Credit Unions

Cathy Jamieson Excerpts

Wednesday 23rd November 2011 Westminster Hall

[Tracey Crouch (Chatham and Aylesford) (Con)]

As always, Mr Streeter, it is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for East Hampshire (Damian Hinds) on securing the debate.

The hon. Member for Islwyn (Chris Evans) spoke passionately about financial literacy. He might be interested to learn that a young lady doing work experience with me this week is watching the debate from the Gallery. She told me before we came to Westminster Hall that, as part of her enrichment class, she has just studied the role of credit unions. I have no idea what an enrichment class is, but the fact that it is studying credit unions is a fantastic way to ensure that youngsters learn about a variety of sources—

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

The hon. Lady makes an important point. Does she agree that it is important that credit unions can operate from an early stage in schools and involve young people much more directly than by simply learning about them?

[Tracey Crouch]

I agree. As many providers as exist should be entitled to teach children about the variety of sources of financial awareness. I have been to primary schools in my constituency and seen big banks supporting financial education programmes, which I think is fantastic, but we should get as many people in there as possible.

I proudly declare, like many Members here, that I am a member of a credit union: Kent Savers, the county-wide credit union. I am also soon to be a member of Medway credit union, which covers part of my constituency. Like others, I am passionate about tackling high-cost credit, lending and financial inclusion, and see credit unions as part of the answer. That stems from my experience of living the high life in London as a young graduate and stupidly running up debts, from which I was saved by my bank manager, and of representing a constituency that has pockets of deprivation and associated personal debt problems.

In the current economic climate, we must pay particularly close attention to how much debt people take on as pressure inevitably increases on household budgets. As Members of Parliament, we have a duty to promote accessibility to fair and equitable credit, particularly, although not exclusively, for those on low incomes. That is why I share the enthusiasm for credit unions and believe that we must raise their profile. I am sure that I join many hon. Members here in having done so through local media.

I have met representatives of Kent Savers and Medway credit union, the latter as recently as last Friday, and have learned a great deal more about credit unions’ services, benefits and duties. Northern Irish Members will be interested to know that they spoke favourably of the credit unions in Ireland and Northern Ireland. One director is from Ireland and is helping to bring that experience to Medway.

As a mutual, a credit union has an ethos of responsibility and inclusion—traits especially welcome in Medway, which, sadly, has problems with unmanageable debt. Responsibility and inclusion go hand in hand and are crucial features in running credit unions fairly and equitably. Much is admirable in credit unions’ ability to open up opportunities to take out reasonable loans for people on low incomes or with bad credit history. The alternatives, as I have found in Medway, are far less appealing. As in the constituency of my hon. Friend the Member for Thurrock (Jackie Doyle-Price), several high-cost credit lenders have set up shops prominently situated on busy high streets. They are the antithesis of credit unions.

Consumers took out £1.9 billion in payday loans last year, which is £500 million more than in the previous year. That trend is a concern and it is broadly reflected in the Medway area. Shockingly, at the local citizens advice bureau recently, a record £3 million in unsecured personal debt walked through the doors in one week. I have since been informed that loans and the interest associated with payday lending account for a worrying proportion of that £3 million. That is a great shame, and I have campaigned against it as a local Member of Parliament.

Such businesses deal in large sums of money and small print. They are identifiable by their glossy shop fronts, but they offer less attractive interest rates, targeting people on low incomes who are in financial difficulty. Sure, if they pay back the loan in time, the rate might be lower over 30 days than a high street bank’s overdraft charge, but the very fact that someone has gone to a payday loan company rather than a bank might indicate that they are a credit risk. No controls are placed on borrowing—a remarkable difference from credit unions.

The emergence of payday loan shops on high streets and the accessibility of easy credit on the internet appear to offer a quick fix. It might be financial inclusion of a sort, but the reality of high-cost credit is very different. It can be irresponsible on the part of the lender and self-defeating for the consumer, placing them deeper into debt and excluding them from accessing the lending market in the future, which credit unions do not do.

On Monday, I was pleased to note the Government’s response to the consumer credit and personal insolvency review. I was particularly encouraged to learn that they will consider the possibility of imposing a variable cap on the cost of high-cost credit that can be charged in the short to medium-term high-cost credit market, while talking up the credentials of credit unions as an alternative.

It is worth making the point that credit unions are more than just a lending service. To take out a loan, members must first commit to saving, which is an equally important feature of managing their finances. Given that only 20% of people in the UK reportedly put aside money each month, more clearly needs to be done to encourage saving. Credit unions offer a great opportunity to help to reverse that trend with a more innovative method of depositing cash, receiving a dividend and earning the possibility of taking out a loan. By committing to saving, members provide a cushion for those unexpected emergencies that we hear so much about from payday loan lenders, while avoiding astronomical interest rates.

I learned last week that Medway credit union is developing a Christmas savings scheme that encourages members to put aside money for Christmas essentials. Christmas is an expensive time of year. Given the pressure on families to spend, the temptation for those on low incomes to buy now and pay later is strong. However, under the scheme, reserves gradually built up over time will be on hand to cover the cost of the festive family season and steer families away from alternative high-cost credit. Most importantly, what makes the Christmas saving scheme attractive is that it is secure.

Credit unions have an important role to play for older people, who are often financially excluded. I have spoken before in this Chamber about my concerns for the financial welfare and education of our pensioners. Financial difficulty is not limited to younger generations seeking loans to cover rent, bills or insuring the family car. I read a worrying report called “Debt and generations” commissioned by the Consumer Credit Counselling Service, and I urge hon. Members to read it. It revealed a minority of older people with extremely high levels of debt and a notable number of older households with high repayment-to-income ratios.

For instance, 12% of over-55s have a repayment-to-income ratio of 30%, compared to only 9% of those aged 18 to 24. Also, a great many older people are less able to mitigate the effect of an unexpected bill or change in circumstance. A reduction of just £50 to their monthly income, for example, doubles the likelihood of the oldest age groups becoming financially vulnerable and, potentially, taking out costly loans to meet the shortfall. I think we all agree that it would be far more preferable for older people faced with those difficulties to approach credit unions instead.

I am conscious of the time, so I will finish by saying that the Government have taken some welcome steps with the legislative reform order and other measures. I think we all welcome those steps and I look forward to reading the Government’s study, to which their formal response on consumer credit alludes, on credit unions and how they will be encouraged to grow and prosper.