Credit unions are benefitting from payday loan distrust

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Payday lenders are “a financial cancer” and people are flocking to credit unions in a bid to avoid them.

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14th February 2014 by TFN Staff 0 Comments

This was claimed as new figures revealed thousands have been signing up to credit unions as an “ethical and affordable alternative” to high-interest money lenders.

Scotland has seen an influx of new members across the country.

In the last two months of 2013, Glasgow Credit Union dealt with more than 1,600 enquiries and signed up close to 735 new members, a 260% rise on the corresponding time the previous year.

Over in Fife the Kingdom Credit Union attracted 391 new members in the same period to push total membership to over 5,000.

At the same time the Association of British Credit Unions (ABCUL) is reporting that more than 400 people are joining every week.

Part of the reason for the increase north of the border has been attributed to two Scottish Government campaigns: 12 Days of Debtmas and A Helping Hand with Debt.

There is massive potential for more private, public and third sector employers in Scotland to promote credit union membership

These were aimed at people who might have got into financial difficulty in the run-up to and following Christmas by using high interest, short-term loan companies.

Credit unions have no shareholders. They are mutual organisations offering a variety of ethical financial services. Typically credit unions charge interest rates capped at 26.8%  APR when payday loan companies can charge up to 5,000%.

The Transport Credit Union, with over 11,000 members in Scotland, boasts over £19m in member savings and has a loan book of £9.5million – more than £1m higher than the previous year.

John Mackin, its chief executive, said: “Payday lenders are a financial cancer and credit unions offer one route for people to avoid them.

“It is just one of the reasons why organisations in our sector are keen for their employees to become members.”

Frank McKillop, ABCUL’s policy and relations manager in Scotland, said some of the largest credit unions in the world had built their success on strong partnerships with the public and private sectors to make credit union membership “an easy, no-hassle employee benefit.”

He added: “There is massive potential for more private, public and third sector employers in Scotland to promote credit union membership to their staff, giving employees a safe place to save and an ethical, affordable place to borrow when they need to.”

Robert Kelly, general manager of the NHS Credit Union, which manages more than £12m in member savings and which last year lent £5.7m, said demand for its services was coming not only from staff but also the employer.

“Senior management see the challenges their staff are facing in trying to obtain loans, or keep up their savings, and want to help.

“They don’t want their staff to turn to payday lenders which can result in debts spiralling out of control.”

Kelly said employers were recognising the recession had made employees susceptible to enhanced levels of stress.

“This stress can cause a decrease in motivation and productivity and an increase in illness-related absenteeism – a real cost for businesses.”

A seminar “Better financial services – Credit Unions how we can help” is being held at The Gathering at 3pm on 19 Feb at the SECC. Book at gatherscotland.org.uk.