Credit Unions

Chris Evans Excerpts

Wednesday 23rd November 2011 Westminster Hall

[Chris Evans (Islwyn) (Lab/Co-op)]

The speech by the hon. Member for East Hampshire (Damian Hinds) was illuminating and informative, and his passion for credit unions came through. As treasurer of the all-party group on credit unions, I pay tribute to him for his work in raising awareness across all parties in the House of the good work that credit unions do. I declare an interest as a Co-op MP, and also as a member of Islwyn Community Credit Union, which, I am pleased to report, has this year lent £1 million to its members in Islwyn. That just goes to prove that, once again, for many people it is credit unions that are coming to the rescue for their financial needs.

There has been an explosion in credit unions in the past 10 years. In 2000, they accounted for £183 million of savings and that figure is now £475 million, and they lent £175 million in 2000 compared with £429 million now. That goes to prove the vital role the credit unions play in financial inclusion. To me, coming from the south Wales valleys—I will not use any of the colloquialisms or anecdotes I usually do—financial inclusion is the No. 1 issue.

I was pleased that the hon. Member for East Hampshire mentioned that credit unions often cannot compete with companies that offer massive amounts of interest because they do not have a budget for television advertising during “The Jeremy Kyle Show”, “This Morning” or “Loose Women”, for example. The other problem, which exists in the south Wales valleys as well, is a cultural one. People borrowing from doorstep lenders are used to the woman coming around at 6 o’clock on a Monday night and collecting.

With financial inclusion, we are looking at three issues. First, we must do something about the culture of door-to-door money lending. It is not just the illegal loan shark that we are all concerned about, but Provident, Shopacheck and obscure companies that we have never heard of. This might be outside the remit of the Department for Work and Pensions, but we need to start with financial literacy and do more to encourage credit unions in schools. When I was a kid, we had national savings, and we would save £1 a week. We learnt about the value of money and of saving, and we took the cash out at Christmas to spend on what we wanted. I pay tribute to Islwyn Community Credit Union, which has a scheme in Trinant primary school with more than 45 members. The scheme is a good advertisement, because the children are joining and then the parents are coming along and joining as well—there is a collection point there. The question we must ask is: how do we promote credit unions? When we talk about credit unions, people even in this place do not seem to know what they do, so we have to do more about advertising.

Secondly, and again outside the DWP’s remit, there is the issue of banking. I am a former Lloyds TSB banker, and when the fine Government initiative of the basic bank account was introduced, people working in the banking industry were not interested in it, because it never credit scored for products such as credit cards, loans, or even, to some extent, savings accounts. A lot of work has been done with that account, but I am still concerned that many people in my surgeries tell me about going to loan sharks and companies that offer exorbitant amounts. I ask them, “Why are you borrowing so much money off them when they are clearly ripping you off?” The problem is that they cannot access finance, even simple things such as overdrafts, which anyone might need. They are therefore driven into the hands of these lenders. I recently said to the British Bankers Association: “The way I view it is that there is a massive business opportunity there for you,” and they replied, “The set-up costs would be so high it wouldn’t be worth our while offering £500 or whatever.” So we need to talk about the role that banks can play. Would there be a facility for banks to finance credit unions and to expand that in some way?

The third issue is that we often talk about financial inclusion as being an individual option, as something that seems to happen to an individual or a family, but there are a number of small businesses that cannot access any form of lending. They might be social enterprises and there might be no money in there. I would like to hear more from the Minister about the plans for community development finance initiatives, which lend to small businesses and social enterprises. How can we expand that and make businesses aware of the facility? I did not know what they were until I did some research, so how can a business know about them? We can look at increasing that awareness.

The hon. Member for East Hampshire said that we have an option here. We can support credit unions and make people aware of them. A great thing about living in Wales—I am from there, as is the hon. Member for Brecon and Radnorshire (Roger Williams), who is no longer in his place, and it is a great place—is that everyone has access to a credit union. We can look at the examples there and roll the idea out across the country. It does not really cost anything. If we do not do something now, particularly in these hard financial times when even people with regular jobs find themselves squeezed out, the only option will be to go to the high-lending companies. I agree in many respects with not fixing credit APR, because if we fix it all the other costs will be pushed down on to the consumer. There is an argument for capping the costs of lending, and we can look at things such as not having early repayment penalties and making loans more simplistic.

Another problem that credit unions suffer is one of image. People seem to think that they are only for the most impoverished, those who are cut off, but Islwyn Community Credit Union says that the vast majority of its members have jobs. The key is promoting credit unions to such people as a way of saving and borrowing, and promoting the idea that they are not just for people on benefits.

I have another moan—I am sorry if I am moaning a bit too much. This is an idea not for the DWP to respond to today but I hope that it will be taken back to the Ministry of Justice. When I worked in the bank, I had excellent customers who were paying their mortgage and loans, and I got a lot of business out of them. Then, all of a sudden, a county court judgment would appear on their file, and that would destroy the possibility of their having any facilities whatsoever. When I asked them what the CCJ was, very often they did not know because they thought that they had not defaulted or anything. On investigation, they found out that they were in dispute with Vodafone or Orange or over gym membership, for example, and that a CCJ had been put on them, but they knew nothing about it. It seems mad that somebody’s credit record should be completely destroyed simply because of a dispute with a mobile phone company.

[The Minister of State, Department for Work and Pensions (Chris Grayling)]

I am interested in what the hon. Gentleman has to say, and he is making an important point, but could I clarify something? I am a bit puzzled as to how someone in that position could reach the point of getting a CCJ against them without having received any notification. If that is happening, it is clearly a big concern.

[Chris Evans]

What I have found is that a lot of people have got into arguments with a mobile phone company, for example, because they want to end their contract. They say that they have paid 12 months, but the company says that they have paid only 11 months and that they need to make one more payment—it might be for a silly amount of, say, £30. The two sides have been arguing, but they have reached gridlock, and no money has been paid, so the phone company has threatened to take the person to court. Gym membership is another issue I have come across. People want to end their membership early, but they then get into a dispute with the gym. In many respects, it seems lop-sided that the company has sought a CCJ.

If a consumer is in dispute with a company over a payment, there should be some way of ensuring that the company cannot put a CCJ on them until the issue is resolved; I am talking about tidying up that part of the law. This is very important, but it is not talked about often, so it might be something to look at. These people can be good bank customers, but what can the bank do? It can go only on their credit record. I am not knocking the banks for that. I am asking why companies that should have no effect on people’s credit rating are able to write people off in that way.

I have spoken for longer than I expected, but I believe passionately in credit unions and in expanding them as much as possible. I believe in relaxing the common bond, but I also think it is possible to have a central finance facility—these facilities are used all over the world—that credit unions could access. The Co-op party has told me that such an arrangement would cost about £10 million to £15 million, so it is not a lot. It would increase credit union membership from 750,000 at present to 2 million in five years. It would deliver 100,000 new growth fund loans over five years. It is worth looking at that, and I hope the Minister will give us more information when he responds.

Let me end by thanking every member of the all-party group for showing an interest in this issue. In the economic times in which we find ourselves, financial inclusion really is the most important subject, and I thank everybody for turning up for the debate.