11: PROMOTING CREDIT UNIONS
Every year, one in 20 adults in the UK uses finance companies which offer credit door to door. This market is worth around £2bn a year, according to the report released on the 14 June by the National Consumer Council (NCC).
The NCC found that loans are offered at annual percentage rates which average 177% but can be as high as an astonishing 900%. Many of the people signing up for such loans fail to under-stand the terms or how much they repay in total at the end of the loan. Many are caught into a cycle of seemingly-endless debt.
About half of all such customers live on less than £9,500 a year, two-thirds are women, often with children. Almost a third of customers were people who stay at home to look after their families.
Provident Financial controls almost 50% of the doorstep loans market. The other 3 main lenders are Catties, London Scottish, and S&U.
NCC cautions against an outright ban on home credit or measures that would drive home credit underground and into the hands of loan sharks.
However, it wants the Office of Fair Trading to investigate the doorstep loans "industry" and come up with recommendations for reform in time for the Consumer Credit Bill, due this autumn.
NCC's report emphasises that non-commercial alternatives such as Credit Unions haven't yet made sufficient impact to act as a serious rival, and recommends that they should be encouraged and their ability to provide a serious choice in the financial market, should be increased, www.ncc.org.uk
A Credit Union is a community-based network of savers and borrowers. In Scotland, more than 50,000 people belong to around 80 Credit Unions, which are usually formed on the basis of an affinity with an individual work-place or a geographical area.
Credit Unions are financial co-operatives owned and controlled by their members.
The members of a Credit Union pool their savings, which then provide a stock of funds from which loans can be made.
A Credit Union rents money from its savers and must therefore pay them a return on their money - known as an annual dividend.
Unlike the main banks, profits are returned directly to the members, not third party shareholders.
The dividend payment to savers and the Credit Union's operating costs have to be met out of the Credit Union's profits.
The money rented from members is lent to other members, who pay low-interest on the loan - which can be as little as 1% a month, or 12.7% APR (Annual Percentage Rate) a year. The main source of income for a Credit Union comes from the interest charged on members' loans.
The Credit Union must aim to give its savers a good return on their savings if it is to attract a sufficiently large number of savers, which enable it to have a sufficient money stock to meet loans, share withdrawals and operating expenses.
The Credit Union is managed and controlled by a volunteer Board of Directors who are elected by the membership at the Annual General Meeting.
All members of the Credit Union have one vote, regardless of the size of their savings. Control is firmly in the hands of the members, through their elected representatives, the Board of Directors.
Credit unions are regulated and authorised by the Financial Services Authority - the same regulator as banks and building societies and all other providers of financial services in Britain.
The Credit Union is required by law to maintain an insurance policy to protect against fraud or theft. Members are protected by the Financial Services and Compensation Scheme - a safety net in the case of a Credit Union going out of business. This provides the same level of protection that customers of banks and building societies enjoy.
For more information about Credit Unions, or to find out if there is one in your area contact: ABCUL, (The Association of British Credit Unions Ltd.), Holyoake House, Hanover St., Manchester, M60 0AS; Tel: 0161 832 3694, [email protected] www.abcul.org
– from Prosperity No.54, June 2004