You may have seen in the Leamington Observer my ‘scathing attack on payday lenders’ – click here to read it. The Observer asked for a press release in advance of my anticipated appointment as liquidator of a local credit union.
Credit unions are a fantastic opportunity to bring bank accounts, financial education, responsible saving and borrowing to the masses. They are run by well meaning volunteers, who are paid nothing for their services, whose drive is to put something back into society.
Right now some unions are struggling because:
- They simply cannot lend enough money to enough people who are willing and able to repay – there is savers’ money in the bank available to lend but under their rules they simply have to lend responsibly and the financial position of many of the people who are approaching them for loans is such that to lend them any more money would be irresponsible;
- When debtors get into trouble it’s sensible for them to use what little cash they have to repay those loans with higher interest rates first – the interest rates unions can charge are capped by law at around 28 per cent pa, meanwhile our government is unwilling to cap payday and other predatory lenders’ rates – rates of 1,500 to 4,000% are common – this means that debtors with limited cash will leave the credit unions until last for payment;
- The courts are now taking a lenient stance with debtors, ordering them to pay £1 to £5 per week against their debts.
The toxic combination of these final two points deprives credit unions, the most well meaning socially responsible lenders in the UK, of much needed cash, effecting what they can pay to savers.
There are around 600 or so credit unions in the UK, they lend about £600m. Big number? – no. The public owe something like 500 times that in unsecured debt – the credit unions make up less than one per cent of unsecured lending. It’s a minnow in a immense pond of debt. But how does that compare with the payday sector? Let’s compare the size of the entire credit union sector with, say, Wonga one of the biggest payday lenders. Wonga’s 2011 accounts showed its income to be around £185m – that’s to say just one payday lender’s income in one year represents about a third of all the money credit unions have out on loan to their members. Again, a minnow.
The Office of Fair Trading recently prepared a scathing report on the payday lending sector – click here – the OFT essentially said that no one in the sector came out with a glowing report – irresponsible lending and aggressive debt collection practices were just two of the issues the OFT had with the payday lenders. It’s easy to criticise the payday lending sector, and that’s why the local newspaper framed my press release as they did… by a far bigger point is what the hell is our government doing about it?…
… why is it allowing a low cap to be imposed on the interest rates the credit unions can charge yet choosing not to cap predatory lenders such as the payday loan firms? Do the banks and predatory lenders have that much influence over MPs?
… why has it bailed out the irresponsible banks for trillions of pounds, yet committed just £35 million to help far the more socially responsible credit union sector grow? Just how much of that is to help educate Joe Public rather than roll out new products?
… why isn’t the government doing anything about improving the financial education given to our kids in schools and colleges, helping people to help themselves? Why is teaching our kids how to manage their money wisely, what the difference between good and bad debt is not in the national curriculum? Surely this is more important than some of the rubbish our kids are taught?
What I’m saying is just give the credit unions more support, if only a level playing field, then watch them grow, and do an immense amount of good for our sick debt ridden society.
I’me just about to write to the MP for the area in which the particular credit union I’m dealing with is based, I’ll let you know what he says. In the meantime why don’t you talk to your own MP?