Why are there so few Credit Unions in Britain?

Credit Unions are non profit organisations run by members for members, which are part of the co-operative movement and run for mutual benefit. They are very much to be encouraged and indeed their promotion is certainly part of the Progressive Pulse vision. However British credit unions have strikingly failed to become widely established despite strong government support (on both sides of the house), leaving the ‘sub-prime’ sector vulnerable to pay-day lenders such as Wonga with very high interest rates which can reach  as much as 1509% APR.

In contrast Credit Unions have a capped rate of 1% per month or 12.7% APR. In Britain Credit Unions are  now governed by the Association of British Credit Unions Ltd (ABCUL).  Credit Unions however have abysmally low membership in Britain with about 2% of the population being members (However this has grown from 0.5% over the past 5 years so there may be some hope that things will improve). Credit Unions started late in the UK and the first  CUs were formed in 1964 by West Indian (Hornsey) and Irish Catholic (Wimbledon) communities.

The contrast with Ireland (both North and South) could not be greater; out of a total population of around 6.5 million, 3.3 million people belong to the Irish League of Credit Unions (ILCU), which is over 50% of the population of the island; the figure in percentage terms is even higher as under sixteens can’t be members. The ILCU for example has 14.3 Billion € in assets. Sadly the Credit Union movement in Northern Ireland is split on very sectarian lines and Credit Unions appeared almost exclusively in Catholic areas in the 1960s and 1970s.  In the mid 1980s it became apparent that these were a great success  and the Protestant community were keen to establish something similar. Typically despite the fact that ILCU was incredibly successful, the Protestant community wanted something with an “Ulster British Identity”, and approached the then  National Federation of Credit Unions (NFCU), whose headquarters were in Bradford to ask for assistance.  Ironically Reverend Eamon Casey (then the Director of Shelter and later Catholic Bishop of Galway) was one of the leading people in the formation of the NFCU. In contrast to the poor performance in Britain however, the Ulster branch proved to be a roaring success and outgrew the now ABCUL. It was decided to split and form a separate entity, the Ulster Federation of Credit Unions UFCU which is still growing rapidly and catching up with the ILCU in Northern Ireland.

So why have Credit Unions been such a  success in Ireland but not in Britain? The success in the South of Ireland is fairly understandable as it happened in the 1950’s and 1960’s when it was far more difficult to get bank loans (almost impossible as a ‘sub prime’ customer) and had strong support from the Catholic church at a time when respect for the church and church attendance was very high. There was also strong buy in from the middle class community with teachers etc. often taking leading roles. There is a feeling that profit isn’t everything and helping the local community is important. Credit is not just confined to the ‘sub prime’ sector, loans are often taken out by the middle classes for things such as home improvements, considerably lowering the risk of default. In the North the first credit Union started in Derry, championed by no less a person than John Hume. There is also perhaps a strong sense of community sometimes lacking in Britain. There was also buy-in from  many middle class members in the North and it is not just seen as just for the poor. The success of the UFCU is possibly more difficult to understand, but it seems to have been spearheaded by the Orange Order; many of the earlier CUs were in Orange Lodges where there is a sense of community and strong loyalty.

What can be done to improve the participation in Credit Unions in Britain?

Comments

  1. Ms Christine Bergin -

    I was a founder member of a local C.U. in the late 1990s. One of the major peoblems in getiing one started now would be the sheer cost of Fees to various orgs starting with FSA and its soccessors. When Big Gov decided to ‘encourage’ The C.U. movement by increasing the Interest chargable to 2% per month on the reducing balance it was greeted with pleasure by many but was not a good idea overall as the simplicity has now become massively complex which has appeared to encourage the more technically minded to exploit any little quirk so as to stay ahead of the seemingly ever increasing provision of reserves and Fees.
    Another major source of concern is that it is increasingly hard to find people with the right mind-set and inclination to become involved in the management process and far too many or the newer directors have come out of the financial services and their whole ethos and training is not toward the co-operative values that got me started. It seems there is a complete immersion in the neo-liberal world which has snuffed out the ‘ here for service, not for profit’ mind-set that used to prevail.
    I have become too old and frail to stem the tideand so have many others.

    1. Sean Danaher -

      Christine
      thanks for your very informative. It is a real shame. Halting the neoliberal tide is not easy.

  2. Mark Crown -

    Between 2011-2013 I led a project on behalf of an RSL to enable social housing tenants to set up ‘jam jar accounts’ that would pay the landlord directly when universal credit was paid into a tenant’s account so that the accommodation portion of the UC was paid first before anything else. Yes – it was very self interested but also made sure that the tenant’s security was upheld as the rent was prioritised. Non-payment of rent is a threat to any security of tenure.

    The basic idea was that CU accounts would fill the gap where traditional banks had given up on a certain portions of the population.

    I became immersed in the world of credit unions during this time as well as trying to get the regional CU’s (some of them very well ran) to work together to deliver this service in the East Midlands region. It goes without saying that a number of CUs working together helps to cut the costs of transactions and helps to keep the ‘jam jar’ service viable and cheap to end users.

