Presentation on theme: "B6 – CREDIT WHERE IT’S DUE"— Presentation transcript:
1 B6 – CREDIT WHERE IT’S DUE FRANK McKILLOP, ABCUL11 September 2013TPAS 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 Membershipdetermined by a ‘common bond’ - residence, employment or associationWhat is a credit union?Loans and savingsplus newer products like pre-paid debit cards, current accounts and mortgages.Credit union ethosProviding 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 unionsOver 70% of credit unions in Scotland, England and Wales choose to join ABCULThe 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 PresidentSharon Angus-Crawshaw
5 What is ABCUL? ABCUL provides: Representation Information and guidance TrainingConferencesNetworkingCollective buyingCollective vision and leadershipThe 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 ExecutiveMark Lyonette
6 Credit unions in Britain 1.04 million membersIncluding 121,000 juniors390 credit unions£807m in savings£605m out on loan
7 Products and Services Safe savings Affordable credit Christmas/Holiday savingsInsurancePre-paid debit cardsCurrent accountsBudgeting accountsCash ISAs, mortgages, business accounts
8 Many positives… Tried and tested model Weathered the storm Fairer returnsLocal identityCDFI 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% APRLeading payday lender charges 5,853% APRNot designed as occasional service; designed to trap customerAggressively marketedRarely appropriateRarely affordable
10 Alternative to high cost credit? Credit union lending based on ability to repayAffordable repayments over reasonable termMaximum interest of 26.8% APRCap raised to 42.6% APR from April 2014Often 12.7% APR or lowerHolistic approach to building financial capability
11 Alternative to high cost credit? Some credit unions offer an instant credit product, but difficult to do so sustainablyDWP Credit Union Expansion ProjectUp to £38m investment to modernise credit unionsShared back office and IT platformTarget to serve an additional 1 million credit union members by 2019Contract awarded to ABCUL
12 *More credit unions expected to join phase three Participation in CUEP78* Credit Unions320,000 members£150m loans£210m deposits61 Credit Unions280,000 members£134m loans£182m deposits31 Credit Unions160,000 members£61m loans£80m deposits*More credit unions expected to join phase threeMay 2013August 2013November 2013
13 Alternative to high cost credit? Need to recognise much of the demand for instant credit is misguidedPoor budgetingFlawed financial decision-makingBuilding financial capability is keySaving 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 rapidlyBut is demand for short term credit or instant credit?Most instant credit is short term creditDesigned as a trapCan instant credit be offered as an ethical product?
15 Challenges for credit unions Welfare Reform –Challenges for credit unionsReduced savingRisk of default on loansRisk of members in arrears with other billsNeed to review lending policyDanger of members turning to high cost credit or loan sharks
16 How can credit unions help? Financial education, building confidence Better value savings and loansHow can creditunions help?Secure bill paymentsAutomated budgeting
18 CURRENT ACCOUNT PROCESSES Drastically increased interest from landlords, esp housing associations
19 Strategic partnerships HOW CAN LANDLORDS HELP?LANDLORDSMarketingPremisesVolunteersDepositsPromotion to staffStrategic partnerships(So not just funding!)CREDITUNIONS
20 Referral system in place. HA staff trained in key processes Funding for the Credit Union Current AccountFuel poverty loans and white goods schemeArrears and evictions down as a resultHA staff on credit union board, increasing expertise
21 ‘Matched savings’ scheme in place with local landlords Landlords publicise the credit unions and encourage savingTenants given rewards for meeting savings targetsBuilds on Savings Gateway findings, which demonstrated that matched savings increased savings among those with low incomesMove your money etc
22 Key points Partnership working Expanding membership Modernising servicesAccess to affordable loansBuilding financial capability