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

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

3. 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

4. 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

5. 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

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

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

8. 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?

9. 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

10. 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

11. 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

12. *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

13. 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!

14. 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?

15. 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

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

17. BILL PAYMENT PROCESSES

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

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

20. 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

21. ‘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

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

23. More information…
ABCUL Head Office: