Labour Research December 2009

Features

Giving credit where it’s due

Saving for Christmas is just one of many financial services on offer through credit unions, which are
increasingly finding favour among trade unionists.

In a case widely reported in the media earlier this year, Debra Wilson ended up handing over £88,000
over a number of years to a loan shark. Wilson had borrowed £500 from Robert Reynolds to buy a
computer for her daughter’s Christmas present. By the time Reynolds was reported to the police, the
interest on the loan was an eye-watering 2,500%. Meanwhile, Wilson’s health was badly affected, her
marriage nearly destroyed and she almost lost her home.

Low-paid workers like Wilson remain vulnerable to unscrupulous loan sharks and legal (but hugely
expensive) doorstep lenders because they cannot access loans through a bank or building society. To
borrow a now-familiar term from the US, they are “sub-prime” borrowers.

This is where credit unions come in. They are not-for-profit financial co-operatives owned and controlled
by their members. They can be formed by any group with a “common bond”, such as living and working
in the same area, in Nottingham or Glasgow for example.

In other credit unions, the common bond is that all the members work for the same employer, such as
the Royal Mail, the police service or a fire and rescue service. Credit unions offer low-cost loans and
savings schemes to their members. The larger ones provide a range of financial services including
current accounts, cash ISA’s, Child Trust Funds and even mortgages.

The consumer organisation, Which, reported earlier this year that “some are offering members savings
that are better than anything you’ll find on the high streets”. According to its calculations, Debra
Wilson’s £500 loan should have meant monthly payments of around £44 (for a loan taken out over a
one-year term), instead of the payments of up to £1,840 a month Reynolds demanded.

Millions are part of the union

Credit unions are financial co-operatives owned and controlled by their members. The Association of
British Credit Unions Limited (ABCUL), says that worldwide there are more than 40,000 credit unions in
79 countries with 118 million members.

ABCUL says that credit unions operating today in Britain “are extremely varied in their size, membership
and in the range of services they offer”.

Despite this variety, credit unions “share a basic philosophy and set of principles”. These ideas and
values were developed in the 19th Century — in Britain by people like the social reformer and co-
operative movement founder Robert Owen.

Until 1979 there was no legal structure for credit unions. This saw some early credit unions choosing to
register under the Companies Act, while others registered under the Industrial and Provident Societies
Act.

In April 1979 the Credit Unions Act became the last Act to be passed by the outgoing Labour
government.

According to ABCUL there are currently around 500 UK credit unions. In addition:

• membership and savings in ABCUL credit unions doubled between 2002–2008. Membership grew from
262,000 in 2002 to 524,000 in 2008;
• savings and loans in credit unions have grown at an even faster pace. In 2000, credit union members
had savings of £183 million and by 2008 this had increased to £475 million;

• during the same period, credit union loans increased from £175 million to £429 million;

• there were over 655,000 adult members and over 96,000 junior savers in British credit unions in June
2008 (FSA figures); and

• 18,000 people hold current accounts run by credit unions.

Origins

Although UK credit unions have their origins as far back as the 19th century cooperative movement (see
box), they have developed more slowly here than in other countries such as Canada, the United States,
Jamaica and Ireland. A legal structure covering credit unions here only came into effect 30 years ago
with the passing of the Credit Unions Act in 1979.

Trade union credit unions have an even more recent history, from the late 20th Century, when union
branches and representatives were involved in setting up and supporting credit unions at local level.

For example, the Flamesavers credit union, based at Hanley Fire Station in Stoke-on-Trent, was founded
in 1991 with the help of the local branch of the Fire Brigades’ Union (FBU), which provided a grant of
£750 and a small office. All staff from the Staffordshire and Cheshire Fire and Rescue Services are now
eligible to join.

And Glasgow Credit Union was set up in 1989 after unions at Glasgow City Council worked together on a
scheme for employees at the local authority. It is now one of the largest credit unions in the country
with 23,000 members and is open to anyone who lives or works in Glasgow. It has assets of £60 million
and has given some £250 million in loans.

National trade union credit unions

But it was not until 1997 that the first national trade union credit union was set up. A motion on loan
sharks debated at a BFAWU bakers’ union annual conference generated a discussion about whether the
union should set up its own credit union. The union’s then president Dennis Nash was involved in a
community credit union in Northampton and the union decided to look at developing its own scheme.

“We organise in Ireland where credit unions were already very popular, so some of the union’s Irish
activists had experience of using credit unions, knew how they worked and could tell other delegates
about their benefits,” the union’s general secretary, Joe Marino, told Labour Research.

