605m out on loan

Products and Services Safe savings Affordable credit Christmas/Holiday savings Insurance Pre-paid debit cards Current accounts Budgeting accounts Cash ISAs, mortgages, business accounts

Many positives… Tried and tested model Weathered the storm Fairer returns Local identity CDFI alternative: Many Scottish housing associations are quite taken with the CDFI "silver bullet" to tackle financial exclusion and the use of high cost credit. A few notes below which might be handy in case anyone brings it up:   Scotcash (based in Glasgow) is the only personal lending CDFI in Scotland. It opened in 2007, mainly because of the reluctance at that time of CUs in Glasgow to deliver the Growth Fund. Funding came from Glasgow City Council, Glasgow Housing Association, Scottish Government and DWP, with RBS providing the back office and supplying basic bank accounts where required. In 2010/11, Scotcash made 1291 loans worth £739,000. They received capital funding grants that year worth £568,860, allowing them to report a profit of £554,404. They now charge 98.31% APR for a loan of £400 over 31 weeks - costing the consumer £84.97 in interest over 7 months. Our approach is to recognise that many of the criticisms of CUs 6 or 7 years ago - that they wouldn't lend until you had saved for several months, that they would decline loan applications from the poorest people most vulnerable to high cost lenders, etc - were fair, which is why CUs addressed those issues themselves. CUs established a great record of delivering instant loans to financially excluded people through the Growth Fund - including Pollok, Drumchapel and Parkhead CUs in Glasgow. Encouraging saving is a crucial element of financial inclusion. CUs can do this in a way CDFIs can't. Our time?

Alternative to high cost credit? Leading doorstep lender charges 399.7% APR Leading payday lender charges 5,853% APR Not designed as occasional service; designed to trap customer Aggressively marketed Rarely appropriate Rarely affordable

Alternative to high cost credit? Credit union lending based on ability to repay Affordable repayments over reasonable term Maximum interest of 26.8% APR Cap raised to 42.6% APR from April 2014 Often 12.7% APR or lower Holistic approach to building financial capability

Alternative to high cost credit? Some credit unions offer an instant credit product, but difficult to do so sustainably DWP Credit Union Expansion Project Up to £38m investment to modernise credit unions Shared back office and IT platform Target to serve an additional 1 million credit union members by 2019 Contract awarded to ABCUL

*More credit unions expected to join phase three Participation in CUEP 78* Credit Unions 320,000 members £150m loans £210m deposits 61 Credit Unions 280,000 members £134m loans £182m deposits 31 Credit Unions 160,000 members £61m loans £80m deposits *More credit unions expected to join phase three May 2013 August 2013 November 2013

Alternative to high cost credit? Need to recognise much of the demand for instant credit is misguided Poor budgeting Flawed financial decision-making Building financial capability is key Saving is the best alternative to high cost credit!

Alternative to high cost credit? Is there consumer demand for short term credit? £2bn industry and growing rapidly But is demand for short term credit or instant credit? Most instant credit is short term credit Designed as a trap Can instant credit be offered as an ethical product?

Challenges for credit unions Welfare Reform – Challenges for credit unions Reduced saving Risk of default on loans Risk of members in arrears with other bills Need to review lending policy Danger of members turning to high cost credit or loan sharks

How can credit unions help? Financial education, building confidence Better value savings and loans How can credit unions help? Secure bill payments Automated budgeting

BILL PAYMENT PROCESSES

CURRENT ACCOUNT PROCESSES Drastically increased interest from landlords, esp housing associations

Strategic partnerships HOW CAN LANDLORDS HELP? LANDLORDS Marketing Premises Volunteers Deposits Promotion to staff Strategic partnerships (So not just funding!) CREDIT UNIONS

Referral system in place. HA staff trained in key processes Funding for the Credit Union Current Account Fuel poverty loans and white goods scheme Arrears and evictions down as a result HA staff on credit union board, increasing expertise

‘Matched savings’ scheme in place with local landlords Landlords publicise the credit unions and encourage saving Tenants given rewards for meeting savings targets Builds on Savings Gateway findings, which demonstrated that matched savings increased savings among those with low incomes Move your money etc

Key points Partnership working Expanding membership Modernising services Access to affordable loans Building financial capability

More information… ABCUL Head Office: 0161 832 3694 www.abcul.coop www.findyourcreditunion.co.uk info@abcul.org