Delegates at ABCUL’s annual conference discussed the importance of credit union legislation and regulatory framework during a plenary session chaired by Mark Lyonette.
Dan Turnbull, head of building societies and mutuals at HM Treasury, said ministers bear several factors in mind when changing credit union regulation – including how new rules will drive competition for the benefit of the consumer, and the need to create a diverse range of operating ownership models to serve different sectors.
In its manifesto, the coalition government promised to promote mutuals – and, said Mr Turnbull: “We remind them of this commitment with every idea put forward to them.”
He added that ministers were looking at setting a cap on the cost of credit, but warned that dealing with unaffordable credit did not necessarily promote the advantage of affordable credit.
His team is also looking at the barriers faced by credit union start-ups, to assess whether the Treasury can help remove unnecessary burdens and whether the government can help credit unions set up or share experience. The team is also assessing whether credit unions are constrained from offering products or services that people need.
Mr Turnbull encouraged ABCUL members to work with the Treasury through their trade body. Due to limited resources, the Treasury cannot have relations with individual credit unions but it can offer support through ABCUL. The Treasury is also looking at how the government can help CUs in trouble.
“You need to make it clear what the government needs to do and what would be the impact,” said Mr Turnbull.
Roger Marsh, manager of the Credit Union Team at the Prudential Regulation Authority (PRA), told delegates his team includes 11 members that supervise CUs. An integrated part of the Bank of England, the PRA came into existence in April.
“I think we actually want the same thing – healthy sustainable CUs to serve the economy and their members,” he said.
He added that part of their job was to ensure that if a CU fails, it does so so with minimum impact on the financial system. According to Mr Turnbull, some CUs that fail “don’t worry too much” because “they know the Financial Services Authority will pay the bill”.
“It doesn’t do CUs any service at all,” he said. “You and other CUs pay the bill for that.”
Mr Marsh believes it is very difficult for CUs to prosper and grow without a business model. He argued that large credit unions are more likely to serve society because they have strength to take on, understand and manage risk. And CUs should try to attract new members from right across the spectrum, he added, so they are able to save and borrow. He thinks employment and sectoral-based CUs have a very strong place in the economy right now.
On 1-3 October a 3% capital-to-assets ratio will be introduced to provide a buffer against insolvency, he warned. If by that date a credit union has not reached a 3% or presenting the PRA with a viable plan for reaching that than it will either have to close or merge with another credit union.
According to Mr Marsh, the PRA is re-writing its rulebook to make it simpler and straightforward.
“The plan is to make it a lot easier for you and for us. We want well managed CUs,” he said. “I don’t think CUs are banks or building societies and shouldn’t aspire to be.You can do good things for your members without doing that. From my perspective CUs were conceived as member-owned financial co-operatives that exist to serve their members well. And I think that’s a really good selling point to stick to.”
Charles Roe, head of department for building societies and credit unions at the Financial Conduct Authority (FCA), said the his organisation’s vision was to ensure that the firms have the interest of members at heart. They will look at the culture within the senior management while taking a risk-based approach. In doing this they engage with a number of organisations, including ABCUL, the Bank of England, consumer bodies or the Archbishop of Canterbury.
The FCA has a three-pillar approach to supervision credit unions. They organise road shows across the UK, trying to engage with smaller credit unions. At these information gatherings credit unions member talk about the challenges the sector faces. Following that they send out a questionnaire that CUs can fill out. To ensure that CUs answer those questions trustfully they visit some of them randomly. They also look at specific themes such as election of new members onto the board of CUs and the training they receive and then provide a report on that.
“We don’t want to regulate CUs out of business. We want to make sure that there is a vibrant CU sector that provides the services needed,” he said.
Once it takes over from the Office of Fair Trading (OFT), the FCA aims to provide stronger protection and better outcomes for consumers than the existing OFT regime. This will lead to tougher requirements for payday lenders and could determine more people to explore alternative solutions such as CUs.
One of the organisations challenging the FCA is the Financial Services Consumer Panel whose chair, Sue Lewis, told delegates one of the main challenges faced by credit unions was the lack of awareness. More than 63% of people living in London who had been turned down for a bank loan had never heard of CUs, she claimed.
“You need to diversify your membership to have more people putting money in,” she said, adding that CUs had an important role to play in financial inclusion by providing a better value for money.
“You are everything banks are not”, she said – but added: “If people are borrowing to eat that’s a social issue for the government, not a financial services issue.”
She believes CUs should gather information to know whether people will be able to afford loans or not. Another challenge for CUs remains maintaining a close relationship with their customers once they have expanded.
Mark Lyonette, chief executive of ABCUL, said the conference enabled delegates to discuss current issue as well as future perspectives for credit unions in Britain. He said: “The conference provided the opportunity for us to focus on the next steps in our development as a sector, as well as honour the people who kick started the movement around the country over the last 50 years. It was great to see so many old faces and welcome lots of new people as well, including many young people attending for the first time.”