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
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
What is a
credit union?
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
ABCUL President
Sharon Angus-Crawshaw
What is ABCUL?
•
ABCUL provides:
–
Representation
–
Information and guidance
–
Training
–
Conferences
–
Networking
–
Collective buying
–
Collective vision and leadership
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
Tried and tested model
Weathered the storm
Many
positives…
Fairer returns
Local identity
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
Participation in CUEP
61
Credit Unions
31
280,000 members
£134m loans
£182m deposits
Credit Unions
320,000 members
£150m loans
£210m deposits
*More credit unions
expected to join
phase three
Credit Unions
160,000 members
£61m loans
£80m deposits
May 2013
78*
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?
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
Financial
education, building
confidence
Better value
savings and loans
Secure bill
payments
Automated
budgeting
How can credit
unions help?
BILL PAYMENT PROCESSES
CURRENT ACCOUNT PROCESSES
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
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