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…