Credit Union Growth Needs Government and Employers to Change

Published by Jon Land for Credit Union Solutions Ltd in Central Government and also in Communities, Education, Health, Housing, Local Government

There is now a growing body of research that tells us what we need to do to ensure credit unions grow and keep on growing towards sustainability. The consensus seems to be growing around the following points:

1. Credit unions need very broadly drafted common bonds that are not proscriptive or open to interpretation by a regulator. Recent history suggests that our regulator has exercised considerable discretion on some occasions but on others has been overly particular and keen to restrict a credit union’s ambition without taking much account of the impact their decision has on the viability of the credit union.
2. Credit unions need a strong element of employed members so as to generate a safer loan book that is less likely to suffer with a large volume of bad debt. This being the case somehow the message needs to be delivered to employers that payroll deduction does not come at a significant cost but is a great employee benefit. Alternatively the Government could legislate to allow all employees freedom to direct their wages where they will.
3. Credit unions that use grant to pay for administration and running costs fail more often than they succeed. Grants for particular projects can provide significant value whereas the oft lauded “New Model” credit union required £400,000 to £500,000 in grant over three years and rarely if ever was a success recorded. This highlights the lack of knowledge or experience of those peddling the model and the lack of knowledge of funders.
4. Credit Union models based around common bonds encompassing areas of poverty and financial exclusion face a long haul to reach a level where they are sustainable. I recall an ABCUL official stating that “poverty is a poor common bond” which most in the movement would endorse. Yet RSLs, Government Departments and Local Authorities are keen to address financial exclusion by prodding credit unions into action, yet step back when they have the temerity to suggest that payroll deduction would be good for their staff.

With very few credit unions being registered and with the Government set to make it more difficult to start a credit union what we have now is likely to be the sum total of our movement. This begs the question that as more and more consolidation occurs and credit unions merge and amalgamate how flexible are the FSA, or its successor, going to be about common bond size?

Our history of legislating on credit unions is pretty poor with the 1979 act held as an example of some of the most repressive legislation in the world. The LRO has taken years and we are still not able to enjoy the freedoms that it offers. Allowing credit unions the freedom that they need to grow still seems an elusive goal.

Credit union legislation is looking a bit like reform of the banks every party wants it, public opinion favours it, but yet none will do it and in a year’s time precious little will have changed.

Readers may like to reflect on the fact that everything that the credit union movement needs to grow to sustainability comes at no cost to the Government or industry yet still we struggle to get the change we need. Perhaps we need some research undertaken into how Governments fail to take decisions which everyone finds non contentious yet do not get enacted.