Military Credit Union

Gareth Thomas Excerpts

Tuesday 8th April 2014 Westminster Hall

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mrs Riordan, for what I think is the first time. Given your past and present, you seem to be a particularly good choice of Chair for this debate, although I recognise that that will not save me if I deviate from the usual rules and conventions. In that spirit, I should say that I am one of 8 million ordinary members of the Co-op Group; I have accounts with Nationwide; I belong to the M for Money credit union in Harrow and the Rainbow Saver credit union; and I am privileged to chair the Co-op party and to be one of its MPs in the House.

This month marks the 50th anniversary of the first two credit unions in the UK. Now would be a good time for the Government to facilitate the establishment of a new credit union for our soldiers, sailors, Air Force personnel and their families. Hornsey Co-operative credit union was one of those first two 50 years ago; it is now part of the London Capital credit union, which is directly taking on payday lenders throughout the capital, charging only £12 interest a month on a £400 loan, compared with the £120 charged by a typical payday lender for the same loan over the same period. That is one of many examples of how credit unions can offer a powerful alternative to payday lenders.

I am grateful to Mr Speaker for the opportunity to press the case for the Government and the senior ranks of our armed forces to do more to facilitate access to a military credit union or to credit unions more generally, which can serve the needs of our armed forces personnel. Those personnel often face particular challenges in accessing financial services and sometimes have limited opportunity to develop financial management skills. In addition, as Lord Ashcroft has pointed out, transitions from military to civilian life are often hard and there is the potential for worry about debt to be a life-threatening distraction.

I hope that the Minister will commit to a feasibility study to establish a military credit union, to report by the end of the Parliament, and that he will say what he will do in the meantime to facilitate and encourage access to credit unions by members of our armed forces. I recognise and welcome the interest that a number of Ministers have shown in the idea of such a union, but I hope that this Minister will be able to do more than merely repeat interest and that he will demonstrate a more tangible commitment.

A credit union is a financial co-operative, which provides savings, loans and a range of other services to its members. It is owned and controlled by the members, and each member has one vote. Volunteer directors are elected from the membership of the credit union, by the membership. Credit unions are owned by their own users and not by external shareholders or investors, so the emphasis is always on providing the best service to members, rather than on maximising profits from their customers.

Such financial co-operatives exist throughout the world, as well as in the UK, and there are some 200 million members in 56,000 credit unions in more than 100 countries. Indeed, in the USA, Canada, Australia and Ireland, more than a quarter of the population are credit union members. Such a target is achievable over time in the UK and, if 25% of the British population were members of a credit union, I suspect that payday loan firms would have fewer customers. More than 90% of the British population can join a credit union because of where they live, which is in no small part thanks to investment by the previous Labour Government, which, to be fair, is continued by the current Department for Work and Pensions credit union expansion plan.

I pay tribute to the many hundreds of volunteer board members and to the staff helping to drive a slow expansion in credit union members in the UK. I hope that the House will indulge me if I take the opportunity to praise Graham Tomlin of M for Money, which serves my constituency, and the board of the excellent Rainbow Saver credit union. I hope that the Government will do more to increase awareness of credit unions generally, but in particular among the military, because Whitehall, local government and housing associations could do much to make military personnel and others aware of the benefits of credit union membership. Crucially, credit unions, including any new military credit union that might be set up, are authorised and regulated by the Prudential Regulation Authority and the Financial Conduct Authority.

As I set out in my ten-minute rule Bill on the same subject last year, my inspiration is the success of Navy Federal in the United States, which since 1933 and its first seven members has grown to have almost 4,700,000 members, with $44.5 billion in assets. Based in Vienna in Virginia, it is the world’s largest credit union, with 220 branches and almost 9,000 employees. It offers savings accounts, car loans, credit cards, 24/7 telephone access, internet and mobile banking, budget counselling and more than 45,000 ATMs, among other services, to people as diverse as navy SEALs and army cooks.

[Ian Paisley (North Antrim) (DUP)]

Does the hon. Gentleman agree that one of the other services under that regime in the United States is insurance? That is incredibly attractive to service personnel, who recognise that they will get a very good insurance package if something terrible happens to them or their loved ones.

[Mr Thomas]

The hon. Gentleman makes a good point. If I remember rightly, through a subsidiary Navy Federal offers specialist insurance services as well. In short, it offers highly competitive services to those who put themselves in harm’s way for the United States. It provides tailored services to military personnel, supporting their specific needs, including the commitment to cover pay during the threatened US Government shutdown last year. The president or chief executive of Navy Federal is not perhaps the most obvious missionary for co-operation. Cutler Dawson is a graduate of the US Naval academy and served for 35 years in the US navy. He ended up as a vice-admiral, commanding four ships—the Enterprise battle group—and was the commander of the US second fleet.

