Military Credit Union

Gemma Doyle Excerpts

Tuesday 8th April 2014 Westminster Hall

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mrs Riordan. It is also a pleasure to follow the hon. Member for Strangford (Jim Shannon), who made a welcome and constructive contribution to the debate. I congratulate my hon. Friend the Member for Harrow West (Mr Thomas) on securing the debate. I am delighted to be able to follow him by speaking in support of the establishment of an armed forces credit union.

I pay tribute to the commitment and service of our armed forces, our veterans and their families. Without them, our country would not be as successful or as safe as it is. It is therefore my utmost belief that we have a duty to ensure that our servicemen and women and their families are treated fairly, protected from discrimination and supported in all aspects of their civilian life where necessary. That includes in their finances.

It is already hard enough for an individual or a family to save money and build up a strong credit history. For armed forces personnel, the struggle to become financially secure can sometimes be even more difficult. Military families face specific circumstances that can make it difficult to access financial services via the traditional routes, such as high street banks or building societies. Long periods spent outside the UK mean that some kinds of financial benefits, such as no-claims bonuses, are not easily acknowledged. It becomes harder to build up a credit history if someone’s address changes every two years as they move around. Fluctuations between an individual’s regular pay and deployment pay can mean that income is hard to predict. That is not just detrimental to the individual, who may be unable to develop a long-term budget but also influences things such as mortgage and credit card applications. Frequent relocations have a knock-on effect for partners, spouses and children, whose employment opportunities may be reduced, resulting in a drop in household income.

It can be hard for servicemen and women to save during deployment, but on leaving the military, the situation may become harder. More than 20,000 people leave the armed forces every year, and that number is rising as the Government reduce personnel numbers. Because of the institutional way in which the armed forces work, some of those people will have had little experience of budgeting, costing, saving or spending. Many people struggle with those things, and those in the armed forces are no different. That added burden can leave them at risk of financial difficulty. The 2012 issue of Homeport, a magazine distributed by the Navy and the Marines to naval families, said:

“The inability to manage personal finances is one of the single greatest welfare challenges facing members of the Armed Forces.”

Every one of those things makes our military personnel and their families more likely to search out alternative options for financing. When circumstances mean that they are refused assistance from high street banks or building societies, they become more susceptible to payday lenders offering sums of cash on the spot, as we have heard. Citizens Advice has reported dealing with an increased number of cases of British armed services personnel and their families being targeted by payday lending companies. A couple of payday lenders—I am struggling over whether to name the companies that I have in mind; on this occasion I do not think I will—have specialist sites aimed at the armed forces, and one of them has an interest rate of 1,734%. My hon. Friend the Member for Harrow West has outlined the interest rates of a number of other companies. In targeting armed forces families in such a way, they are exploiting for their own gain service personnel who have poor credit histories or difficulty accessing credit. Of course, payday lenders do not just target military families, and we have heard a good deal about that already. Which?, Citizens Advice, the Office of Fair Trading and the Business, Innovation and Skills Committee have all criticised payday loan companies for offering exploitative loans to people who are at their lowest ebb and charging extortionate fees that simply push those people into further financial difficulty.

According to the Debt Advice Foundation, one in four people who take out payday loans need the money to buy food or essentials, and 44% use them to pay off other debts. Some in the forces may turn to payday loan companies because they see them as a quick and easy solution to a lack of finance. Initially, they are a quick way of getting money, but unfortunately it does not turn out to be easy in the long run.

Establishing a military credit union would not only shield our military families from exploitation but help them to become more financially stable and financially literate, and to live a more secure and stable life outside the armed forces when they leave. That would reduce the need for intervention further down the line. I appreciate that the Ministry of Defence has already recognised that something needs to be done, which is why it introduced the MoneyForce programme last year to provide service personnel with advice and training on finances. Although the scheme is a good step in the right direction, it does not offer our armed forces an alternative to the arrangements on offer.

As we have heard, the Royal British Legion operates its own money advice service, which gives service personnel, veterans and their families impartial and non-judgmental financial advice. I believe that it has helped more than 35,000 people; worryingly, about 11,000 of them in 2012 alone, so the numbers appear to be going up. About 70% of those people are ex-service rather than currently serving, which shows that there is a problem here that we must look at. In addition, research by the Royal British Legion in 2011 showed that almost a third of the debt problems it deals with involve unsecured loans from payday lenders and other providers. That is yet another reason why we should be providing servicemen and women with another option.

