The common bond of UK credit unions

Across the world there are 57,000 credit unions operating in 103 countries in six continents, serving 208 million people.

Whatever the differences, the fundamental ideas and values remain much the same as in the 19th century, when pioneers like Robert Owen and others in the movement first came up with the idea of co-operative credit. They all share a ‘common bond’ based on living or working links or membership of an association.

In other parts of the globe, credit union membership has been much faster to take off with 43% of people in the US and Canada and 70% in Ireland belonging to a credit union. But in the UK, there was no legal structure for credit unions until 1979, when the last hurrah of the outgoing Labour government was the Credit Unions Act.

Things moved on apace in 2012, when changes to this legislation removed restrictions in the law and enabled credit unions to reach out to new groups by serving more than one group of people. They were also able to provide services to community groups, businesses and co-operatives as well as individuals, including different groups of people within one credit union.

The move also made it easier not only for credit unions to extend services to new groups of people, but make the most of partnerships with bodies such as housing associations, charities and employers.

The Association of British Credit Unions (Abcul) represents around 70% of credit unions in England, Scotland and Wales. It provides a full range of advice and training to help member credit unions grow and become sustainable.

Its principal adviser is Abbie Shelton, who says changes to the law have been a major boost. “Many credit unions have changed their common bond since the law changed.

Being able to add in different groups of employers and employees in multiple locations has been a real positive. We have now got examples of credit unions working across many different workplaces and partnerships.

“You used to have to prove a link between all the members and it was quite a complicated concept to prove. Now the term is still used, but it does not mean absolutely everyone has something in common. There is a lot more potential now. For example there is a new credit union launching soon for people working in the retail sector.

“The Churches Mutual Union now includes the Methodist Church and Church of Scotland. The Police Credit Union can include the prison service and probation service and there is talk of a credit union for the armed forces. Just having the flexibility to add in different groups has changed things.”

As Ms Shelton points out, restrictions under the law still mean credit unions do not cross international boundaries, but mergers are now a possibility.

There are still four types of common bond: following a particular occupation; being employed by a particular employer; residing or being employed in a particular locality; or being a member of a bona fide organisation or being “otherwise associated”.

The rules of a credit union determine its common bond. Members can now vote to accept common bond changes but they must also be accepted by regulating bodies such as the Financial Conduct Authority and the Prudential Regulation Authority. In the past three years the results have been dramatic.

The Co-operative Credit Union

Formed in 1998, The Co-operative Credit Union is now just shy of 8,000 members. Based in Manchester, it was set up for Co-operative Group employees and their families, but is now open to employees and pensioners of a range of co-operative organisations spread across the length and breadth of the UK.

Chief executive Linda Edwards says: “Thanks to the changes, we are now a credit union for the whole co-op and third sector. We have a number of retail societies with us like Southern and Midcounties and we work with a number of different groups and large employers with member organisations such as the Phone Co-op. We also work with trade unions like Usdaw and Naco – the National Organisation of Co-op Officials.”

Other key stakeholders include Co-operatives UK, Co-op College, the Co-op Bank and Unity Trust Bank.

“The changes to legislation gave us a lot more flexibility about who could and could not be members and we embraced that opportunity,” says Ms Edwards. “We work with employees and members – all we have to do is make the regulator aware of changes and have the name of an organisation included within our common bond.”

The Credit Union Expansion Project, led by the Department for Work and Pensions is offering help and advice to credit unions with the aim of providing financial services and loans to one million more customers on lower incomes by 2019.

Linda Edwards welcomes the government initiative which she says has meant easier access to expertise, funding and marketing opportunities. “Our current initiatives include a partnership with Lancaster University on digital innovations, with researchers asking members to keep video diaries telling us what they want from the future,” she says.

“We have also tried to widen our offer and our website now has a section to promote partners’ products and services from members like Co-operative Energy. It’s about trying to promote the co-operative movement and the credit union sector, which has a much broader remit than perceived.

“For people in work it is a convenient way to save and there is also a segment where people in the clutches of payday lenders can reorganize their finances. We have a fabulous group of partners who reach out to their workforce and are consolidating and building on the base we have at the moment. We now represent the whole co-op family.”

Pentecostal Credit Union

Membership of the PCU, which this year celebrated its 35th anniversary, is open to all individuals and groups with links to the Pentecostal Church. Originally operating from a room in Balham in south London, today the PCU is one of the ten largest credit unions in the UK, with over 1,500 members, £10m of assets and members’ funds running at over £7m.

Shane Bowes began as a volunteer in 1999 and is now general manager. It started when 16 Pentecostal Christians came together to try to provide a financial resource for local people of the Pentecostal Christian community to access affordable loans. In those days, many people in the Caribbean community found it difficult to access loans from banks and ended up using loan sharks.

“We started quite small and grew rapidly. In 1984 we moved out of the front room into office space of a local church and in 1988 were able to buy a property in Oldridge Road in Balham, which remains our head office today.

“The legislative reforms meant we could take in corporate members and churches and Pentecostal businesses as well as individuals.

“Our common bond is now nationwide but most of our members are still based in Greater London; until the law changed it was Greater London only. We now have members in cities including Liverpool, Birmingham and Manchester.

