It is a great pleasure to be here with you today to celebrate International Credit Unions Day. And it is a particular pleasure to be here alongside Simon Hughes and Roy [Lord] Kennedy. The all-party group works very well across the parties and credit unions do have great goodwill right across the House.
Matters connected to debt – and savings – and related to Credit Unions, are much in discussion at the moment, both over the road and in society at large. From coping mechanisms to deal with the cost of living and the development of payday loans, through the gaps left by our traditional banks and unwelcome changes to our high streets with the proliferation of Money Shops and the like, to the potential for jamjar accounts and the huge role that can be played by volunteers and the voluntary sector in what I will dare to call our Big Society.
Today I pay especial tribute to all who are involved in the Credit Union movement whether as staff or volunteers.
That’s a funny word, “movement”, and not one you hear too often these days. But credit unions are a movement, and are certainly on the move.
I first became involved with the sector almost a decade ago and it is striking to think how much positive change there has been since then.
The sector has already seen rapid growth over the past decade to the point where we now have more than 1m poeple using credit unions and 120,000 junior savers.
But, especially on World CU Day, we reflect as well on how far there is left to go. For, by international benchmark standards, membership penetration in Britain remains low — a low, single-digit percentage, compared with almost a third in the United States and Australia, and almost half in Ireland. Of course I stress Britain rather than the UK, because in Northern Ireland, as in the Republic of Ireland, credit union penetration is massively higher than it is in England, Scotland and Wales.
For those in our country who do not have access to, or just do not access, a credit union, the alternatives range as you know from the not-quite-as-good to the downright awful.
And though sub-prime and high-cost credit is not an issue that many opinion formers and journalists are particularly aware of, it is a reality for millions of people.
The DWP Feasilibility Report found that up to 7m people use high-cost credit, and 1.4m have no transactional bank account.
The leader in the home credit market has 11,000 agents calling weekly on one home in 20 in the UK to collect repayments. Payday loan companies have between 1 million and 2 million customers per annum, and the segment is growing quickly. The leader in the rent-to-own market has 245 stores nationwide, with an ambition to more than double that.
Across personal credit, particularly to the most disadvantaged, although we could argue that this extends far beyond them, much of the emphasis is not on what they can afford to repay, but on what they want. Combining that with extensions and roll-overs, too many of the poorest and most disadvantaged people in society find themselves in a seemingly never-ending trap of debt, from which it is difficult to break out.
Credit Unions can play a truly vital role – and in future a much bigger one – in offering an alternative, bringing responsible lending, encouraging saving and basically supporting families.
There are two key enablers to realising the potential, alongside the most important, which is what individual credit unions do:
- The LRO
- The DWP Feasibility Study, modernisation drive and accompanying funding
I know Credit Unions welcomed the day that the Legislative Reform Order was finally passed.
There are three critical elements to the LRO. First, there is the liberalisation of the common bond requirements. That will help facilitate the growth of the strongest credit unions, thus helping to serve more people.
The second key element is the capacity to pay interest on savings rather than the traditional dividend. The divvy also has advantages ... but it is rather difficult to explain, in the context of a competitive marketplace where everyone else is offering a rate of interest.
The third important change is in the type of members. It will be possible for credit unions to engage with not only individuals but organisations for a portion of their business. I do not think that we will see many large plcs suddenly starting to bank with their credit union, but it will work for local community groups, not-for-profit groups, small traders and so on that keep relatively small positive balances in their account and sometimes feel a little under-served by the banks.
The DWP Feasibility Study is clear that credit unions do have to change. In particular:
There will be a need for re-organisation, collaboration, integration and automation.
A clearer, simpler, and wider, message is needed for consumers.
The sector needs to build on its skill base and keep atrracting high-quality volunteers and directors.
And to be sustainable it needs a larger, more diverse membership at different income levels and a good mix of savers and borrowers.
Finally, raising the monthly interest ceiling will make it more possible for credit unions to compete in the short-term, payday market, in which their presence is badly needed.
So I finish where I started – in congratulating you all on what you do.
This is a very exciting time for credit unions and a real inflexion point. No truly exciting ride is every a totally smooth one. For change can at times be uncomfortable. But if the sector grasps all the opportunities, I think we all know the prize that is out there: the ability to serve more people, help more families, be an asset to more communities. Giving more people financial resilience also means more personal resilience – for we know how many other problems in life, and in families’ problems, are related to debt.
The growth potential is enormous, and this World Credit Unions Day gives us a timely reminder of the full scale fo that potential.