Credit union membership and lending have increased significantly in response to the cost of living of crisis. This growth in lending is despite a rationalisation process that has seen the closure of weaker unions, leading to a fall in their total number.
According to Bank of England statistics published in August, the number of adult members of UK credit unions has risen to an all-time high of 1.93 million. But the starkest increase was in loans to borrowers, which jumped by 18.9% to £785m last year, in England alone.
But net liabilities in arrears in England also increased, to £65.5m – a rise of 9.5% in a year. Across the UK, the arrears figures were better, falling slightly. Other positive indicators included a big increase in government support for credit unions in Scotland, while credit union assets rose by 7% in Northern Ireland and by 9.5% in Wales.
These figures were welcomed by the Association of British Credit Unions (Abcul). “Credit unions are building financial resilience in households and communities all across the country and helping consumers manage their finances in a hugely positive way,” says its CEO, Robert Kelly. He adds: “Credit unions will continue to serve communities and employers in these testing times through the provision of ethical and responsible products and services– our mantra of people helping people will continue to be the bedrock of everything we do.”
The Irish League of Credit Unions, which has 85 member unions in Northern Ireland, says it is too early to observe the impact of the financial crisis in the most recent statistics from June this year. “Those figures do not show any significant increases in membership,” says a spokeswoman, “however, it’s worth noting that membership in Northern Ireland is much higher than the rest of the UK, with more than a third of adults (536,000) holding an account with their local credit union.”
The league’s affiliated unions in Northern Ireland hold assets of over £1.83bn, of which over £582m is out on loan. The member unions “are extremely well positioned to deal with increased demand for loans as a result of the cost of living crisis,” says the ILCU spokeswoman.
She adds that member unions provide a range of financial and practical support to members. “Credit unions will continue to do what they always have, which is to prioritise the needs of their members. At this time, with a recession forecast, and households facing soaring costs for utilities, groceries and fuel, credit unions will do everything they can to support members struggling. Whether that is through providing access to affordable credit, or working with individual borrowers struggling to manage their repayments.
“What we are seeing currently is a smaller growth in savings, which is likely to be a combination of members using their savings, or indeed having less to save.
“Demand for loans has also risen, with an annual growth of 7.7% (June 21 – June 22). Anecdotally, we understand there to be a shift in demand, particularly noted by credit unions in areas of higher deprivation. There is a rise in loan applications for smaller amounts, and taken to cover necessities such as household items, back-to-school costs, or bills.”
Those financial pressures have caused credit unions to extend their support in more practical ways, too. For example, some credit unions – such as Glasgow’s Carntyne and Riddrie Credit Union – have set up food banks. Many refer members in difficulty to external specialist money advisors, while others encourage budgeting as part of improved personal financial management.
In addition to financial hardship, increased demand for credit union services has been driven by the closure programmes of both banks and Post Office branches, especially in rural areas. Analysis by Retail Banker International found that the major banks, plus Nationwide Building Society, had closed 4,644 branches in the period 2007 to early 2021. (The bank with the highest percentage of branch closures was the Co-operative Bank, which closed over 85% of its branches – cutting the network from 355 branches to just 50.)
While the intention, and public relations narrative, behind many banks’ branch closure programmes was the transfer of transactions from bank to Post Office branches, the reality has often been different. A report from Citizens Advice earlier this year found widespread short and medium-term closures of Post Office branches. Over 80% of those which are ‘temporarily closed’ in practice do not reopen within a year.
Credit unions have, in some instances, become the only financial institution in the village, or even town. And expansion in credit union business has also resulted from changes in the lending markets, which have reduced the options for many borrowers. Stronger regulation and large losses have combined to eat savagely into the payday lending sector.
More than 50 of the high-cost, short-term, payday lenders, including market leader Wonga, have ceased trading in recent years. This created a void that credit unions have helped to fill. Despite this, the right-wing think tank the Centre for Social Justice (CSJ) warns that there remain more than 3 million people reliant on high-cost credit in the UK, with around 23 million adults not believing they will be able to save anything in the next few years.
In its report Swimming with Sharks, published in March this year, the CSJ argued that credit unions should meet the needs of many of this cohort that are in serious difficulties. It made a series of proposals designed to increase the role and capacity of credit unions to support people currently dependent on illegal loan sharks. It concluded that more than a million people are victims of informal, high-interest, lending, which is typically associated with criminal gangs. The report calls for deregulation of credit unions to enable them to increase their lending.
A combination of factors is placing credit unions nearer to the heart of the low-cost loans market. But it is obvious that many of those who are now borrowing will have difficulty in repaying. That may be a tough challenge for borrowers and lenders.