“The faith aspect is crucial to us. When members borrow from our credit union there is an understanding that we have a Christian obligation to repay loans.”

The PCU’s recent initiatives include a partnership with the Church Credit Champions Network, which promotes local sources of affordable credit and helps churches engage in issues of money and debt in their community. Its Money Talk programme, actively promoted by the Pentecostal Credit Union and delivered within local Pentecostal churches, aims to make a positive change by helping identify the most pressing financial issues and building a team who can work together to address challenges.

The credit union is also engaging in the government’s Credit Union Expansion Project, which is designed to grow and modernise the credit union sector.

“The fact we are now part of a wider credit union network means we can share best practice and data,” says Mr Bowes. “We are part of a hub where we can log in to incentives to grow savings and loans targets. We are reviewing our business plan which we do annually.

“We are also redeveloping our head office with a grand opening in August and are always trying to grow our loan book. We would like to attract new members – especially younger members – and trying to recruit new board members with the right skills. A lot of people have a lot less confidence in existing banking and are looking for an alternative.

“Before the internet, people had to come and visit us, but now they can sit in front of their computers and get involved. One of our other projects is financial literacy workshops to educate people on the wise use of money – because the loan sharks are still out there.”

Commsave Credit Union

Commsave is exclusive to employees of the Royal Mail and their families, offering savings and loans direct from the payroll.

Based in Northampton, it was set up in 1991 and has almost 15,000 members. Its team of staff is always on hand during office hours and it has an online banking facility and a website.

Member services manager Rob Barnes says: “Commsave was originally set up by a small group of postmen here in Northampton, then it grew to different mail centres. We moved to our own premises and, following the changes in the legislation, we have now expanded to Scotland and Wales.

“It started because postmen felt there was nothing out there offering them what credit unions could. One of the guys was a trade unionist involved with the Communication Workers’ Union and he thought it would be a good idea to help each other out and borrow off each other.”

Almost 25 years on from its modest beginnings, Commsave has £36.5m in assets and each year lends around £20m – starting with £2,000 loans for people without any savings. There are also special savings accounts for young people.

“We get lot of people who say they are having problems with payday loans that are spiralling out of control. We are able to offer far better interest rates and in the last couple of years there has been a big upswing.

“We are looking to potentially expand the common bond to all communication workers. We listen very carefully to our feedback and it is always very positive. What our members like most is the not-for-profit ethos and also the fact that money is coming straight from the payroll and straight into the bank, so you don’t miss it.

“We are still based in Northampton in our own premises and we are going to be expanding soon.”

Commsave has a 12-strong board which meets every month, as well as the main annual meeting. It also has a team of volunteer representatives who are on hand to help.

“When I started in 2012 we had 6,000 members – that has gone up to almost 15,000,” adds Mr Bowes. We have done a lot to get our name out there. Mail shots and adverts on pay slips really help in raising awareness. Our network of representatives are able to advise on everything from overdrafts to bill payment. It took a while for the workforce to get what credit unions were about, but more and more have heard about what we do.”

The Credit Union for Teachers in Northern Ireland

Formerly known as the Belfast Teachers’ Credit Union, the union is affiliated with the Irish League of Credit Unions, but as in the rest of UK, is regulated by the Prudential Regulation Authority and the Financial Conduct Authority. It is the only occupational credit union in Northern Ireland, and this year, it is set to celebrate its 50th anniversary with a gala dinner in October at the Belfast City Hall.

It currently has 1,852 members and £6m in assets. Originally set up by teachers in a Catholic primary school in Belfast, it now crosses the religious divide and is open to all teachers, lecturers and trainers in the nursery, primary, secondary, and further and higher education sector. Spouses of members are also eligible to apply for membership.

Manager and former teacher Susan Gannon, who has been there for 30 years, recalls very modest beginnings.

“We started off in 1965 at the Holy Child School in Belfast,” she says. “I was a pupil in the school at the time and I remember a teacher coming in to talk to us about it. At the time, a lot of other credit unions were also set up by people associated with the civil rights movement.

“Unlike other local credit unions, our teachers were all paid monthly so our members were not in quite as much need as elsewhere. It was more about getting together to help each other.”

The recent name change is designed to encourage more teachers in Northern Ireland to get involved. “Ireland is very big on credit unions. So a lot of teachers from the rural areas were already in their own credit unions, but we have been doing a lot of marketing and are making progress.

“We go out to all the universities in Freshers’ Week and on graduation day and place adverts in local papers as well as with teachers’ organisations and trade unions to encourage them to join us.

“I was on my own for five years but we now have a small team of staff. Originally our membership was just for Catholic teachers but we have now gone into the maintained schools and have a lot more teachers on both sides of the divide.”

Almost a third of members are non-Catholic, and Ms Gannon and her team also give talks to local schools, getting out into local communities.

“I enjoy my work and have a diploma in Credit Union Studies and continue to do courses and things like e-learning,” she says. “Our members are very loyal and we still have a couple of the originals, although obviously some have passed away since then. It has been a continual growth since I started here in 1986 and we have done very well.”