Credit Unions (Modernisation)

Jim Shannon Excerpts

Tuesday 10th July 2012 Commons Chamber

[Mrs Moon]

My hon. Friend is completely right. We must take on board the fact that those are families who want to work and who get into debt in order to continue working, because they know that continuing to work will give their children a better start in life. They need support, and credit unions can give them a better level of support.

Greater competition for the high street banks and the more widely available source of affordable credit are both things that credit unions can offer. Therefore, what should be done to nurture credit unions and ensure that they can fill the gap while achieving long-term sustainability? The main recommendations of the feasibility report can best be summarised as the need to increase efficiency, to increase revenue and to increase skills. I understand that the Government plan to take forward the report’s recommendations and that the additional earmarked investment of £38 million will be conditional on the credit union industry meeting a number of agreed milestones for collaboration, modernisation and expansion. I hope that the Minister will elaborate on how that will work in practice.

I shall look at the changes in turn. Increasing efficiency, from the point of view of greater automation, reorganisation and collaboration, makes sense. Close working among credit unions and the ability to provide a greater variety of services to a larger customer base is clearly important, but I want to sound a note of caution. Part of the appeal of credit unions is their ethos of independence. In the section, “The Way Forward”, the report recommends that the Government select the best performing credit unions, which make commitments to fulfil certain requirements. The Department for Work and Pensions has suggested that, for that to work, credit unions would need to form consortiums of 15, with a joint minimum membership of 120,000.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Lady for bringing this matter to the House. In my constituency credit unions play a vital role in local communities and deliver to the people who really cannot afford banks. Does she agree that the Government changes should take into full consideration the importance of small credit unions and what they deliver to local communities?

[Mrs Moon]

I thank the hon. Gentleman for his intervention. That is exactly where I was going in my speech. The average size of a credit union is around 8,000 members, but many fall below that, including Bridgend Lifesavers. Its membership is growing, but it is still about 3,000, so it would be excluded from the modernisation plans. In fact, it would be impossible to meet the target of 120,000 members given that we do not have that total membership across Wales. Wales is a vibrant and active country for credit unions, and I have no problem being ambitious about what they can achieve, but I would like an assurance from the Minister that smaller credit unions that provide valuable services to their communities, such as Bridgend Lifesavers, will not get lost in a stampede aimed at economies of scale. Perhaps we could hear about the measures to be introduced to protect smaller, but still valuable, credit unions. I recognise the need to increase revenue through the expansion of membership and by increasing the products available and the interest rate that credit unions are able to charge.

Demand for credit unions is certainly not a problem, as the feasibility report’s research found. Of 4,500 consumers on a low income who were contacted, 60% expressed a desire for local trusted services, such as those provided by credit unions. The crunch came when they were asked about their awareness of local credit unions, with only 13% of those surveyed being aware of the services that unions provided. That might in part be explained by the previous links required for membership, so the legislative reform order that came into force in January will, I hope, tackle that issue, and I thank the Government for taking the measure forward.

The feasibility report emphasises the need to raise consumer awareness and to develop a strong credit union brand. A national marketing campaign is needed not only to reach those on lower incomes, but to broaden the appeal of credit unions generally. In the United States and in Canada, 40% of people are members of credit unions. The credit union is not just a low-income organisation; it is active across the income spectrum.