Other significant military credit unions in the US include the Air Force Federal credit union, which charges no fees on its regular savings and cheque accounts. It requires a minimum deposit of only $5 and, for example, offers 60-month car loans with an annual percentage rate, or APR, of only 1.6%. The Pentagon Federal credit union has 1.2 million members and $1.7 billion in assets. Australia, too, has a credit union for its service personnel; the Australian Defence credit union has been providing banking services to defence personnel and contractors, and their families, since as long ago as 1959. It now has 34 branches, assets approaching 1 billion Australian dollars and more than 47,000 members. Again, each member of that credit union has an equal say in how it operates.

Credit unions provide a responsible alternative for savings and loans and an inclusive service for all people, as well as being a crucial alternative to high-interest lenders. They are owned by their members and, because they have no external shareholders, they can offer competitive borrowing and savings rates.

I realise that establishing a new credit union dedicated to the military could take some time. It would involve some cost and, crucially, would not immediately be able to offer the lowest alternatives to payday loans that better capitalised and more well established credit unions are providing. I hope that, as well as committing to the specific feasibility study for a dedicated military credit union, the Minister will consider working with existing credit unions that may be able to offer our armed forces personnel access to the best credit union products and services straight away.

One such credit union, the Plane Saver credit union, has approached me directly and I believe it has written to the Secretary of State for Defence offering its services to do just what I have suggested. I am sure that other credit unions—and, indeed, the Association of British Credit Unions Ltd, the excellent trade body for the credit union movement—could help the MOD to think through how to provide more immediate access to the benefits of a credit union while cracking on with a feasibility study for a dedicated military credit union.

One crucial requirement if credit union services are to be accessible to our soldiers, airmen and women, and naval personnel, is for the Ministry of Defence to be able to put in place payroll deduction, just as payments are made directly from wages for all sorts of reasons already. It should surely be an employee’s right to be able to make payments from wages into their local credit union account. Many employers in other public services already allow that simple process, which in turn strengthens credit unions and helps to build their sustainability, enabling them to pass on to their members benefits in the form of better loan rates and dividends. ABCUL has said:

“Payroll deduction is an easy and convenient way for employees to get a savings habit and access affordable credit.”

There would be some additional work and, therefore, costs for the Ministry of Defence in running such a payroll deduction service. For example, regular payments and information and details of leavers, as well as of those joining the credit union, would need to be provided to the relevant credit union or unions in a timely manner, but payroll deductions are not a new concept and the MOD should be more than able to take that in its stride. Will the Minister set out whether he and the Secretary of State are willing in principle to allow payroll deduction for credit union membership? If not, will he say why?

Some of the many credit unions that already exist in Britain and internationally have strong links to particular groups of employees, as a new military credit union clearly would. That enables them to provide services to a range of employees, highly paid and lower paid, earlier or later in their careers, and allows the credit union to build a balanced portfolio for all. Such credit unions can offer extremely competitive terms. For example, the Police credit union serves a similar uniformed service and offers savings returns of 2.5% on instant access cash ISA accounts alongside small short-term loans at 25% APR or larger, longer-term loans from 4.3% APR. ABCUL tells me that similar examples exist in the passenger transport, airline, NHS and local government sectors.

Sadly, colleagues on both sides of the House will be aware of the many shocking statistics on the increasing use of payday loans in the UK. The Money Advice Service reported that some 1.2 million people took out payday loans to get through Christmas last year. The Debt Advice Foundation found that one in four people who took out payday loans did so to buy food or other essentials. Particularly worrying, perhaps, is that some 44% of people used payday loans to pay off other debts, thus sinking even further into the quicksand-like trap of ever-increasing debt.

Research from the Office of Fair Trading found that 50% of the industry’s profits come from refinancing, with those who take loans out repeatedly creating the largest return for the industry’s big boys. Some 19% of the industry’s profits came from just 5% of loans that were rolled over four times or more. That is a growing problem. Research from Citizens Advice shows that in just two years there has been a fourfold rise in the number of people seeking its advice with debt problems as a result of taking out payday loans.

