Category Archives: Credit unions

Credit unions welcome £1 million a year commitment from Lloyds Banking Group

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ABCUL welcomes Lloyds Banking Group support for credit unions.

Lloyds Banking Group has re-emphasised its commitment to providing leadership in the area of financial inclusion by announcing its intention to provide £1 million per year to credit unions. It has also committed to support 1 in every 4 of Britain’s social banking customers.

This announcement falls during the week the Group revealed its full Helping Britain Prosper Plan where, for the first time, it revealed seven separate and significant public commitments to address some of the big issues facing Britain today.

Graham Lindsay, Director, Responsible Business for Lloyds Banking Group said: “Our Helping Britain Prosper Plan incorporates bold, public commitments to help address some of the big issues facing Britain today. It’s about putting customers and communities at the heart of everything we do. The Plan is not just for those customers enjoying relative prosperity, but also those facing financial difficulties. For this reason we believe our annual investment of £1m into Credit Unions is one of our most critical.”

Mark Lyonette, Chief Executive of the Association of British Credit Unions (ABCUL) said, “We very much welcome the package of support for the credit union sector as announced today by Lloyds Banking Group. We look forward to working with the Group to ensure this generous investment complements the work that is already taking place to strengthen the sector. The Credit Union Expansion Project will benefit greatly from the secondment of Lloyds’ experts and the expansion of the signposting scheme should help many more people access appropriate services from their local credit union.”

Minister for Welfare Reform Lord Freud said: “Credit unions play a vital role in helping people build up savings and have access to loans, especially those who find it difficult to have mainstream high street bank accounts. This is why we are investing £38m to help credit unions modernise and grow.

“I absolutely welcome this support from Lloyds for extra funding and I particularly welcome the commitment to send experienced banking staff to support the growing efficiency of credit unions. I hope other banks will also consider this and provide support to help local credit unions.”

Lloyds Banking Group commenced a pilot in September 2013 through 25 Lloyds and Halifax branches in the Leeds area to signpost appropriate customers to the Leeds City Credit Union and local money management charities. Over 1,000 customers to date have taken away information about these organisations.

The approach of the pilot programme, which was due to end this month, has been adopted on a permanent basis and will be expanded to a further nine UK flagship locations with the cascade of basic information becoming available through all Lloyds and Halifax branches.

Chris Smyth, Chief Executive, Leeds City Credit Union, said: “Credit Unions play a critical role. We know this from our pre-Christmas trading and coinciding with the Lloyds pilot, was 25% higher than the prior year. In this period our lending was almost £2m. This represents a terrific saving in terms of interest of £1.3m had these loans gone to a high cost lender instead.

“Our post Christmas trading during January and February is 100% up on the same period last year. We believe this is an exceptional turnaround and may indicate a serious shift in mood across our target market towards the credit union – which is great news for all.”

Lloyds Banking Group is Britain’s biggest provider of social bank accounts.

MPs put their money where their mouth is

Parliamentary LMCU logostaff, including MPs, can pay into a credit union via payroll deduction, thanks to a new service launched on Monday 25th November.

Agreements with the Parliamentary authorities mean that anyone working in the Palace of Westminster can now join London Mutual Credit Union and save or repay loans direct from their wages.

The initiative was launched at an event in Parliament hosted by the All-Party Parliamentary Group on Credit Unions and London Mutual Credit Union. Money saving expert Martin Lewis spoke at the launch and also became a member of the credit union.

Credit union partnerships are a cost effective way for employers to enhance the financial well being of employees and payroll deduction makes saving and borrowing easy and convenient. The Parliamentary authorities are the latest in a long list of employers to offer this benefit to their employees. Staff working for the police force, public transport employers, British Airways and the NHS are just some of the people who already enjoy the convenience of payroll deduction.

Martin Lewis said: “With the growth scourge of payday lending across the UK – credit unions are a viable, cheaper, non-profit local alternative and should be encouraged. Therefore today I hope to be excited at the launch event to see senior MPs and even Government Ministers giving the London Mutual their backing by joining up and making use of the deduction facility. It’ll be interesting to see who puts their money where their mouth is.

“This extra income for the credit union can then be lent back out to the community as affordable loans, stopping the need for many to resort to the use of high-cost credit and demonstrating the benefit to both sides of the financial equation of becoming a member.”

Damian Hinds MP, Chair of the All-Party Parliamentary Group on Credit Unions, said: “I am delighted to see London Mutual Credit Union extend its services to all of those working in and around Parliament. Partnering with employers and payroll deduction arrangements can have enormous benefits for credit union development while providing a valuable financial service to workers and employers.”

Lord Kennedy of Southwark, a Vice Chair of the APPG on Credit Unions, said: “In extending to Parliamentarians and Parliamentary staff, London Mutual will ensure that even more people can benefit from their excellent, affordable and ethical services both in Parliament and in the wider community. And I hope that in making personal use of London Mutual, many more MPs will be persuaded of the great value that credit unions generate for their members and society.”

Lucky Chandrasekera, London Mutual Credit Union chief executive, said: “It is fantastic to be launching our Parliamentary service today which is a goal we set ourselves some years ago. We hope by launching this service for Parliament that we can demonstrate the value of credit union membership on a daily basis to MPs and the wider Parliamentary staff. We have a range of competitive products and services for Parliament to take advantage of.”

