Angela Clements, CEO

Citysave Credit Union

About Citysave Credit Union Birmingham-based, established for 25 years

>10,000 active adult members

>200 partnering organisations across 12 sectors

Fully regulated by FCA & PRA

Liquidity of 50% and capital of 15%

Deposits covered by the FSCS

All members have a savings plan – 30% save through benefits; 50% through payroll; remaining on D/D

New Payroll schemes monthly

Loan book and savings rising annually

A sustainable, modern community based credit union, paying dividends out of surpluses without grant funding

NHS Trusts Housing Associations

Schools & Colleges

Community

The need to do more: 9m adults without fit for purpose banking solution

Home credit & mail order £3bn & growing

Arrears on utilities - £637m risen 33% in 12 months

100k on prepayment meters in Birmingham

Arrears on rent and mortgages common

High cost, highly promoted and easy access payday lending sector now worth est £2bn

Growth in Payment cards such as Paypal & Paypoint

JRF report 2013 on Poverty Premium is that it

is rising and now 10% of household income

Predators in our midst High cost lenders widely established

9 Money Shops & 8 Bright Houses in Brum

Easy access, attractively packaged & highly promoted

Cost is high in both interest and fees

Easy rollover and debt grows rapidly

Low visibility & barriers to redemption

Misleading sales process aimed at vulnerable adults

Not on credit searches (we work harder to assess loans)

Rapid growth in debt interventions, debt management plans and debt relief orders showing clear adverse impact on those we have sought to support

One example of high cost lending: quoted in Guardian recently A 60cm Beko double oven costs £562 in BrightHouse. An almost identical Beko

oven sells for just £389 at the Co-op.

BrightHouse encourages customers to pay weekly, at an interest rate of 29.9%, that takes the cost of the oven to £809.64 over three years. (BrightHouse have just announced that its minimum interest rate will be rising to double this rate)

On top of that, Brighthouse sells its service cover for £436.80, again over three years. At the Co-op, a three-year warranty on the same oven costs just £49.99.

Brighthouse insists that you also buy damage liability cover in case the oven is damaged or stolen. This costs £1.20 a week or £187.20 over three years (this is also now higher)

The add-ons turn a £389 oven at Co-op into a total outgoing of £1,433.64 at BrightHouse over three years.

Bright House have raised prices since

The cap on interest rates won’t affect them

The transfer to the new regulators will legitimise this trade and others.

So what is changing And more importantly what does it mean for Credit

Unions in our communities?

Jobs market in finance For 5 -6 years credit unions have been able to pick up

skills for board and management

Citysave has offered short term consultancy to 6 made redundant in the past 5 years, changing our finance firstly; our debt collection; our lending; our risk management and lately our marketing and communications;

Paid below market prices and used gaps in careers between redundancy

In 2014 – salaries in banking are now rising again; recruitment is rising at skilled levels; Credit unions like Citysave won’t compete;

Deposit rates For 5-6 years we have been able to pay small dividends

yet remain above instant access savings rates of banks

Growing pressure on interest rates to rise

Credit union rely on savings to support their loan books

Citysave we paid 1.5% annually, falling last year to 1% because of the £100k + investment we made in infrastructure (phone hubs; website; kiosks; automation etc)

We paid this out of profits for first year in 10 without grant income;

Would dividends at this level retain savings if Halifax are paying 5% is a growing concern.

Competition – high cost lending The new lending regime is said to be tougher and we

hope that protects consumers

It will also legitimise the lenders that continue to trade

The cap on interest rates will not impact most

Speedy cash lend at almost 3000 % but a £50 loan over 18 months would not be capped ! (genuine example)

There are more lenders at high cost lending sector which continues to grow, only matched by the growth in debt problems including high cost debt

They have funding lines from banks and equity providers which are cheap, plentiful and patient on return

New banks For some years credit unions such as Citysave have

been investing in banking services

DWP have also invested in CU provision of services

28 CU’s signed up to provide credit union current A/c

Others have looked at new systems & or forged links with prepayment card providers

The level of investment and diversion from base activity has been considerable.

23 new banks are in approval stages with FCA

2 are being formed from our mainstream banks

There are many ‘jam jar’ type accounts entering the market funded by equity providers and banks

Has the opportunity for us to compete already passed?

Rising costs The costs of operating credit unions is rising

Property costs - rent and rates and utilities

Staffing

Banking costs – we have to use the main bank systems for money in and money out of our members accounts

Credit assessment is harder due to the growth in payday lending not on credit searches

Regulatory, insurance and admin costs have risen

Delivering services to members is more technical – most young adults want to use their smart phone

Are we agile enough to respond and overcome these? New entrants are coming in to this market responding to demand

support for credit unions ? Daily there appears a story about working with CUs

There is amazing support for our sector

In a world where daily there are stories about

PPI; rate rigging; bonuses; salaries; predatory corporate behaviour; low moral and ethical standards;

Profit first mentality is a huge switch off so is there any wonder we look for a true regional membership based solution

But there is no easy panacea for a broken regulated financial services sector

So what now for CU sector? We need to get more commercial

We need to have clear forward looking business plans

We need to focus on our strengths and core activities

We need to focus on delivering sustainable and valuable services to our members

We need to work together better

We need to form a stronger and clearer voice to speak to policy makers

we need to value and work with other partners where we can’t deliver as well

we need to recognise that we are not all the same – there are different flavours of credit unions even in Birmingham – that is great - we can serve more people!

Real and meaningful help 1. Narrow down the ask – please

Credit unions such as Citysave are agile and willing but I spend most of my time saying no to unrealistic requests – some CU CEOs are not as clearly focused on delivering the plan agreed with their board

2. Urgently widen our regulatory space

We need to be able to invest and own joint assets with other credit unions through collaborative vehicles

We need to be able to access capital for lending and expansion projects

Those serving communities need regional common bonds

We need to be able to merge a failing credit union without taking responsibility for its liabilities – 12 months ringfenced capital position

Regulatory space We urgently need a widening of our regulatory space

Please allow us to be commercial and to compete

Our competition has the widest regulatory space we have the narrowest

Specifically – my requests would be:

1. We need to be able to invest and own joint assets with other credit unions through collaborative vehicles

2. We need to be able to access capital for lending and expansion projects

3. CUs serving communities need regional common bonds

4. Need to be able to merge a failing CU with 12 months ring fenced capital position

Credit Union Service Organisations Funding for CUSOs to be widened

We need to see a range of collaborative trading vehicles

Drawing together like minded CUs each focused on delivering niche projects jointly

Each can form a national network more simply- so we can achieve meaningful scale

Providing real branded and trusted alternatives

Providing access to skills for board; management and operation of CU’s; shared working; supportive club

Different CUSO’s will have different focuses

CURES – is being formed & the vision is to deliver niche lending projects - a CU challenger to Bright House

This limits exposure to risk for individual CUs but allows us to be valuable and transformational to those we serve

A vision to consider A trusted and recognisable single brand to operate

in the CU sector, run commercially and sustainably

High quality service throughout

Slick lending process adopting analytics that suit market

Modern delivery routes to market

using our core strengths to provide a valuable service to more of in our communities

Benefit to consumer - estimated savings of £2k per annum or 10% of household income - is transformational

The benefit to the CUs is multi layered – expansion with less investment; income with less risk;

A vision of how we as a sector might, together, overcome the challenges that are ahead and quickly provide part of the needed solution in our communities

But right now – is it just a pipe dream ….?