‘LIFELINE BANKING’ NEEDED TO RESCUE BRITAIN’S 'WORKING POOR ' FROM LOAN SHARKS
Britain needs to develop a new “banking lifeline” to keep Britain’s lower income workers from falling prey to predatory lenders, says a new report released today, Wednesday July 6th, 2003 at the Community Development Finance Association annual conference at Cardiff City Hall.
Long–term savings and the pensions crisis have emerged as a major political concern, but these are largely the obsession of the better off. Lower income workers in Britain, like essential key workers, face a different crisis: short-term savings. Without savings and no choice but to borrow at exorbitant rates, Britain’s aspiring lower middle classes face a new form of poverty and social exclusion.
The report, “Lifesaving: Community Development Credit Unions”, released by the New Economics Foundation, The National Consumer Council and the National Confederation of Credit Union Workers (NACUW), calls on the government to develop a Lifeline Banking Service in Britain through the development of 100 Community Development Credit Unions.
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the bottom thirty percent of British households operate in the cash economy without access to high street financial services
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7 per cent of British consumers have no bank or building society account
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typical sources of credit for Britain’s lower income households include cheque cashers, pawnshops and moneylenders where small loans start at 60%APR with pawn shops for secured loans and with doorstep lenders charge rates at 170 per cent APR to 2000 per cent APR
The Government’s Universal Banking Service may increase access to bank accounts but does not provide any help whatsoever to the menace of the £16 billion high cost lending industry in Britain that exploits those without access to conventional financial services.
Community Development Credit Unions (CDCUs) have developed fast in the USA in the past ten years as a dedicated community banking service for low and moderate income Americans. In 2002, they mobilized assets of $2.7 billion and provided affordable credit to almost a million low income households. They have also in the past five years designed products to deliver low cost loans which last year alone saved their low income members over $300 million in excess interest charges from predatory lenders.
The report shows that the US CDCUs have had the benefit of strategic investment from Government, charitable foundations and banks since 1993 which has enabled them to operate locally as Lifeline Banking providers and increasingly offer year on year a fuller range of low cost financial services to low income households.
Credit unions are mutually owned financial institutions specializing in low cost consumer loans. Of the 690 credit unions operating in Britain, over half are community based and serving low-income customers. However due to lack of adequate resources, it is difficult for most community credit unions to provide the Lifeline Banking services now working so well in the USA in both tackling financial exclusion and predatory lending.
Ruth Kelly, Financial Secretary to the Treasury, said:
"Access to basic financial services is a vital part of bringing people back into the mainstream of society. A job is not enough, freedom from crime is not enough, if you are marginalised from the financial system and ghettoised in a cash economy.
"That is why the government's approach to social inclusion [and asset based welfare] acknowledges the central importance of improving access to financial services. Credit unions that aim to tackle financial exclusion are part of the solution - providing access to savings and affordable loans. We want to see strong growth in the credit union sector in this country, capable of meeting a wide variety of needs. "
As highlighted in a report released with the New Economics Foundation earlier this month, the largest moneylender in Britain is Provident Financial plc – the 97th largest company in Britain with 1.6 million customers and loan charges above 170%APR.
The report develops a CDCU strategy for Britain to show how 160,000 households now dependent on moneylenders like the Provident could be given alternative access to credit union loans at only 12.67% over the next five years.
To develop 100 CDCUs as fully fledged and self-financing community banking services in Britain would require an investment of £60 million. These CDCUs could:
Inject some £227 million of affordable credit into many of the poorest urban and rural areas nationally;
Save Britain’s poor an extra £36 million in excess interest charges from high cost lenders
Provide a full range of financial services not accessible to low income households in Britain presently.
Report co-author, Pat Conaty of New Economics said:
‘At present the British Government has invested successfully in Community Development Finance Institutions for widening access to small business loans but no similar investment has been made into the potential of Community Credit Unions to tackle predatory lending problems. CDCUs show the way and Government needs to invest in ways that in the USA have worked to help curtail the menace of loan sharks.’
Ed Mayo, co-author and Chief Executive of the National Consumer Council said:
‘Growing numbers of consumers are not waving, but drowning. They need the kind of lifeline banking services that credit unions can bring.
‘The credit union legislation we have owes its existence to the work of the National Consumer Council in the 1970’s. We are proud to back this call for a new generation of community development credit unions.’
Co-author Mick Brown of the National Association of Credit Union Workers, says:
“Many of our community credit unions are now perfectly placed to deliver these lifeline services. The expertise and the links into the financially excluded sector are there to be tapped into. All that is needed now is the comparatively small investment that would enable credit unions make a major impact on thousands of peoples lives.”
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