I remember when I first read about credit unions. I was approaching my GCSEs and finding my own political compass. I had discovered the New Statesman (back then it was still called the New Statesman and Society) and an article caught my eye.
The article focused on the impact that emerging credit unions were having in Glasgow in places like Drumchapel, Dennistoun (where I would later live) and Castlemilk. I remember how it left me feeling. A sense of injustice that poorer people “naturally” pay higher interest charges, so that those that do pay cover the cost of those that default. Outrage that women are more likely to be denied the credit they need to start a business.
Even more, I found it shocking that so many were expected to get by without even basic bank accounts and excluded from services I simply took for granted, and horrified that – faced with no alternative – people were turning to ruthless loan sharks. Most of all though, I felt inspired that such a simple and almost obvious idea could make such a clear difference in tackling all of this.
Credit unions restore the trust needed for financial services to work. They are often more accessible to people because they are based on a “common bond” – usually a community-based membership. Because lenders and savers are all members and owners of the institution, it also encourages fewer people to default since they are not depriving a faceless institution, but their own neighbours of resources when they don’t fulfil their obligations.
It is easy to say Credit Unions and Co-operatives work because they put people before profit, but this feels a little simplistic. They work because they address the perverse incentives created by the rules of the casino capitalism. Moreover they provide a more affordable service, and are in surveys come out with higher scores for customer care. They are, put simply, better business. They beat the market.
So fast-forward 20 years and I find myself a resident in Hornsey, part of the London Borough of Haringey, where I serve as a Labour/Co-operative Councillor and Cabinet Member for Finance. More significantly, Hornsey is home to Britain’s first credit union.
Here we have been on the frontline of Britain’s newest social and economic menace – the legal loanshark industry with their exorbitant interest rates. The industry is not only crowding out the high street, but for the online players like Wonga, the speed of access is making their quadruple-digit interest rated loans all too quickly available.
For the individual desperate to get their hands on immediate cash to relieve the immediate pressure of the day, it can be too easy. They are creating misery for hundreds of families, based on a message that is deceitful and dishonest.
One problem with the payday loan sector is that is relatively unregulated, and that data on market penetration is quite hard to come by. However it was clear that with the cost of living crisis hitting working families hard, action was needed to ensure we built an alternative in our market.
Our first step was to pump cash into the credit union to give it more liquidity. In total we gave London Capital Credit Union £750K as a sub-ordinated loan. This has enabled them to rapidly expand by improving their capacity to lend. The results in the first 12 months have been fantastic, with 100 families being helped every month – 1200 families over a year – that might have otherwise gone to payday loan companies.
Now we are taking the next step. From next September every Haringey child will receive a £20 credit union from the Council. The account will be locked for two years, and schools are being encouraged to incorporate it into their curriculum as part of financial education. We believe this will not only help drive changes in behavior for our youngsters, but will also drive up awareness of the Credit Union among parents and help it grow stronger.
I know only too well from the stories I hear from London Capital and from my mother-in-law at 1st Alliance Credit Union in Scotland how important it is that people are given the confidence to manage and talk about their money, to know their rights, and to develop good behaviours that build resilience. And it feels right that rather than simply fighting for an outright ban, that we are helping credit unions do what they do best – beating the market at its own game.