Credit Unions

Credit Unions are co-operative groups, wholly owned by their members, offering a range of financial services to their community. IN A NUTSHELL, IT’S NOT-FOR-PROFIT BANKING. All the credit unions I am aware of are registered charities and thus exempt from business rates on their offices.

Credit Unions are huge in other parts of the world. 75% of Irish citizens have credit union accounts, 46% in Canada and 44% in America.

In the UK they only emerged in the 1960s and only became significant in the 1980s – in other words they were a way of dealing with the last Tory onslaught on the poor. They were first regulated in an Act of 1979.

Growth was limited because of the rule about COMMON BOND. Credit Unions are community groups and thus their members have to be closely defined. Often the bond was ethnic background or, given that the first ever British Credit Union was in Derry, sectarianism. In the US they tend to have a profession as the common bond – farmers, lawyers, police officers etc. In the 1980s in Britain attempts were made to set up Credit Unions on geographical boundaries – townships, clusters of villages, or even large housing estates. Most were deemed not to meet the common bond test in that they weren’t specific enough. Others were simply too restrictive in their commonalty – if your estate is notoriously poor, where are you going to get your finance from?

Big changes were approved by Parliament in 2012. Restrictions on membership were eased. Credit Unions were allowed for the first time to provide services, including loans, to other community groups and social enterprises. Unlike banks, they must pay interest on savings.

In essence, the members of the credit union pay regular amounts into savings accounts. The regularity is key because this allows people with otherwise awful credit ratings to qualify for loans. They elect a board on a one-member-one-vote system, and the board develops financial instruments suitable to their community and in accordance with their charitable aims. Any surplus is paid to members as a dividend on top of the usual interest.

All credit unions are regulated by the FSA and covered by the Financial Services Compensation Scheme.

Examples

1/. Clockwise, Leicester [http://www.clockwise.coop/]

Clockwise was originally the Highfields Credit Union founded in 1992. Its common bond today is people living or working in Leicester, Leicestershire and Rutland. It new office is in St Nicholas Place but it has satellites in Melton, Coalville and Loughborough. They currently have about £3 million on loan.

The interest on their loans varies. A loan over £3000 to a member with good history is 1.25% per month (16.1% APR) payable only the decreasing balance. Payroll loans are 1% per month (12.7% APR) and secured loans 0.7% a month (8.7% APR). They offer free life insurance on their loans.

Other products include ISAs, Young Saver accounts, basic share accounts, and budget accounts. They are open on Saturdays and have various equivalents of phone banking and debit cards.

Clockwise’s latest product is Wise Cash, a direct alternative to payday loans. Borrow £250 from Wonga and you would have to pay back £331 (cost of credit £81)at the end of the month. Wise Cash spreads the payback over four months and the total cost of credit would £12.58.

2/ Erewash [erewashcreditunion.org.uk/]

Erewash Credit Union is open to anyone living or working in Derbyshire and works in partnership with the County Council, Amber Valley Borough Council and Erewash Borough Council. They charge a joining fee of £2 and are much more directly linked with their local voluntary sector. For example, one of their offices is in the local Home Start centre.

They offer the usual range of accounts and products. They have developed a pre-payment card which is in effect a debit card. They have a rent-direct account for people worried about keeping on top of their housing costs, and a Jam Jar account for budgeting. Their main challenge appears to be from doorstep lenders. A £300 loan from ECU would be repayable over 51 weeks at £6.50 a week, a total cost the borrower of £38. The same loan from a doorstep lender, payable over 52 weeks, would cost £204. £500 from ECU would cost £62; from the notorious Shopacheck, £384.

Future

There are currently about a million people in the UK active in credit unions. The DWP says that figure needs to double in the next 5 to 7 years, which we can safely assume means it has to quadruple.

The Church of England is keen to become involved with credit unions through its Urban Fund. I suggest it is not viable to try and establish credit unions with church as the common bond – the numbers are simply not there. Parishes or clusters of parishes are, however, excellent building blocks. The mother church of Church of England here in Lutterworth would be, I suggest, an essential partner.

The Church Urban Fund published Money Speaks Louder than Words, its report into credit unions and possible church involvement, in February 2014. The report concludes:

“The primary barrier to joining a credit union, agreed by almost half of churchgoers surveyed, is the perception that they have no need to join. This result shows the importance of communicating why individuals, particularly those on middle or high incomes, should become members. Recent attempts to do so have focused on the way that credit unions offer an alternative to payday loans. Another compelling motivation, however, given the feelings expressed by focus group participants, might be that membership is one way in which they could help bring about a more ethical financial system. By investing in a credit union, they could contribute to the development of a more ethical, inclusive and people-centred system. Awareness of the competitive rates offered by credit unions on savings and small loans might also be an encouragement.”

[http://www.cuf.org.uk/money-speaks]