Military Credit Union

Philip Dunne Excerpts

Tuesday 8th April 2014 Westminster Hall

[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”.

[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.

[Jim Shannon]

The hon. Member for Harrow West and I cited the Navy Federal credit union in the United States as an example of something that is clearly personnel-oriented but is acceptable and does what it should: it does what it says on the tin, as we say. That is an example of what could be done.

[Mr Dunne]

I completely accept that there are examples elsewhere, as the hon. Member for Harrow West said—not just in the United States but also in Australia—of credit unions receiving support from the armed forces. I shall come on to that but I was just highlighting the level of associated risk.

--- Later in debate ---

On resuming—

[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.

[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.

[Jim Shannon]

Further to the point made by the hon. Member for Harrow West, I have a question. My hon. Friend the Member for North Antrim and I suggested that, by making payroll deductions during a five or 10-year period, we could build in the moneys that would be needed, while being ever mindful that it is a credit union that is being established. Would such a scheme be part of the feasibility study?

[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.

[Jim Shannon]

I also asked the Minister about giving advice to soldiers and serving personnel on how best to manage their money. I said that, often, those who did not have the level of income they currently have found managing their money overawing. Has offering that advice been considered?

[Mr Dunne]

Indeed. The hon. Gentleman raised the role of the Money Advice Service, which we established two years ago, and I am grateful that he gave it a positive endorsement. The advice is proving effective and, as the hon. Member for West Dunbartonshire said, the number of people taking advantage of the service in its first two years demonstrates that there was a need for it. We think that it is being delivered in the right way. I also thank the hon. Member for Strangford for the advert he gave to Armed Forces day this summer and the celebrations that will take place in his constituency. I wish them well.[Official Report, 28 April 2014, Vol. 579, c. 7MC.]

I conclude by confirming that the Government support the notion of establishing a military credit union. We are in active discussions with the credit union trade body and the service charities. I have indicated that we are willing to commit the Minister to meet them again, with the hon. Member for Harrow West, who takes such an interest in this matter. In closing, I encourage all parties with an interest in developing this kind of financial service for our armed forces personnel to get together, to pool resources and to try to find a way of making it happen.