Supplementary memorandum submitted by
1.1 Following Mark Lyonette's and Amanda
Winkworth's appearance before the Treasury Select Committee on
6 June, we
were asked to provide extra information on a number of issues,
The importance of legislative change
The Post Office Card Account
The term "Community Bank"
2.1 The three key aspects of legislative
change that we believe have the potential to have a significant
impact upon access to safe savings products are:
1The ability to pay interest on savings
rather than just a dividend.
2The ability of a credit union to determine
its own common bond.
3The ability of a credit union to accept
organisations as members.
The ability to pay interest on savings rather
than just a dividend
2.2 Credit unions need the ability to offer
an interest rate as well as a dividend on savings. The increased
level of regulation and the subsequent boost in public awareness
and sophistication of credit unions means that this is a natural
step for the movement to take (credit unions already pay an interest
rate on junior deposits.)
2.3 Version 2 credit unions can offer different
rates of dividends for different accounts and pay dividends more
than once a year. Some credit unions also offer Cash ISAs to their
members. For this they need to be able to confidently predict
the dividend they will be able to pay and this has been well within
their abilities, operating as they do an accruals based accounting
system. The ability to pay interest would be a natural progression
and one which would not cause technical or operational difficulties.
2.4 In addition, the ability to pay interest,
rather than a dividend at the end of a financial year would increase
the ability of credit unions to attract savings, as interest is
a much more widely understood concept and this is how many, more
sophisticated, savers choose where to put their money. This in
turn would generate funds to lend to members and communities in
The ability of a credit union to determine its
own common bond
3.1 Despite the expansion of common bonds
in recent years, there are still many communities which lack access
to the credit union services they need. The historical difficulties
of proving a "common bond" between a group of people,
although less restrictive than it was in the past, is still a
major barrier to ensuring everyone in Britain has access to quality
credit unions. The hurdles which credit union leaders have to
jump through to prove a common bond exists in what are becoming
larger and more disparate areas means that credit unions often
stay serving a small area when the credit union may be more than
capable of bringing more people into membership by expanding the
area it serves.
3.2 Most credit union movements around the
world maintain some element of the "common bond" or
"field of membership" in the way they operate. It is,
however, often left up to the discretion of the boards of credit
unions to determine to whom they provide services and where. New
Zealand Credit Unions have recently secured legislative change
which will enable them to choose who they serve from a range of
objectively verifiable membership qualifications. For example,
they will be able to choose to serve residents and employees based
in a particular city, along with employees from a particular firm
who may be based in other locations as well as within their geographical
3.3 Payroll deduction is a painless and
convenient method of saving which many employees benefit from
currently. Because savings are taken from wages/salary before
it reaches the employee the individual does not miss the money.
In Glasgow Credit Union, which originally served employees of
Glasgow City Council, 60% of council employees pay into the credit
union by payroll deduction, including a large number of part time
and/or low paid employees. The majority of the largest credit
unions in Britain are either employee credit unions or started
that way before expanding to cover people living or working in
a geographical area.
3.4 Negotiations on payroll deduction agreements
between a number of credit unions and employees have broken down
because the credit union is unable to provide services to all
employees, because some are based outside the geographical common
bond. Legislative change along New Zealand lines would enable
a credit union to provide payroll deduction services to all employees
of a company and greatly expand access to convenient savings products.
3.5 This change would also assist housing
associations, many of which are keen for their tenants to access
credit union services. But where a housing association has stock
in many locations around the country, it would be faced with setting
up partnerships with dozens of credit unions and leaving some
tenants without services. If a credit union could choose to add
in tenants of this housing association to its common bond, then
all tenants would be able to access services from one credit union,
ensuring full access.
The ability of a credit union to accept organisations
4.1 Well respected local organisations and
businesses using a credit union show local people that the credit
union is to be trusted. While these organisations can show support
now by offering payroll agreements and entering into partnerships,
there is no substitute for them being able to demonstrate their
trust by depositing money into the credit union. Organisational
membership can increase a credit union's credibility and encourage
people to save in this way.
REFORM / POST
5.1 For credit unions to be able to play
a role in any future reform of the Social Fund and/or to play
in role in the replacement of the Post Office Card Account, legislative
change to enable full coverage of credit union services across
Britain would be necessary.
5.2 Anticipated changes in legislation will
expand the coverage and capacity of credit unions and mean that
many more people can benefit from credit union services. However,
it is inevitable that even after these changes have taken place,
there will be gaps in coverage. A "default" credit union,
Credit Union Direct, which can provide services to people wishing
to, for example, use a Credit Union Current Account to receive
their benefits, or who wish to save safely or borrow affordably
would provide a solution to these gaps in provision.
5.3 A credit union which could take in members
who are unable to join a local organisation would ensure that
no-one in Britain would have to face the prospect of remaining
in financial exclusion. By using the back-office facility described
above, this credit union could offer the Credit Union Current
Account to anyone who wished to use it.
5.4 This "default" credit union
would work in partnership with local outlets including perhaps
post offices, housing associations, local authorities etc to provide
a face to face presence. Providing universal coverage across Britain
would transform the credit union sector's ability to deliver on
a number of important social policy goals. Credit unions participation
in the government reform of the Social Fund, the future successor
to the Post Office Card Account and indeed the potential Savings
Gateway would all be enhanced by the ability to provide universal
coverage. It is anticipated that the combination of the "default"
credit union and the supply of existing quality credit unions
would offer complementary provision.
