Military Credit Union

Ian Paisley 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.

[Jim Shannon (Strangford) (DUP)]

I had anticipated that a large number of other Members would be here to speak about this issue, because of its importance. I congratulate the hon. Member for Harrow West (Mr Thomas) on bringing the matter to the House. The Minister is in his place and has heard a lot of what he said, and I will be adding to those comments. Other Members might have contributions to make and the shadow Minister will be making a valuable contribution, too.

I am very pleased to come along today and give my wholehearted support to the hon. Gentleman for bringing the issue to the Chamber for our consideration. We are aware of such issues not only as elected representatives, but because of previous service. I served in the Ulster Defence Regiment for three years and in the Territorial Army for 11-and-a-half years in the Royal Artillery: in the UDR, in a terrorism role—or an anti-terrorism role, I should say—and in the Royal Artillery in a role that had a more global and European impact. That is where my interest in the issue comes from.

I represent Strangford, which is renowned for service in Her Majesty’s armed forces. The largest town in my constituency, Newtownards, is to host the Armed Forces day in Northern Ireland this year. I have no doubt that the streets will be thronged to capacity with people coming along to express the high esteem in which they hold service personnel and veterans. As I meet each of those veterans and personnel, I will do so with the knowledge that I support them in every way that I can. This debate is a way of doing just that. It reflects some constituency issues that I have had over the past four years as a Member of Parliament, and before that, as a Member of the Northern Ireland Assembly. I seek to help the personnel’s families at home while they are serving and when they return home from their service. Some return home with not only physical and emotional but financial issues, as the hon. Gentleman highlighted.

What the hon. Gentleman presented was about support for service personnel and their families. I completely agree that the fluctuation of pay of those serving due to the different rates depending on where they are serving means that some payday lenders can take advantage of our armed forces personnel. Serving personnel get an allowance on active duty, but some find it hard to get by without the top-up cash. Sometimes, there is a change of financial circumstances. Will the Minister indicate what help is given to service personnel when it comes to managing money and their wages better? I believe that there is some, but sometimes it takes more than a bit of paper; it takes a one-to-one, and if that is possible, has it been done?

A regular soldier’s wage is £17,767, and when they become used to the uplift in cash, it takes time to go back to a smaller budget. I am privileged to be in the armed forces parliamentary scheme, which has given me a chance to visit army camps. Catterick is one that sticks in my mind because it offers accommodation to soldiers who are single and have no families or dependants. The officers told me that many of those young men in uniform perhaps have a level of cash that they did not have before, and they very quickly spend it and frequently run into debt. Will the Minister say what help is given directly to service personnel to ensure that they manage their money and wages much better?

I have spoken in this place numerous times about the difficulties with payday loans, as have others. We are all aware of the story in the press in the past week or two about the lady who borrowed £500 and suddenly found, before it was all finished, that she owed £120,000. That is an extreme example, but none the less, it indicates the serious problems that people can have when they get into borrowing from payday companies. I have spoken about the number of people who come into my office seeking help to get themselves back on an even keel due to the high interest of these loans. We are fortunate to have debt advice organisations such as Citizens Advice, Debt Action, and Christians Against Poverty, just to think of three in my constituency that deliver specific help to those who need it most. Increasing numbers of ex-Army personnel come with their families to seek help for their circumstances. They are real issues and they show why today’s debate is so important.

Many people are seeking to get themselves back on an even keel, due to the high interest of the loans, as they try to manage their money in relation to their wives and children and to their new circumstances perhaps of not being in the Army. It is a vicious circle that is so difficult to get out of. Citizens Advice has said that it is dealing with an increasing number of cases where military personnel and their families had run into financial problems after taking out high-cost payday loans. Research by the Royal British Legion has found that about a third of veterans experience financial difficulties, including almost half of those who are recently injured. That is, again, a pointer to how important the issue is. We all greatly respect those soldiers who serve and those who come back injured, either emotionally or physically. It is a terrible tragedy when half of the recently injured and a third of veterans, as the Royal British Legion found, experience financial difficulties and need help, which lead many of them into very high levels of debt.

I place on record my thanks to the organisations that work in my area. Obviously, I thank the Royal British Legion first, but I also thank the Army Benevolent Fund, to which the hon. Member for Harrow West referred, and the Soldiers, Sailors, Airmen and Families Association, which does great work with serving personnel or ex-personnel and their families. I hold a coffee morning once a year for SSAFA—it is basically coffee, tea and sticky buns—and last year we were very pleased because people from the town gave £4,500. That immense contribution was an example of the good that people can do and of their generosity. We never fail to be overwhelmed by people’s generosity. That contribution was an indication of the good that the people of Newtownards and district can do.

