How credit unions can fight off payday lenders for good

A new employee benefit loan scheme is aiming to combat people’s dependency on high-interest payday lenders by offering access to low-cost borrowing through local credit unions.

FairQuid is an online platform that connects companies with their local credit unions. Employees can apply for a short-term loan from the credit union through FairQuid, with repayment automatically deducted from their wages.

The repayments have to be completed within a set period (maximum 24 months) and because the money is taken straight through payroll, no repayments can be missed. The criteria of the loan is based on salary, service level and employee record ­– a maximum loan of 20% the employee’s salary can be applied for.

By linking workers with credit unions to help manage their finances, it works to improve their financial wellbeing and act as an alternative to high-interest payday lenders.

The initiative was co-founded by Wayne Wild, commercial director of the manufacturing company WEC Group, based in Darwen, Lancashire. Staff turnover at WEC was high – more than 20% – so he began looking for an employee benefit that would attract and retain employees.

Figures showed 46% of British workers are struggling with their finances, with payday lenders increasing in popularity. Mr Wild saw credit union membership as a solution to this problem and linked up with Jubilee Tower Credit Union in Darwen.

“It’s a win-win,” says Mr Wild. “The employer wins by saving on retention and recruitment, and staff win with access to low-cost borrowing and improved sense of money management.

“All loans are provided by the local credit unions and repayments are made through payroll deductions, meaning there is no strain on your company’s cash flow. We have absolutely no liability for the loans which makes it a great staff benefit for WEC Group at no cost to us.”

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Within a year of trialling the FairQuid scheme at WEC Group, 130 employees had joined. Staff turnover among those 130 was down to just 4%. This drop in staff turnover saved the company £240,000 in recruitment and training of new colleagues. And for employees, within the first few months £140,000 of high-interest debts had been refinanced through the Jubilee Tower Credit Union.

“The concept is simple but effective,” says FairQuid chief executive Vishal Jain, adding that the scheme is mutually beneficial for employee and employer. “Employee financial distress drives down productivity.”

Mr Jain also stressed that FairQuid is not a lender, but a technology platform to allow staff to reduce the cost of borrowing at a time of financial need.

After the successful trial in Lancashire, FairQuid is looking to expand operations to new regions. Merseyside is one area where the roll-out is taking place, where it has teamed up with Central Liverpool Credit Union, described by Mr Jain as “one of the most active in the north west of England”.

Most workers in the region don’t have access to some of the perks that are available to workers in the south east, in sectors like IT and finance

Eileen Halligan, chief executive of the Central Liverpool Credit Union, said: “The FairQuid trial with WEC in Lancashire highlights just how successful and helpful an employee benefit loan scheme can be to both employers and their workers.

“We have been working in the community for over a quarter of a century and we are committed as ever to providing sustainable, affordable alternatives to payday, doorstep and other high-cost lenders.

“Our partnership with FairQuid will allow us to offer that alternative to even more people across Liverpool struggling with their finances.”

FairQuid’s origins may be in the north west, but the aim is to expand it further across the rest of the UK.

“The north west is something of a strategic choice as a starting point for our plans,” says Mr Jain. “Most workers in the region don’t have access to some of the perks that are available to workers in the south east, in sectors like IT and finance.”

“We want to bring in an employee benefit that really counts and can make a difference.”

One of the best ways to encourage good financial habits is to let people save and repay loans direct from their salary

There are approximately 342 credit unions across England, Scotland and Wales with close to 1.3 million members. They offer a range of savings accounts and loans to members, promoting sustainable financial practices.

The Association of British Credit Unions Ltd (Abcul) is the leading trade association for credit unions across the three countries.

“Credit unions have a key role to play in helping people get – and stay – on top of their finances,” says chief executive Mark Lyonette. “Regular saving and access to affordable credit are key elements of financial health, and we know one of the best ways to encourage good financial habits is to let people save and repay loans direct from their salary.

“We always encourage credit unions to look at ways they might be able to offer this service for employers in their area.”

FairQuid is not the first organisation to link a company’s employees with a local credit union. Some of the UK’s most successful credit unions began life as enterprises to help staff save and repay loans direct from payroll.

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London Mutual Credit Union (LMCU), beginning life as Southwark Council Employees Credit Union, was established in 1982 and is the largest community credit union in London. It has merged with several organisations and now accepts as members people living or working in the London boroughs of Southwark, Lambeth, Westminster and Camden. It was also the first credit union in the UK to operate a payroll deduction scheme.

By law (the Credit Union Act 1979), the maximum interest rate a credit union can charge members for a loan is 3% per month or 42.6% APR. For a payday loan of £400 for 30 days from LMCU, there is an interest rate of 42.6% and charges of £12. A typical loan of the same amount and length from high street payday lenders could have an interest rate of 3,500% and charges of £120.

Mr Lyonette says: “Some major private sector employees in industries such as transport, communications and aviation have payroll deduction partnerships set up with credit unions, as well as major public sector bodies including local authorities and government departments.”

He points to a recent move by the Department for Work and Pensions (DWP), launching a payroll deduction partnership with three credit unions, with almost 1,000 staff signing up in its first three weeks.

The DWP set up the payroll scheme with three of the UK’s leading credit unions: Commsave, Hull & East Yorkshire and Voyager Alliance. Each will offer a range of ethical finance services to all DWP employees, including responsible lending.

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Despite the rise in credit unions offering employee benefit loans, FairQuid believes more can be done, including simplifying the process.

Mr Jain calls FairQuid’s initiative “a framework for borrowing in a plain, simple and easy way to understand” adding that the process is quick and “the decision process is fair and impartial”.

“Credit unions are a real gem of the consumer credit industry but they have not been able to make the breakthrough into becoming a real alternative to the likes of payday lenders on a large scale.

“We feel it is not the produc,t but consumer-friendly technology and marketing that is preventing this. With FairQuid we aim to bridge this gap for them.

“Credit unions are run by committed and dedicated people and are doing great things. We are really pleased to be working with them.”