The Department for Work and Pensions minister, Lord Freud, congratulated the Association of British Credit Unions (Abcul) on being the winning bidder in the procurement exercise for the Credit Union Expansion Project (CUEP) in June. But he was keen to caveat this with a warning that the hard work starts here.
More than 80 credit unions, along with Abcul and the trade association’s subsidiary Cornerstone Mutual Services, are now putting in that hard work to achieve the ambitious targets set by the project.
The work is split into three broad areas: design and delivery of a marketing strategy to drive increased membership, delivering a fit-for-purpose IT platform to improve customer experience and efficiency, and the provision of a range of central services that credit unions can access to improve sustainability.
More than 30 million people across the country are now eligible to join a project credit union. More than a fifth of British credit unions, which serve a third of credit union members, have joined the project, which runs through to May 2015.
The inevitable scrutiny that comes from involvement in a transformational project – aiming to double the membership of the sector and put it on a sustainable footing – would be enough for any sector to manage. But in the same time period, credit unions have also benefited from the wave of publicity that came in the wake of the Archbishop of Canterbury’s comments on credit unions in July.
Since then, we have continued to work with the Archbishop’s team to help them prepare information that has been cascaded down through dioceses and churches to churchgoers. The response from the Church has been fantastic – on International Credit Union Day in October, more than 40 bishops visited or joined credit unions.
A number of churches and dioceses have opened corporate accounts with credit unions and conversations are taking place about how best to continue to harness this enthusiasm.
The publicity and increased awareness brought about by these situations was very welcome but also bring their own challenges.
Unsurprisingly, given the keen interest in the payday loan sector by politicians and the media alike, much of the attention that has been focused on credit unions surrounds whether they can offer an alternative to these high-cost lenders.
Credit unions can certainly offer a responsible alternative to payday lending and other high-cost lenders, and they do this on a day-to-day basis. But promoting them solely as a panacea to this damaging industry risks reducing their ability to assist the people who need them most.
One reason to want to put a degree of separation in between credit unions and payday lenders lies with some of the discredited aspects of the payday lending model. Credit unions want to make sure the loans they grant are affordable and repayments are spread over a realistic period of time.
Cost for the credit union, as well as for the consumer, is another important factor. Most small, short-term loans are likely to cost credit unions money rather than bring in income – operating as they do under an interest rate ceiling. So, no matter what the desire is to help those for whom a high cost loan would be the only alternative, without a diverse membership attracted by great products and with efficient operations to keep costs down, credit unions are going to be very limited in the numbers of these loans they can provide.
No matter what their social ambitions are, credit unions need to meet their costs, pay fees to the regulators and generate a surplus to keep up their capital requirements and pay a dividend to attract savings.
But one aspect of the payday lending model which we can learn from is the speed and convenience of access. Payroll deduction already provides easy ways to access savings and loan services and we will be pushing for more employers to offer this valuable benefit to their staff.
The information technology and central services streams of CUEP are bringing the power of collaboration to the sector. An automated lending tool is already speeding up loan decisions in Project credit unions and CUEP is developing a range of further products and services which will improve the efficiency of credit unions.
Credit unions exist to meet the needs of the communities they serve, but they need to work together to make their operations more efficient and their services more attractive to a wide range of people. By doing this, they can they help create an environment where people don’t want a payday loan, because what they can get from a credit union is much, much better.