Last year, the Royal British Legion’s benefits and money advice service—this information is from the Royal British Legion—helped 11,000 Army personnel. That was in its second year. It was an increase of 8,600 on its first year. That clearly shows the magnitude of this issue and the need to respond. It is clear that there is an issue. It is equally clear that we have a role to play in providing the solution. The proposals were outlined by the hon. Gentleman. I am sure that the Minister, in his response, will be able to give us some indication of the importance of that and how he will address the issue.

At home, I always encourage people to use their local credit union, which allows money to be borrowed only when money has been saved. That has helped many people to get loans at an affordable rate of interest. The fact that the American military run a successful version in Navy Federal shows that such a service would be of use to our personnel.

I want to touch on the options or solutions that are available. Like other MPs, I would say that when people come to see me with their problems, it is about solutions. It is not about the problem; it is about how we make the situation better, how we can help the people. I believe that we have a solution here today if the Minister is minded to give us the response that we seek.

Navy Federal is the largest credit union in America, with more than 4 million members. It has branches on every military base in the country. My hon. Friend the Member for North Antrim (Ian Paisley) spoke to me last year when he had the chance to be in America and speak to some navy personnel. He was aware of the good work that they do. Army personnel and navy personnel were depending on payday loans and creditors, so Navy Federal moved in and ensured that there was a branch on every military base in the country. The payday loaners used to target the military bases to hook American sailors and soldiers with their high-cost financial services. However, legislation and the low-cost financial products that credit unions offer have led to the Navy Federal credit union having branches on every military base in the United States of America and offering a very direct and personal service to its members. It is greatly utilised by service personnel.

According to the Library debate pack, a meeting took place of the all-party group on credit unions last October. The Minister for the Armed Forces used that meeting to express the Government’s interest in exploring the idea of a service personnel credit union further, so perhaps the Minister today could tell us where we have advanced since October, whether we are any closer to having this type of scheme in place—I hope that we are—and, if not, whether we have a programme that will lead to that happening. Like the hon. Member for Harrow West and other hon. Members present, I genuinely believe that this proposal could be the catalyst for a scheme that can change things round and help our soldiers, sailors and Air Force personnel to manage their money better.

Abbie Shelton, policy and communications manager at ABCUL, said:

“Payroll deduction is an easy and convenient way for employees to get a savings habit and access affordable credit and we welcome any support for new partnerships which will help more people access credit unions in this way.”

I will not express a preference for any one building society. None the less, getting into the habit of saving is a good thing to do. If we do get into the habit of saving early and start to save regularly, that becomes a discipline in itself. Again, perhaps the Minister could comment on this issue in his response. The hon. Member for Harrow West focused greatly on payroll deduction, and I think that it is a tremendous idea, because it enables people to save directly. It is important that we all try to manage our money as best we can.

[Ian Paisley]

Does my hon. Friend agree that if such a scheme were introduced, the Government could make a forward calculation as to how much money could reasonably be expected and therefore underwrite the establishment of a military credit union for a period of five to 10 years to allow it to get established and thereby really give it the support that it needs to get off the ground?

[Jim Shannon]

I thank my hon. Friend for that very constructive intervention. Yes, I do believe that what he describes could be done. Again, perhaps the Minister can give us some idea of how he sees that particular scheme working. If we have a prediction, if we have an idea of what we will have coming in over five to 10 years, we can start such a scheme. When I visited Catterick camp in September two years ago, that was one of the things that the officers told me they wanted to see happening. I fed that back to the MOD in questions and I would like to know whether it has been activated and where it is going.

The example of the Navy Federal credit union in the United States is powerful. It shows what can be done. Where there is a will, there is a way, or, in this case, where there is a will, there must be a way. It can be delivered. We have a duty of care to our service personnel to help to support their families and to ensure that their sacrifices in service are acknowledged at home, and this is one way of doing just that. I wholeheartedly support the proposal and offer my help in any way possible to see this legislation being made in the House. It is critical, it is important and it is needed urgently. Everyone here is of that opinion. I know that the pledge that I have made is something that the rest of my party, the Democratic Unionist party, at Westminster will also support.

We have talked about the issue. Now it is time for action to be taken, for our serving personnel to become saving personnel and for them and veterans to see yet another tangible sign of our appreciation of and support for those who put their safety, mental health and lives on the line in service to the Queen and this tremendous country of the United Kingdom of Great Britain and Northern Ireland.