The BFAWU broke new ground because it was the first time a credit union had been set up with trade
union membership at national level as the common bond. At the time they tended to be locality-based,
but the regulator accepted the union’s arguments that there was no reason why the common bond could
not be based on membership of a trade union. The scheme was launched in 1998 and it now has some
1,300 members. It also paved the way for other unions, and two more — the GMB general union and the
RMT transport union — have since followed suit.

The GMB’s Thorne Credit Union, was set up in 1999 by the union’s former Lancashire region for
members in that region, but the scheme is now available to all GMB members, employees and their
families.

Andy Worth, GMB regional secretary for the Midlands and East Coast is a director of the Thorne Credit
Union. He told Labour Research: “The initiative was led by lay members of the union who saw that
setting up a credit union would provide a great service and great benefits for members. “

He said that a lot of members “just want to borrow say, £200 to buy their kids’ school uniform, or £500
for a holiday or buying Christmas presents. The banks won’t entertain this kind of small loan and we
became concerned that they could become victim to loan sharks and so-called doorstep lenders.” Worth
said that members had come to the union asking for advice and help about debt, “and we felt that a
credit union could provide an alternative source of lending for people not able to access bank loans”.

The Thorne Credit Union now has around 1,600 active members and employs two permanent staff to run
the scheme. There is a board to oversee the credit union, and GMB shop stewards are involved in
promoting it to the membership. The union has negotiated agreements with local authorities, including
Mansfield District Council and Lancaster City Council, for payments to the credit union to be deducted
directly from employees’ salaries.

Members who have saved for at least six months can apply for a loan of up to twice the amount they
have saved, up to a maximum of £5,000. After they have been saving for 12 months, they can borrow
three times the amount they have saved up to a maximum of £10,000. The scheme pays an annual
dividend on savings, which has been between 4% and 5% for four of the last five years.

In addition, a Christmas club allows regular savings to be paid in over the year. The amount saved, plus
interest is then paid out in November — just in time for the festive season. Worth says that there are
also benefits for the union. He told Labour Research: “It helps to retain members, because instead of
leaving the union when they leave a job, they can stay in the credit union and they maintain their union
membership.”

RMT credit union board member Graham Saunders agrees, and says that his union has also found that it
has helped to recruit new members. The RMT Credit Union was set up in 2003 after identifying a need
for accessible and low-cost financial services. Its key aim is “to combat economic disadvantage allied to
increasing social responsibility, and to provide value for money to the benefit of RMT members”.

Credit union membership generally is on the increase and more trade unionists will soon be getting the
opportunity to join one. Public services union UNISON has around 1.3 million members and is about to
set up a working party to review its involvement in credit unions and look into the possibility of setting
up its own. And the 300,000-strong civil service union PCS will launch its credit union next year.

Chris Baugh, assistant general secretary and national treasurer at PCS, told Labour Research: “It will
offer our members a safe and secure way to get affordable loans. We are aware of the dangers posed by
loan sharks, particularly as we have a significant number of members on low pay. Around half of our
members earn less than £20,000 a year and a quarter earn less than £16,000.”

And it is not just loan sharks and doorstep lenders that credit unions are competing with. PCS says that
it will use its collective strength to offer secure savings and low cost loans, as an alternative to financial
services companies offering punishing rates of interest, and to banks profiting from high bank charges.

So far, there has been a very positive response from the PCS membership, with hundreds of people
offering to become local coordinators to promote the credit union in their workplaces, acting as the face-
to-face contact with credit union members. And thousands of members have sent in expressions of
interest in joining.

Baugh said: “Politically, this reflects an emerging view that the high street banks have failed on so many
levels and that reliance on private financial institutions have left us in the sorry economic state we are in
now.” He said that people “are exploring the alternatives”, adding that the PCS supports the proposals
for the creation of a new “People’s Bank” through the Post Office, put forward by a coalition that includes
the CWU communications workers’ and Unite general unions. This initiative was set up in the wake of
the banking crisis and wants a new, state-owned Post Bank based on the Post Office network. Baugh
added: “We think community and trade union-based initiatives like credit unions also have a role.”

Thorne Credit Union’s Moneybond newsletter also points out that the banks “have created a global
financial crisis; have rewarded failure through enormous staff bonuses; have invented phrases such as
toxic debt and credit crunch; have refused to lend to loyal customers whilst repossessing homes at
record rates; and have imposed excessive charges on customers … our members are reassured that we
are not a bank”.

So can the credit union philosophy of mutual self-help offer a real alternative to the profit-for-
shareholders and executive bonus culture of the big banks? The GMB’s Andy Worth believes it can.
He said: “In Ireland, half the population is a member of a credit union and so are around a third of
Americans and Australians. There is huge potential for credit unions to become a real alternative to the
big banks in the UK.”