Given the facts, and given that is not difficult to see where and how the problems arise, I hope that Ministers will take the opportunity to do something positive about the matter. In February 2013, the Minister with responsibility for international strategy, the hon. Member for South West Wiltshire (Dr Murrison), said that the concept of a credit union had been considered but that the MOD believed that it was

“likely to be too restrictive in how it might operate and what it can provide.”—[Official Report, 4 February 2013; Vol. 558, c. 440W.]

Earlier this year, however, he updated the position, saying that the MOD was considering the option of an armed forces credit union but a decision had not yet been made. I hope that the Minister can tell us where the Department stands and whether he has been convinced that a military credit union would offer a financial lifeline to thousands of serving personnel, veterans and their families. I back my hon. Friend the Member for Harrow West in calling for a feasibility study into the matter and into deductions at source from salaries.

As we have heard, the Department for Work and Pensions has supported the expansion of credit unions across the UK. The Department’s feasibility study found that some 7 million people fall into the trap of high-cost credit. As a result, a significant amount of money has been set aside to invest in credit unions, and I hope that that might be one way of moving forward. Tackling high-interest consumer credit is a priority for the Opposition, as is supporting our armed forces and their families. Unfortunately, too many people in the UK have been forced into using food banks and relying on welfare payments to try to deal with the cost of living crisis. The armed forces and their families are facing their own cost of living crisis, because they have had reductions in their allowances and their pensions.

Considering all the evidence, I cannot see a single reason why we should not move ahead with the policy. The armed forces covenant states that, where possible, disadvantages should be removed so that military personnel can enjoy the same opportunities and outcomes as the civilian community. When it comes to personal finance, there is clearly a problem that we want to address. Credit unions provide a fair and affordable alternative to payday lenders. They are an option for those who are otherwise unable to access mainstream sources of high street credit from traditional banks or building societies. They are also a way forward for people who want to take an ethical approach to personal finance. They are trusted by more than 200 million people across the world, who use them to manage more than £700 billion in assets. In West Dunbartonshire, we have three community-based credit unions, not to mention some hugely successful workplace schemes, which help more than 12,000 people to manage their money in the best possible way. I want that service to be available to our armed forces community as well. I cannot think of a reason why they, too, should not have access to a workplace credit union.

We have heard about Navy Federal, which is the biggest credit union in the United States with 4 million members, so it cannot be that our armed forces are too big to establish such a scheme. One of the unique selling points of a credit union is that it can offer specialised financial products and services that are designed to meet the specific needs of the community it serves. The hon. Member for North Antrim (Ian Paisley), who has left, spoke about insurance products, which I think Navy Federal offers. The specific circumstances and situations that military personnel face, such as families living apart, or moving house several times, could be factored into decision making.

The Co-operative party has launched the “Give Me Credit” campaign for a military credit union, with the simple expression: “Because service personnel and their families deserve better.” I could not have put it better. Like my hon. Friend the Member for Harrow West, I am proud to be a member of the Co-operative party and one of its Members of Parliament, because those are the sort of policies that make people’s lives better. I hope that the Minister and the MOD will commit to giving our service community what it deserves—an opportunity and an outlet by which they can become financially stable, through the establishment of a military credit union.

[The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)]

It is a great pleasure to serve under your chairmanship today, Mrs Riordan. For me, as for the hon. Member for Harrow West (Mr Thomas), this is the first opportunity to do so. I congratulate him on securing the debate. He has been a persistent advocate of an armed forces credit union—I think he presented a ten-minute rule Bill earlier in the year—and I am pleased that he has managed to secure a full 90-minute debate today. It is good to see colleagues from Northern Ireland supporting it.

There is no fundamental disagreement between us on the proposal. The Government have actively supported credit unions since we came to office and we have been working energetically to increase access to affordable credit by modernising and expanding the sector. That is why we are investing up to £38 million in the credit union expansion project, providing an increased range of financial services for up to 1 million more customers, which we anticipate will save them up to £1 billion in loan interest repayments over the period to March 2019. We also believe that credit unions have a role to play in supporting our armed services.

