Why credit unions are different from traditional banks

In 2017 eight million people were struggling to keep up with bills and commitments

Credit unions are promoting financial inclusion through their distinct approach to lending and savings, delegates were told at Abcul’s annual conference in Manchester.

Held on 8-9 March, the event featured experts from the banking industry as well as credit union professionals, fintechs and academics.

Karen Rowlingson, professor of social policy in the Department of Social Policy, Sociology and Criminology at the University of Birmingham, presented  key economic trends.

In 2017 eight million people were struggling to keep up with bills and commitments while 100,000 people went through insolvency as a result of debt.

The same year the government appointed a minister for pensions and financial inclusion, and created the Single Financial Guidance Body (SFGB), bringing together the three existing providers of government-sponsored financial guidance.

Martin King
Martin King of Lloyds Bank (Photo: Paul Herrmann)

Martin King, head of customer vulnerability at Lloyds Banking Group, talked about the bank’s work with credit unions.

Lloyds runs a credit union development fund with support from the Credit Union Foundation, through which it has made 100 awards since 2014, giving out £5m. The bank boasts 27 million customers.

“We are not in communities like you are, we recognise that. There are customers we cannot help so now referring them to credit unions,” he said, adding that its relationship with the sector still needed to improve.

Asked whether Lloyds was simply getting rid of customers likely to have issues repaying loans, he said the bank was a mass-market organisations and could not take into account individual circumstances in the same way that credit unions do.

For a US perspective on financial inclusion, Pearl Wicks, chief executive of Hope Federal Credit Union in Mississippi, discussed her organisation’s work in an area affected by persistent poverty. The credit union was set up 25 years ago by members of Anderson United Methodist Church who lacked access to banking services. It has grown into a federal credit union with 47,569 members.

Through its work, the credit union supports families on low incomes, including by providing mortgages, 80% of these to first time buyers. In 2018 it closed 1,087 small business loans, 81% of them in high poverty areas.

Unlike traditional banks, Hope Credit Union does not use a member’s credit score as a deciding factor for a loan. The credit score is taken into account to decide the rate of the loan but the key factor is the rent and bills paid by the individual.

Once they take out a loan, members can build up their traditional credit score, which will enable them to secure other loans in the future, from the credit union or from other financial institutions.

“Let’s just do more,” she told delegates at the conference.

More reports from the Abcul conference:

Treasury minister John Glen highlights new measures to support credit unions

Clockwise Credit Union flies solo on new IT project to extend online 

Protecting vulnerable customers: key tips for credit unions