5.5 We have had initial discussion with
the Post Office and the DWP respectively about the ability of
a scaled-up credit union movement to assist in the delivery of
a replacement for the Post Office Card Account and the Social
5.6 We are organising a series of meetings
for credit unions and a meeting for Stakeholders during July to
inform the work of the sub-group of the Financial Inclusion Taskforce
which is investigating how banks can assist credit unions to scale
6.1 We have been following the evolution
of the Saving Gateway through the pilot projects and evaluation
reports with interest over the past few years.
6.2 We believe that any future roll-out
of the Saving Gateway should be made available through credit
unions for the following reasons:
6.2.1 In many low income communities, credit
unions can be the only financial institution with a physical presence.
As the recent evaluation report noted, the proximity of the saver
to a branch was a key factor in whether that individual opened
an account, showing the importance of ease of access.
6.2.2 Individuals who do not feel comfortable
dealing with mainstream financial institutions are often very
happy to deal with a local credit union.
6.2.3 Through a range of access methods,
including Benefit Direct account, payroll deduction, outreach
points and PayPoint, credit unions already mobilise savings from
people from a wide range of income groups.
6.2.4 Anecdotal evidence we have from credit
unions which are offering their own Child Trust Fund accounts
tells us that people who may need more support in opening an account
will invest their voucher with the credit union because the staff
take the time to ask if they have used the voucher, explain how
it works and assist with the application process. In a number
of cases, credit union staff have been approached by members who
have lost information they have been sent on this and/or have
ignored information which they found difficult to understand.
In cases like this, the credit union has helped people find out
where their voucher has been invested and in many cases the individual
has chosen to transfer their CTF account to the credit union as
they know they can get the support they need there. People accessing
the Saving Gateway through a credit union would be able to receive
that little bit of extra support which some people need when dealing
with financial products that they are not familiar with, having
been used to managing a small cash budget and not engaging with
mainstream financial providers.
6.2.5 Credit unions have also told us that
their CTF accounts attract interest from people who want to make
sure that the money they invest is kept within the community.
This ethical aspect to a credit union account means credit unions
are receiving calls from way outside their common bond because
people like the idea of investing in a credit union rather than
another type of financial institution. Enabling credit unions
to offer Saving Gateway accounts would give people an extra choice
in where their money was invested if they would wish to support
their community in this way. Legislative change and the scaling
up of the movement outlined above would enable anyone who wanted
to have a Savings Gateway account in a credit union to have that
7.1 We are aware of some credit unions which
have reported that the name credit union generates a negative
reaction from some people who they are seeking to recruit members
and which wish to use a different name for their organisations.
7.2 This is not, however, by any means a
universal opinion. By successfully marketing a range of quality
products in their communities and workplaces, many credit unions
have built up a strong and sustainable organisation with thousands
or even tens of thousands of people happy to join because it provides
them with the services they need.
7.3 While the name does not perhaps particularly
reflect the savings products which credit unions provide, the
same could be said of Building Societies, which provide a range
of services that people value and therefore use. In areas where
the credit union is providing a range of services in an accessible
way, then this barrier has been overcome.
7.4 The name "credit union" is
a global brand. Credit unions affiliated to the World Council
of Credit Unions provide services to over 160 million people worldwide.
The name credit union has not been a barrier to attracting membership
in the US, Canada, Australia and Ireland, all of which provide
services to between a quarter and half of their respective populations.
The name has also not been a barrier in many parts of this country
where strong credit unions can attract tens of thousands of members.
7.5 Through their ability to offer Child
Trust Funds, ISAs and now the Credit Union Current Account, credit
unions have only just started in the past few years to offer a
wider range of services to their members. As these services continue
to roll out people in more areas will come to understand what
a credit union is and value them for the range of products they
provide, including savings even though that is not explicit in
7.6 It is only in the past ten years that
credit unions have started to have a presence on the high-streets
of our towns and cities in any great numbers. Before deregulation
in 1996, and the realisation by local authorities and funders
that investment should be in credit unions themselves and not
development agencies, most community credit unions operated on
a part time basis from collection points in community centres
or churches and simply weren't visible in most areas.
7.7 ABCUL and member credit union have also
made great inroads in the past few years with regards to media
coverage about credit unions and the work they do. This, and the
wide range of partnership which credit unions and ABCUL are developing
at a local and a national level are leading to a wider awareness
of what a credit union is.
7.8 Despite credit unions' 40 year history
in this country, it is only really in the past ten years that
growth has started to take off, trebling during this time. With
the new products that credit unions are now starting to offer
and great potential for legislative change and a major scaling
up of the movement in the next few years, we believe that it is
too early to write off the name credit union. Any rebranding exercise
should, we believe, focus on improving the products credit unions
offer and making sure they are able to meet the needs of the people
7.9 Any use of the term "bank"
could also cause problems within Europe. Credit unions have managed
to secure proportionate regulation within a range of European
Directives. Any name change which seem in Brussels to reflect
a change in the operation and scope of credit unions could attract
regulation aimed at banks to the credit union movement, something
which would not, at this point in time, be affordable for credit
unions and which could lead to a number leaving the movement.
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