Last year, I spoke to the chief executives of several Citizens Advice branches located close to military bases, and they said a pattern was clear. Soldiers and sailors were facing real financial difficulties because they had taken out one payday loan for a small sum and soon found themselves in ever deeper problems as one loan became two, two became three, and the interest mounted up and up.

The problem is clearly not limited to armed forces personnel—far from it. R3, the Association of Business Recovery Professionals, is the body representing insolvency practitioners, and published data in December 2013 showing that some 47% of British adults are worried about their debt levels, with 44% struggling to make it to pay day. Interestingly, R3’s research found that 71% of British adults blame the rising cost of living for their struggle to make it to pay day, but I digress.

Payday loans are a real and growing problem for our armed forces. The Royal British Legion published research warning that one third of all of the debt problems it deals with relate to people struggling with payday-style unsecured loans. In 2011, its money and benefit advice service was helping 11,000 servicemen and ex-servicemen with debt problems. That is a huge increase from when the service started back in 2007, when it helped just over 2,000 people. ABF, the soldiers’ charity—formerly the Army Benevolent Fund—does important work in many of our constituencies and has said that it gives half the money it raises directly to individuals to help in areas such as debt relief. That figure is remarkable by any definition.

There is a real problem. Payday lenders should have to signpost those taking out payday loans to debt management services, a little like cigarette packets having to carry health warnings. My right hon. Friend the Leader of the Opposition has set out some steps we should take to tackle the damage done by payday loans. Some lenders make as much as £1 million a week in profit, and he has called for a levy on the profits of payday loan companies to raise capital for alternative and affordable sources of credit such as credit unions. That could raise an additional £13 million, allowing credit unions to offer more financial support to people in need of credit. Perhaps a little of that sum could be used to help to develop a credit union for military personnel if the Government were so minded.

My right hon. Friend made clear his support for the banning of payday loan adverts during children’s TV programmes, which would be a very sensible step forward. Just as importantly, he set out how he would take steps to allow local councils to decide whether they want to place some premises in a separate planning category, giving communities more control over payday loan outlets in their high streets. Sadly, many local authorities and communities feel increasingly powerless to shape their town centres or do anything to halt the tide of payday loan firms. We want to change that.

I understand that there is cross-party support for a payday loan charter setting out what effective regulation of payday lenders and high-cost credit might look like. Such a charter could call for better affordability checks, a crackdown on advertising, and real-time data sharing within the industry so that lenders can check whether a borrower already has other plans. A military credit union could support such initiatives.

I welcome the written answer from the Under-Secretary of State for Defence, the hon. Member for South West Wiltshire (Dr Murrison):

“Although commanding officers retain discretion to decide which advertisements are appropriate for their bases, guidance has been issued to each of the services that advertisements from payday loan companies should not be carried in their internal publications.”—[Official Report, 24 February 2014; Vol. 124, c. 63W.]

That guidance was given once it was brought to the MOD’s attention that payday loan companies were seeking to entice people to their products; soldiers and sailors in particular were being targeted rigorously using military publications. Payday loan companies that were particularly targeting our soldiers, sailors and Air Force personnel include Forces Loans, which claims to be the No. 1 lender to the military. Its loans are currently being advertised with an APR of 3,351%. Another company, QuickQuid, regularly advertises on the apparently popular militaryforums.co.uk with a rate of 1,362% APR.

A quick search online will find other examples of companies that have sponsored links to forces sites or to information that forces personnel can easily get access to: 1st Stop charges nearly 2,000% APR; Quids Today charges more than 2,000% APR; and The Money Shop charges nearly 3,000% APR—I could go on. A quick check of payday loans widely available online shows loans available at APRs ranging from nearly 900% to more than 7,000%. A military credit union could, over the medium to long term, provide a powerful competitive financial services offer to those who put their lives on the line for us, in ways that best meet their particular needs.

Let me underline the questions that I hope the Minister will answer today. Will he undertake a feasibility study into the establishment of a dedicated military credit union? Will he ensure that that feasibility study reports by the end of this Parliament? In the short term, other credit unions could help to offer such services now, with positive support from the Ministry of Defence. Will the Minister commit to meet ABCUL, credit unions such as Plane Saver and possibly me to discuss how that might happen?

Will the Minister commit now to the principle of payroll deduction to help any member of the armed forces or supporting staff to join a credit union more easily if they want to? Will he encourage military publications to carry adverts for credit unions that armed forces personnel can join? Will he support an explicit ban on payday lenders advertising in military bases? Will he consider discussing with other ministerial colleagues a requirement on high-cost lenders, such as payday lenders, to signpost their borrowers towards free debt management advice services?