ABCUL Chief Executive Mark Lyonette said: “The value of payroll deduction is not to be underestimated for all parties concerned. This high profile addition to employers offering this service is very welcome. The vast majority of large employers in the US – including the White House, Congress and Senate – offer this facility to their staff and I hope that many more will follow this example and talk to their local credit union about how they can help their employees access convenient financial services through payroll.”

Credit unions are financial co-operatives, owned by their members, which provide safe savings, affordable loans and a range of other financial services to over a million people in Britain.

London Mutual Credit Union is the largest community credit union in London. It serves over 20,000 members in the London Boroughs of Southwark, Lambeth, Westminster and Camden. Members have access to a range of savings and loan products, including the Credit Union Current Account and a cash ISA offering 3% AER.

Research shows consumers prefer longer and cheaper ‘payday’ loans from credit unions

FPF_Print_Logo_CMYKAffordable short term borrowing through a credit union has the potential to be an effective way of diverting borrowers away from high cost lenders and give them welcome flexibility about how to repay according to a new report.

Can payday loan alternatives be affordable and viable?, which was funded by Friends Provident Foundation and The Barclays Community Finance Fund and produced by The Financial Inclusion Centre, evaluated a pilot “payday loan” product offered by London Mutual Credit Union over 12 months. The results showed that an affordable short term loan product from a credit union has the potential to save significant amounts for borrowers and encourage them to spread payments more affordably over a longer period than is usually available with this type of product.

While most payday loans require the borrower to repay the full amount plus interest within a month, this pilot scheme found that consumer preference was to repay over three months, with 59% of applicants choosing this payment term and only 29% asking to repay in one month.

And many consumers attracted to the credit union by the short term loan product transitioned to other credit union services. 331 new members who joined the credit union to access this product went on to place a combined total of £18,000 in savings accounts, and 27% went on to take a longer term loan with the credit union – rising to 40% after 6 months’ membership and 52% after 9 months with the credit union.

By borrowing through the credit union instead of a high cost payday lender, 1,219 people collectively saved some £145,000 in interest charges alone, equivalent to almost £119 per borrower.

The research showed that short term lending through a credit union is an effective way of diverting borrowers away from high cost lenders, with over two-thirds of those surveyed saying they would be unlikely to borrow from payday companies again. It also revealed that offering short term loans can be financially sustainable for a third sector financial services provider such as a credit union when additional income generation from recruiting new members is taken into account.

Andrew Thompson, Grants Manager at Friends Provident Foundation, said: “We are delighted by the success of the pilot scheme, which demonstrates that it is financially viable for this kind of responsible, affordable lending to be delivered by not-for-profit, member-owned-and-run providers. The model seems to have great potential for wider roll out and we look forward to seeing if credit unions across the country can find a way to offer a similar service.”

According to Transact, the national forum for financial inclusion, which manages the Barclays Community Finance Fund: “The results of the project illustrate that a credit union alternative to payday loans is achievable and can provide affordable forms of short term credit to some of the most vulnerable people in our communities. However, this is only the beginning and a good deal more feasibility work will be required before an affordable alternative to payday loans can be made available by credit unions in other parts of the country too.”

Lucky Chandrasekera, Chief Executive of London Mutual Credit Union, said: “An increase in the use of payday loans by those already in debt, as well as the growing number of our own members turning to this form of short-term credit, persuaded us to develop an affordable alternative. Following the success of the pilot, we plan to roll out the service to many more potential customers.”

Mark Lyonette, Chief Executive of ABCUL, the Association of British Credit Unions Ltd, said: “By making services as convenient and accessible as possible, credit unions can attract many more people away from high cost lenders. The Government is investing up to £38 million in the two year Credit Union Expansion Project to support credit unions to develop the systems they need to make attractive services easy to access and encourage people to borrow affordably and manage their finances more effectively.”

Other key findings:

* The affordable short term lending product offered by LMCU proved extremely popular with a total of 6,087 applications received (or 500 each month), asking for just under £1.5 million or an average requested loan amount of £238.

* A total of 2,923 short term loans with a value of £687,757 were distributed over the course of the year-long pilot to 1,219 different borrowers.

* An average of 2.39 short term loans were made to each borrower with 62% becoming repeat borrowers with LMCU. The main reason for taking out the short term loan was to cover utility bills (14%) and home improvements (12%).

* Applicants liked the option of repaying “payday” loans over a longer repayment term. Just 29% of loan applicants wanted to borrow over the traditional one month term, with the majority (59%) opting to repay over three months.

* When surveyed, the primary reason given for borrowing through LMCU was the low cost compared to other payday lenders (66%). Others liked the fact that it was offered by a credit union (19%) together with the longer repayment option (10%).

* Before accessing their first LMCU loan, 74% of surveyed borrowers had taken an average of 3.2 loans over the 12 months before their first payday loan from LMCU. Worryingly, 17% of these had taken six or more loans.

To download a copy of the report go to: www.friendsprovidentfoundation.org/payday-lending-through-a-credit-union