Financial pressures exist within service households just as they do in the wider community, as all those hon. Members who spoke explained. Indeed, many hon. Members may have received letters from members of the armed forces or their families who have been denied credit, have struggled with obtaining a mortgage or have been refused the opportunity to purchase a financial product as simple as a product warranty. Often that has nothing to do with their creditworthiness per se, but is due to the nature of a peripatetic career that can prevent some in the armed forces community from developing a consistent credit history in the area where they live; that is often used by credit referencing companies to determine credit credentials. We recognise that that is a problem within the structure of employment in the armed forces, and have been actively taking steps to ease the problems for service personnel, as an important component of the armed forces covenant, which the hon. Member for West Dunbartonshire (Gemma Doyle) mentioned.

Two years ago, in April 2012, working with credit reference agencies and the Royal Mail, we introduced “shadow” postcodes against British forces postal addresses, to try to establish consistency of address. That helps armed forces personnel serving overseas to maintain a UK credit history that is recognised by financial service providers and allows improved access to financial products. The MOD has also secured an important pledge from, among others, the UK Cards Association, the British Bankers Association, and the Council of Mortgage Lenders to treat

“applications for credit and mortgages...fairly and consistently with civilian counterparts”.

Last year, as other hon. Members have mentioned, we launched MoneyForce in partnership with the Royal British Legion and the Standard Life Charitable Trust. That has been providing training, briefings, resources and online support, helping the armed forces community to manage its money and financial affairs better.

Despite that support, there are still those in the forces, as there are among the public at large, who end up requiring a loan just to make ends meet. I am sure that the hon. Member for West Dunbartonshire was not suggesting, in her remarks, that armed forces personnel have increasingly become users of food banks, because I am aware of no evidence of that. If she has any I should be interested.

[Gemma Doyle]

indicated dissent.

[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”.

--- Later in debate ---

[Mr Dunne]

Before the Division, I was explaining how credit unions must be properly regulated, and the fact that we need to be confident that any credit union established with military branding has some financial security. Credit unions offer access to good-value savings and loan products for a customer base that has historically found it hard to access such services. They are registered as industrial and provident societies and are regulated by both the Financial Conduct Authority and the Prudential Regulation Authority.

Unlike payday loan companies, credit unions are, in my view, a positive force for the community around them, benefiting members and local economies alike. Their role in developing alternative financial services for member groups has been well championed in this House, not only by the hon. Member for Harrow West but particularly by the all-party group on credit unions, which my hon. Friend the Member for East Hampshire (Damian Hinds) has chaired so admirably since he was elected, among his many other duties, including his support for me today, for which I am extremely grateful.

Of course, provided that they meet the common bond for membership, members of the armed forces and their families can already apply to join an existing credit union local to them in order to access the range of financial services on offer. However, coverage is not national and the services vary. As the hon. Member for Harrow West pointed out, the Navy Federal credit union in the US is a model of what can be achieved. It has around 5 million members and some £50 billion in assets. I agree with the hon. Gentleman that a well-managed credit union for our soldiers, sailors, airmen and women, as well as their families and veterans, could be of considerable benefit if established for United Kingdom armed forces.

However, there is a “but”. What makes credit unions unique and makes them work is their independent spirit. They are created by the people for the people, offering products that their customers want because their customers are also their members. Typically, credit unions grow steadily and organically from small beginnings, normally taking many years to cultivate their membership. To give one example, the Glasgow Credit Union was founded by two members in 1989 as the Glasgow District Employees Credit Union. In the following 25 years, it grew to a membership of 32,000 and now has some £100 million in assets. Although this is an excellent example of localism in action, it demonstrates the time that it can take a credit union to develop proper traction and critical mass. Also, it would not be in the interests of anyone—the taxpayer, UK financial services or credit union members themselves—to try to shoehorn an institution of this kind into a Whitehall Department. The organisation of credit unions has always been, and must continue to be, the remit of the private and voluntary sector. It is no small undertaking to establish one.

[Gemma Doyle]

Could the Minister explain, therefore, why the Department for Work and Pensions has put aside £38 million to support credit unions, because that does not seem to sit with the point he has just made, namely that supporting credit unions is not the business of Government?

[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.