Credit unions have a long history. They are increasingly building capacity and membership. They are a powerful demonstration of the values of co-operation: working with others to help oneself; giving equal voting rights and an equal say in the running of a business; and being committed to a fair distribution of any profits or surplus in the form of better, cheaper services. Sadly, no such clear, distinct service exists for our armed forces, and I gently encourage the Minister to back our campaign for a military credit union.

--- Later in debate ---

[Mr Dunne]

I think she is indicating that she did not mean that, and I am pleased to hear that, because there is no reason for it.

Citizens Advice has said that it is dealing with a significant number of cases of service personnel and their families who get into difficulty with debts at high interest rates owed to payday lenders. Those lenders appear to be specifically targeting the armed forces because some personnel have problems with credit ratings. The hon. Members for Harrow West and for West Dunbartonshire both mentioned some of those payday lender adverts, and the extortionate rates of interest that they charge. I searched the internet to see what claims those companies make. Entering “armed forces loans” into the search engine generates a list of companies promising no credit checks, rapid payment and 100% satisfaction. One website even depicts a smiling soldier in uniform giving a thumbs-up in front of the Union flag, with the claim that it is the

“Number One lender to the military”.

[Mr Thomas]

The Minister accused me of persistence, so as he is five minutes into what is, to be fair, a very interesting speech, will he tell me whether he will support a feasibility study on payroll deduction, and meet me to discuss how we might get quicker access to credit union products for armed forces personnel?

[Mr Dunne]

I am sorry that the hon. Gentleman seems to want to bring the debate to a premature conclusion. We have plenty of time left, and I am sure, given that he called the debate, he would like to use as much of it as possible. He already asked that question in his remarks, and I hope to deal comprehensively with all his questions before the debate finishes.

I referred to the website because of the impression that may advertently or inadvertently be given that websites directed at the armed forces carry some endorsement from the armed forces. That could not be further from the truth, but it highlights the risks for the Ministry and the service branches in any involvement in the provision of financial products, should personnel or their families get the impression that the military was endorsing a particular product. Such a financial product would carry the same kinds of risk as any other regulated entity, and we take that seriously.

--- Later in debate ---

[Mr Dunne]

The Government are keen to support the development of credit unions but we are not keen to be the operator. The funding is available to provide support. I am not familiar with all the detail about what the DWP funding has provided, but I can certainly look into that matter and write to the hon. Lady if she would like clarification. Nevertheless, as far as I am aware, it is not the business of the DWP to establish credit unions. I think that it is providing support for existing or start-up unions being established around the country on an initial basis, effectively like providing start-up funding for a business.

[Mr Thomas]

Of course the Minister is right that one would not want a military credit union to be run by the Secretary of State for Defence, or even by a talented junior Minister such as himself; one would want it to be run by its members. However, what the Ministry of Defence could do is help to facilitate the establishment of such a credit union and a feasibility study that was specifically focused on what role the MOD might play to help to achieve that objective.

[Mr Dunne]

Indeed, and not for the first time the hon. Gentleman is pre-empting just what I am coming to in my remarks; he is very prescient.

It is important that any organisation that undertakes the establishment of a credit union does so with its eyes wide open and is aware of the risks that might be involved. From our perspective, in the event that we were to provide support for an organisation, we have some responsibility for the savings of service personnel, to ensure that those savings are in an environment where they will be properly stewarded, managed and regulated. That said, we are minded to support any suitable organisation with the wherewithal to put in place a credit union to support the men and women who serve in our armed forces.

To that end, I will update the House on where the Department has got to in the discussions that were identified by the hon. Gentleman in his remarks. The Department has already brought together relevant parties to form a working group to look at precisely this issue. It includes the DWP, the Treasury and the Association of British Credit Unions Limited, as well as service charities such as the Royal British Legion and the three service benevolent funds. A number of those stakeholders were present at meetings hosted in January and February by the MOD. There was broad support for the credit union concept and a number of parties expressed their willingness to become involved, but unfortunately at that time none of the individual charities stepped forward to take the lead. Subsequent to those meetings, however, we have had further approaches from some of those organisations that attended them. ABCUL, which was referred to earlier, has been in touch and it has indicated that it is keen to take these discussions forward. We, too, stand absolutely ready to do so.

