London Assembly Economy Committee: Investigation into Personal Problem Debt
These are the main recommendations we made in response to this consultation
Measures that GLA and the Mayor could take to support credit unions
Credit unions in London – as in other parts of the country – find much difficulty in marketing their proposition and raising awareness that they exist. Similarly, while many credit unions work in partnership with local authorities and other agencies such as housing associations, they often find difficulty in persuading such bodies to market and advertise the credit union.
An obvious means by which the Greater London Authority and the Mayor might support the expansion of credit unions and their ethical, affordable financial services in London would be to use the privileged position of the Authority in relation to Transport for London to generically advertise credit unions across the London transport network. Any advertising campaign should be co-ordinated with the credit unions of London to ensure clear messaging and a workable mechanism for converting queries into new business, however, it would be an excellent and relatively easy way of raising awareness across the capital.
Both the Welsh and Scottish devolved governments have in recent years used their resources to fund awareness-raising and advertising campaigns for their credit unions and demonstrate the possibilities that this kind of intervention presents.
Links to employers and payroll deduction
Where credit unions are most successful – both in Britain and internationally – they are almost always built around strong links to employers. By providing services to a particular group of employees or sector, credit unions can be developed as an employment benefit by harnessing the power of the mutual model which, without external shareholders to pay, allows credit unions to offer extremely competitive savings and loan rates. There are excellent examples of this in the London area with, for example, the National Firesavers Credit Union serving the fire service or the London Taxi Drivers Credit Union. Similarly, the London Mutual Credit Union began life serving Southwark Council employees and the employees of Kings Hospital and is now a leading community credit union in Southwark, Lambeth, Westminster and Camden also serving employees of Parliament and Clarence House.
By having ready access to more financially-stable members, credit unions benefit from these links by being able to provide profitable services to support their less-profitable, inclusive services in the community. Meanwhile, employees benefit through having access to competitive and member-focussed financial services and employers likewise benefit through having a more financially-resilient and therefore more productive workforce.
Critical to the success of these schemes, however, is the provision of payroll deduction. This allows credit unions to take loan repayments and payments into savings direct from an employee’s pay prior to it being paid to them. The employer’s payroll department processes these payments in a process which is largely automated and of limited cost. However, often credit unions find difficulty in securing employer support for such schemes due to perceived cost and administrative burden. Any role that the GLA and Mayor’s office can play in relation to encouraging public bodies and local authorities in London as well as major employers to provide access to credit union services via payroll deduction would be greatly appreciated.
Capital investment for growth
The final way in which the GLA and Mayor’s office might consider supporting credit unions is through the endowment of credit unions with capital investments to strengthen their balance sheets for future growth. Where credit unions grow quickly, they can often be presented with challenges in financing this since their sources of capital are limited, as mutuals, largely to retained earnings. While commercial enterprises can attract secondary investment, credit unions are more limited in their options here though they are able to offer deferred shares and subordinated debt.
We would strongly advocate that any financial support for credit unions should seek to bolster capital rather than provide revenue support since the latter is likely to distort business models and breed dependency while capital investment supports credit unions to become more sustainable.
The full response is available to download on the right hand side.