    Here are my observations on CUs:

    1. Too many CUs lack the capacity to provide a service close to what banking provided in terms of accessibility and depth. In other words they are somewhat under-developed. There is an emphasis on volunteers and also cost cutting of paid staff. I’m also not sure of how their pay grades stack up either. Great strides have been made in IT and some CUs have been really good at using this to cut costs and increase accessibility or to put the money where it is really needed in the service. The larger CU s are better at this but the problem is getting the smaller ones up to the level of the bigger players.

    2. Some CUs I worked with were actually in a parlous state financially and were mis-reporting their financial health to Companies House. I saw bad loans being made to people on the basis of their relationships to the Chair or the Chair of the Credit Committee who would agree such loans. I saw some CUs as being rather insular and not even wishing to get new members, despite the obvious need to increase account holding. Austerity has not helped CU members’ view that new members may not be as relaible as them in saving and paying back loans. But regulation of CUs that could help to raise standards is also sadly lacking.

    3. Christine above is quite right about the ethos of CUs changing. But I have to say that what I saw (a really well ran CU in an ex-coalmining town in Derbyshire) was that after 2010 and the severe cuts brought in by the Tories, CU loan repayments began to run into serious trouble and it was quite obvious at regional meetings that CUs everywhere were beginning face substantial risks in their loan portfolios – people unable or unwilling to pay back the loan of say even £250-300 (an average for the CU in quesion at the time). It is this factor I feel that made CUs more cautious about their lending and also covering themselves with slightly increased interest payments as a hedge against risk. This change therefore is not just a case of neo-liberalism infecting the CU movement but of wider acceptance that the environment for CU lending and repayment is just getting more difficult due to exogamous factors. The Tory assault on the poor has also hurt those who provide services to the poor.

    4. State support for CUs when I was involved was very poor. I remember that the CU movement (ABCUL) got some millions of pounds from Government to ‘raise their game’. However, that same Tory Government doubled that (and more) to the private sector when it sought to procure banking services for UC from those in the online banking community through the EEC procurement. It also meant that those whose services would cost poor people more to use received more investment from the State than those whose services would be cheaper!

    5. There is a distinct lack of capacity for self publicity in the CU movement. Publicity costs money and profit margins are not huge.

    6. Mainstream banking – my understanding is that the big banks provide services to CU s which may have a gravitational pull on CUs towards being more like banks. Banks know how to use leverage – financial or otherwise. CU s may not be as truly independent of the mainstream banking sector as they need to be.

    7. We live in a society goverened by debt, where debt is acceptable. The CU traditionally asks you to build up savings before you get a loan (savings seem to be in decline). Saving money on such increaslingly niggardly benefits and lower wages is a steep mountain to climb for many. I’ve seen people in B&B one minute and then get a house to rent but with no capital to buy a washing machine or a bed needing that loan now but the CU cannot do this (unless it is one of those who allocates a limited portion of its lending capacity for that specific purpose or a DSS loan of some sort).

    How to address this?

    CU s are a major case for Government investment – particularly in CU infrastructure. With regard to policy, CU s should/could be a part of a true Welfare State in my view. Their involvement would help people to manage their benefit (save and spend) and one day their citizens basic income I would hope. A nationalised investment bank could also work with the CU sector in this model.

    Some of the strongest CU s I saw were related to places of work or to unions. Again, policy should encourage the workplace to set these up and unions too. However, in a world where work and unions are all under threat this seems remote but still desirable.

    Better regulation would help to improve CU s and more capacity within ABCUL would encourage new ones to be set up.

    But let us be honest. You will not make millions of pounds a year being the manager of a CU or being a worker. There are only so many volunteers.

    The answer for me is national investment.

    1. Sean Danaher -

      Mark
      thanks very much for this; much to agree with. Its a real shame we have a much monatarised society. There used to be big worries about the “consumer society” but we seem to have gotten so used to it it is like wallpaper.

  3. Ms Christine Bergin -

    When FSA become the regulator for CUs ther was talk that over 500 auditors would be appointed to CU oversight. Dont know if this is true or not but given the crash of 2007/8 I suspect the CUs were much more over-regulated than other Finacial organisations. CUs, although innocent of culpability in the crash have still had to pay part of the Bank Levy and will also be carrying a burden of undeserved debt when the state declines proper payment of welfare benefits or reduces pepole to abject poverty. That really does encourage the CU movement to bankruptcy and ensures that it cannot suceed whatever the fine words of support from a very hypocritical government.
    ABCUL always seemed to be much more interested in the large workplace based CUs as they had an element of built in stability as payment could be collected at source from salary or wage from employer. What happens when the employer supported CUs get in to trouble is anyones guess but does not bode well for the future.Hopefully the CU movement will survive and reinvent itself and become SMEs without the dubious ‘assistance’ of over -regulation and interferance.

    1. Mark Crown -

      I agree with your comments about ABCUL and we agree about poor government attitudes.

      However, what goes on in smaller CU s needs better oversight. I have seen this close up and personal. In fact the whole of the financial services sector needs better regulation – as 2008 taught us. And this includes CU s.

      It is (or should be) all about consumer protection Christine – not regulation for regulation’s sake. If people know that they are being monitored, they are more likley to behave I’m sorry to say.

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