The hon. Gentleman has asked repeatedly about the prospect of the MOD funding a feasibility study into a military credit union. We are of a mind to support one or more organisations that wish to take the lead in investigating the feasibility of a credit union, but we do not think that it would be appropriate for us to take the lead. As and when an organisation steps forward, we are willing to work with it on how we can best support the establishment of a credit union, but we think that actually establishing a credit union would be best done by an organisation that is already one of those we have been talking to and that is already embedded with relationships with service personnel and their families.

[Mr Thomas]

I want to understand exactly the Minister’s point. If a charity or a credit union were to come forward saying that it believes it has the capacity or interest to provide such a dedicated military credit union and to get it up and running, would there potentially be the prospect of support in financial terms as well as in the crucial area of payroll deduction for a military credit union?

[Mr Dunne]

I am not in a position to commit the Ministry’s budget here and now. What I am willing to do, as I think I have already indicated, is to offer further support to explore the possibility of establishing a military credit union. If an existing credit union felt that it had the resources and the experience to bring to bear, that would be a very positive development; equally, if an existing service charity felt that this was an area that it wished to explore, that would also be very welcome. I am not closing the door to providing assistance for a feasibility study, but I will not commit at this point to conduct one without knowing to whom I might be making such a commitment.

[Mr Dunne]

The subject of payroll deduction has been raised by a number of hon. Members. We make payroll deductions in certain areas. Insurance services were specifically mentioned as possible services for a credit union to provide and it was said that a payroll deduction might be a way of helping to fund insurance premiums. We already make such deductions for armed forces personnel. We have a payroll deduction scheme that is financially supported by the Government, over and above our merely facilitating contribution payments. That is to ensure that life insurance is available to armed forces personnel who are on operations, irrespective of their role. That is a specific product that is funded through payroll deduction.

[Mr Thomas]

I am grateful to the Minister for what he just said on that subject. However, may I specifically ask him whether the MOD now accepts that if there were a credit union that it had confidence in regarding the ability to provide financial services to armed forces personnel, it would be willing to facilitate payroll deduction for members of the armed forces to join, contribute to and pay into such a specific military credit union?

[Mr Dunne]

Again, we are talking about quite a number of hypothetical steps here. I am certainly willing to say that if we get into discussions with a serious, credible entity that is willing to establish a credit union, we can consider the possibility of payroll deductions as one means of providing either interest payments or investment through the union’s savings products. However, in the absence of knowing which party we would be dealing with and the suitable structures that would be placed around it, I cannot commit to do that.

The hon. Gentleman will appreciate that military payrolls are not a uniform or simple thing. The issue strays rather beyond my departmental responsibilities, so for me to commit other Ministers and other elements of the Department to things about which I am not expert would be career-inhibiting. I will not do that, but I certainly undertake that, if we pursue discussions with the credit union, the issue can be on the agenda.

[Mr Thomas]

I would not want to limit the Minister’s career in any way, given how helpful he has been in this debate. On payroll deduction, I gently suggest to him that the NHS has some equally complex systems, and many parts of the NHS are able to do it. My last specific question is whether he is willing to commit to asking the relevant Minister—I appreciate that he is filling in today—to meet ABCUL, Plane Saver and me. Those organisations think they might be in a position to offer a credit union service now, before a dedicated military credit union is established.

[Mr Dunne]

The hon. Gentleman referred to Plane Saver before, and I am not aware that it has directly approached us. We have clearly had an approach from ABCUL. It participated in meetings earlier this year and wrote again last week, perhaps prompted by sight of this debate. I am confident that the Under-Secretary of State for Defence, my hon. Friend the Member for Broxtowe (Anna Soubry), who has responsibility for defence personnel, welfare and veterans, would be willing to meet the hon. Gentleman and ABCUL. If he wanted to bring Plane Saver along, it would be welcome, too.

The hon. Gentleman asked some specific questions about the promotion of credit unions within military publications. Were the credit union to be established with support from the military, it would be more than welcome to take space in the military publications. I cannot, however, commit to the charging basis on which that space would be available; that would be a matter for the normal procedures for each publication. He asked whether we could institute a ban on payday lenders advertising in military publications. This Government are not in the business of prohibiting freedom of speech. Payday lenders might be unethical, but they are not unlawful, so we should not ban their adverts. We should, however, look to support the credit union going forward.

The hon. Member for Strangford (Jim Shannon) asked whether we could underwrite a scheme, but I have to disappoint him. The Ministry of Defence budget might appear to be large, but it appears from the inside to be somewhat constrained. We have to devote our budget to our front-line duty, which is protecting the nation. We are willing to provide opportunities to access military publications and that kind of thing, but we are not in a position to underwrite a financial offering to our personnel.