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B6 – CREDIT WHERE IT’S DUE
11 September 2013
TPAS South Conference
FRANK McKILLOP, ABCUL
CREDIT UNIONS IN BRITAIN
ALTERNATIVES TO HIGH COST CREDIT?
CHALLENGES OF WELFARE REFORM
What is a
credit union?
A financial co-operative owned and
controlled by members
Loans and savings
plus newer products like pre-paid debit
cards, current accounts and
mortgages.
Membership
determined by a ‘common bond’ -
residence, employment or association
Credit union ethos
Providing services to people – not
making money from them
• 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
What is ABCUL?
ABCUL President
Sharon Angus-Crawshaw
• ABCUL provides: – Representation– Information and guidance– Training– Conferences– Networking– Collective buying– Collective vision and
leadership
What is ABCUL?
ABCUL Chief Executive
Mark Lyonette
390 credit unions
Credit unions in Britain
1.04 million members
Including 121,000 juniors
£807m in savings
£605m out on loan
• Safe savings• Affordable credit• Christmas/Holiday savings• Insurance• Pre-paid debit cards• Current accounts• Budgeting accounts• Cash ISAs, mortgages, business
accounts
Products and Services
Many
positives…
Fairer returns
Local identity
Our time?
Weathered the storm
Tried and tested model
• 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
Alternative to high cost credit?
31Credit Unions
160,000 members
£61m loans
£80m deposits
May 2013 August 2013 November 2013
Participation in CUEP
61Credit Unions
280,000 members
£134m loans
£182m deposits
78*Credit Unions
320,000 members
£150m loans
£210m deposits
*More credit unions expected
to join phase three
• 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?
Alternative to high cost credit?
• 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
Welfare Reform –
Challenges for credit unions
How can credit
unions help?
Financial education,
building confidence
Secure bill payments
Better value savings and
loans
Automated budgeting
BILL PAYMENT PROCESSES
CURRENT ACCOUNT PROCESSES
HOW CAN LANDLORDS HELP?
Marketing
Premises
Volunteers
Deposits
Promotion to staff
Strategic partnerships
(So not just funding!)
CREDIT
UNIONS
LANDLORDS
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
Modernising services
Key points
Partnership working
Expanding membership
Access to affordable loans
Building financial capability
ABCUL Head Office: 0161 832 3694
www.abcul.coop
www.findyourcreditunion.co.uk
info@abcul.org
More information…
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