Much attention has recently been given to the growth of payday lending and with very good reason.
In the first quarter of 2009/10, across the UK, just 1% of Citizens Advice Bureau debt casework clients had at least one payday loan. But by the same quarter of 2012/13 the figures show 10% of their debt casework had at least one payday loan. Similarly, in November 2012 the debt charity StepChange reported that the proportion of their clients with payday loans had soared, from 3.7% in 2009, to 17% in 2012.
This growth in incredibly expensive debt is of course the legal end of the market. We should never forget that on top of the growth of payday lending there has been a growth in illegal lending by loan sharks. To give some indication of the growth of loan sharks it is worth noting that research from Liverpool John Moores University suggests that one in twenty low-income borrowers in London, that have been refused credit, have then turned to a loan shark.
Facing up to these developments and having practical policies in place should be a key priority for Liberal Democrats. And while I would suggest a wide range of policies are needed I think very high on the list of priorities must be a greater role for credit unions.
Credit unions are widespread around the world. In the US and Canada around 40% of the population belong to one. The figure rises to 65% in the Republic of Ireland. Yet in the UK they are far less established, with less than 2% of the UK population belonging to one – with the figure dropping to just 1% in London.
Credit unions are important as they can be crucial in stopping people being driven into a cycle of debt, or alternatively helping people start to get out of serious debt, as they offer capped and low interest rate loans. They encourage people to save a little bit of money on a regular basis, but also enable people when necessary to borrow in a sustainable way, without generating enormous interest rate bills.
Of course the record of credit unions has not been totally uniform. Indeed, if you engage with the sector they will certainly admit that in the past there have been some specific credit unions that tried to achieve too much, and were not run sustainably for their regular savers and borrowers.
However, the central fact remains that the basic model of credit unions is a sound one. Well run credit unions, especially if properly supported, can and indeed must play a crucial role in our communities.
It is for this reason that I recently published a report –Payday London (pdf) – setting out a programme of policies to support their expansion, including a rolling programme of ensuring that every secondary school pupil has a credit union account.
Across the UK, there is widespread and often all-party support for the credit union sector. Their growth everywhere is much needed. The Westminster Coalition government has boosted funding, as has the Labour government in Cardiff, and the SNP government in Edinburgh is actively encouraging Scots to join their local credit union.
Yet, in London the Mayor is incredibly indifferent to this sector of the lending industry, preferring it seems to spend more time with the likes of Bob Diamond.
When there is such an urgent need for their growth, the Mayor’s lack of engagement and support for credit unions is alarming. It is time he started using his position to promote credit unions in London. It is time Londoners joined a credit union rather than turning to payday loan companies.
* Cllr Stephen Knight is a member of the London Assembly and a councillor in Richmond.
6 Comments
“including a rolling programme of ensuring that every secondary school pupil has a credit union account.”
Disgusting policy. Credit unions are high risk high reward.
Stephen: thank you for this excellent posting and the thought provoking and informative document in the link. I don’t know if I had a download problem but half of page 9 seemed to be missing and I think it had some useful data. I completely agree that there is a lack of awareness of the benefits of credit unions in England and the opportunity they offer to escape the cycle of payday loan debt in which so many people are drowning and the proposals you outline are a great template for increased public awareness.
I seldom resort to anecdote but my parents grew up in a very deprived council estate in Derry. The City of Derry credit union was (and is) a lifeline for the working class people who would have been denied access to credit through the banks. And while the credit union provided low ost loans and engendered an awareness of the value of saving in my parents and their contemporaries, it also helped inculcate sound attitudes in the next generation too, as described in your proposal.
I hope to hear more about this in the future. Great work and the sort of thing where Liberal Democrats can have a huge influence on improving our communities.
Hi Stephen,
I apologise for my tone yesterday. I was annoyed about other things. However I still disagree with some of the recommendations in the report. These are the following:
1. A credit union account for every secondary school starter. I don’t think we should be targeting finance products at children.
2. More funding for credit unions. I disagree with this because mutuals should be privately financed.
Regards
PS, raising awareness about credit unions is fine, but we should avoid the tendency to go overboard and think “mutuals good, businesses bad”.
The sad thing is that some this government’s policies have helped to make things much worse for the unemployed and working poor and no credit union will save them from the growing use of bailiffs
The real problem is the barrier to entry into this market is so high it puts off competition leaving a clear playing field for big companies. The banks have abandoned small borrowers, payday loans are a variation of a trade that has gone on since biblical times. The solution is to allow small lenders into the market, give the borrowers a chioce and the cost of the money will fall like a stone. The last thing that anyone needs is more Government intervention.