Local Councils can play a key role in supporting the growth of ethical alternatives to so-called ‘legal loansharks’, says a new publication from the Co-operative Party and the Association of British Credit Unions (ABCUL).
Launched at the Co-operative Party’s Annual Conference in Cardiff, Credit Unions and Government: Working in Partnership details how local councils can support the formation and expansion of credit unions in their area.
The guide has been published in response to growing concern among local councillors about the levels of unsustainable debt building up in communities. This debt is rising in part due to the growing number of payday lenders on the high street. Councillors fear this will be exacerbated by upcoming changes to tax credits and the introduction of Universal Credit.
“Having nowhere to turn to but the likes of payday lenders, high street rip-off ‘rent-to-own’ merchants, or worse, illegal loan sharks, can mean families entering into an irreversible debt spiral that pours further hardship on budgets that are already far too tight,” said Cllr Joe Goldberg, Labour & Co-operative cabinet member at Haringey Council.
“If we want to tackle the menace of these unscrupulous lenders in our communities, we have to help credit unions grow as a viable alternative in the marketplace and there is a lot councils can do to help.
“We hope this guide will be useful to Councillors who want to know how they can support their local credit union.”
Haringey council helped its credit union grow as a viable alternative in the marketplace by offering a subordinated loan, said Cllr Goldberg, who added that it was also working with them to ensure every secondary school starter in Haringey was offered a free £20 credit union account.
As not-for-profit financial co-operatives, which are owned and governed by local residents, credit unions have interest rates capped at a maximum of 42.6% (payday loans can reach over 1,000% APR). Credit union membership has doubled over the past decade.
“There is fantastic work happening across the country,” said Matt Bland, head of policy & communications at ABCUL. “There is much to be gained by working closely, as councils can provide investment and access to residents – and in return credit unions provide much needed access to financial services and help councils deal with issues such as welfare reform.”
The guide features case studies and examples of best practice, including how to work with local schools to encourage financial literacy and good saving habits, and helping local residents adapt to paying their rent under Universal Credit by providing rent guarantees to local social landlords. It also explores payroll deduction facilities to council staff, making it easier for them to save, and the use of deferred shares or changes in procurement procedures.
“Local authorities can make a huge difference to the sustainability and growth of their local credit union,” said Cllr Goldberg.
“This guide provides examples of the great work credit unions are doing across the country. I would urge you to talk to your local credit union about the difference you can make locally.”