Credit Unions

Jackie Doyle-Price Excerpts

Wednesday 23rd November 2011 Westminster Hall

[Jackie Doyle-Price (Thurrock) (Con)]

I pay tribute to my hon. Friend the Member for East Hampshire (Damian Hinds) for introducing the debate and for his active championing of the credit union sector, of which everybody in the Chamber is a keen supporter. We are all grateful for the good work he does, and we support him.

I am a huge supporter of credit unions. Before I entered this place, I was employed as a consumer advocate in the financial services industry. The burden of debt and the misery that increased indebtedness causes are probably among the biggest consumer issues of our time. The credit union sector plays a key role in tackling the worst excesses and, perhaps more to the point, in preventing people from becoming overburdened by indebtedness.

It is fair to say that one of the biggest causes of indebtedness is excessive charges on unauthorised overdrafts and excessive credit card debt. That is fine if people can access mainstream credit providers. This is where we get into the real contribution that credit unions can make. Once some people take on the burden of debt, the only thing for them to do is to go to less mainstream providers, which charge ever more punitive rates of interest and, at their worst, involve levels of criminality. We all recognise the role credit unions can play in expanding the amount of affordable credit that can be accessed by people who need to borrow.

My constituency is served by a credit union called Essex Savers, and I want to highlight the partnership it has with the local authority, which has enabled quite a significant expansion of services. Essex Savers came to Thurrock only one year ago, but it now has four branches operating across the borough. It is an interesting example, because the local authority’s support does not involve providing cash; it involves making the facilities the authority runs services from available to the credit union and making the staff who deliver those services available for a couple of hours a week to take deposits. That is really harnessing the voluntary aspects of the credit union and enabling a good partnership with the organisations of government. When they come together, they can be most effective. These days, when credit unions are looking for support, local authorities’ immediate response is to say, “We’re sorry, but money’s tight. We can’t help you.” With a bit of imagination, however, Thurrock council has shown that it can give credit unions meaningful support. The growth in the number of accounts and loans that Essex Savers has delivered in Thurrock through its four branches in one year is nothing short of inspiring.

That arrangement makes perfect sense from a public policy perspective. As we know, debt is a contributory cause of family breakdown, house repossessions and bankruptcy, all of which lead to additional burdens on the taxpayer, and the problem is nowhere more acute than in housing. I would therefore encourage all local authorities to look at the example of Thurrock to see whether they can learn lessons about how to engage in meaningful partnerships with credit unions to tackle some of the negative consequences of debt.

We should recognise that this is the time of year when debt issues are at their most acute, because Christmas is approaching. I want to highlight the reality for many of my constituents. In the main, they are ordinary, hard-working people; we are not characterised by high levels of affluence. Let me take Members for a little walk down the high street in Grays. Midway down, we come across The Money Shop, which offers services such as pawnbroking or gold to cash. It also offers a payday loan at £9.99 per £100, which sounds reasonable, and it can be if people can pay it back within a month; if they cannot, they have no choice but to take out a fresh loan. Some customers find themselves taking out a fresh loan every month and end up paying APRs of as much as 260%.

I give that example because we are in November and in the run-up to Christmas, and people will be tempted to overextend themselves. That is particularly likely if they cross Grays high street to BrightHouse. At present, the company is offering a 42-inch Philips LED TV for £16.99 a month for three years. Closer examination shows the cash price is £1,196.36 but that, under the terms of the agreement, the customer will actually pay £2,650.44.

Such businesses have arrived in Grays only in the past three years, but they are thriving because people with poor credit histories just cannot access loans from banks any more and have no choice but to enter into such punitive arrangements, seduced as they are by weekly payments that sound affordable on the face of it.

That is why credit unions are so important, and access to affordable credit will help to tackle some of these issues. Credit unions are staffed by volunteers and owned by their members, and their customers access credit on terms that ensure they will not be exploited. We all need to do our bit to raise awareness of the facilities that credit unions can supply.

I congratulate the Government on the new order, which liberates credit unions from some of the legal constraints under which they operated. It is fair to say that the legal regime has been a barrier to enabling some credit unions to achieve financial sustainability. It is really positive that they will be able to get deposits from businesses and partnerships from now on. Ultimately, credit unions can lend only what they have in deposits.

I, for one, will be engaging in a campaign to encourage more people in my constituency to open savings accounts with the credit union there. As the hon. Member for Islwyn (Chris Evans) said, one of the biggest stigmas that credit unions face is the idea that they are only for poor people. The message I want to send out is that those of us who want, and are able, to save can make deposits with credit unions, in the full knowledge that we are not only building a nest egg, but making money available for a good social purpose.

Finally, having congratulated my hon. Friend the Member for East Hampshire, I look forward to hearing from the Minister what else the Government can do to support this important sector. The legislative reform order is obviously a move in the right direction. Credit unions will be able to take advantage of the freedoms, to grow. However, the real challenge is for those that are growing to achieve sustainability, particularly when there are increased costs of complying with the FSA, audit requirements and so on. One of the keys to building sustainability in the sector is thinking about how we can engage credit unions to deliver some Government services, and make use of that facility to engage with the people who are hardest to reach.