The UK Parliament is set to consider a bill to establish a requirement for major financial institutions to work with purpose-driven financial institutions, such as credit unions and community development finance institutions (CDFIs),
Labour/Co-op MP Gareth Thomas will next week use the a 10 minute rule to introduce a Banks (Financial Exclusion and Access to Finance) Bill.
Most 10 minute rule bills fail to become law and the mechanism is generally used to gauge MPs’ opinions or raise awareness of an issue. But the Co-op Party says Thomas’s bill “could have a significant impact on supporting disadvantaged communities – empowering them to save and invest in their future”.
Describing the bill as a British community reinvestment law, the Party said it would enable purpose-driven financial institutions to expand lending to people who are financially excluded.
“Financial exclusion is a major problem in the UK,” adds the Party, “leaving many people unable to save and invest, exposing them to financial insecurity, lowering living standards and often entrenching poverty.
“Expanding lending to these underserved people and communities could enable people to begin saving, invest for the future or provide for their families. It would considerably reduce the number of people dealing with loan sharks and other illegal lenders.”
It says Thomas’s bill “would increase lending to small businesses and co-operatives, which are often underserved by high street banks. Ensuring effective lending on fair terms to these SMEs and co-operative could kickstart economic growth and help to growth job opportunities across the country.”
The bill is modelled on the Community Reinvestment Act (CRA), introduced in the US in 1977, the Party adds.
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“Since its inception, the CRA has played a vital role in boosting lending to underserved communities in lower income areas,“ it says. “The CRA has led to an increase in loans, mortgage lending, and small business lending – helping people and small businesses to save and invest for the future.”
The CRA has also played an important part in the continued growth and development of the credit union sector, the Party adds, expanding its lending volumes and encouraging membership growth.
“With the support of the CRA, the American credit union sector has grown to a significantly larger scale than the UK sector, even when accounting for population.”
By expanding credit union liquidity pools, Thomas’s bill “could be transformative in scaling up credit unions, along with the changes being introduced by the Labour government,” the Party argues. “As a central delivery partner in the government’s Financial Inclusion Strategy, credit unions will play a key role in delivering more inclusive financial services.
“A new British Community Reinvestment Act would go even further in building a fairer, more inclusive financial system with co-operative values at its heart.”
The bill goes before MPs on 14 January.
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