Examination of Witnesses (Questions 180-199)|
6 JUNE 2007
Q180 Mr Newmark: I am curious, do
you have a breakdown at alland I appreciate if you do notof
those customers that may be new to credit unions versus those
that may be old Farepak customers?
Mr Lyonette: No, we do not have
any breakdown; we have lots of anecdotes about people who used
to be Farepak agents who actually, fortunately before Farepak
collapsed, decided to set up a Christmas savings accountDumbarton
credit union was one place like thatbut we do not have
any overall figures on the sector and we are not actually that
large a trade body.
Q181 Mr Newmark: One of the recurring
themes with hamper products is the value of starting to save for
Christmas early in the year, and I am curious as to how many credit
union Christmas products were in place early in 2007?
Mr Lyonette: Mandy might talk
about hers. As I say, we do not know the answer but plenty have
been doing particular Christmas accounts for several years, so
it is not everybody who has just done it because of the disaster
Ms Winkworth: Although Farepak
brought to the national attention the problems of saving and unregulated
savings deposits this year, in Portsmouth, where my credit union
is based, it hit home a few years ago when a local Christmas club
that was collected each week in the local community centrenot
even quarter of a mile from the credit union office, I addon
payout day the guy who ran this went to the bank to collect his
money for the Christmas club, and I am sure you can see what is
coming next that, yes, he got robbed on the way out£134,000
of unsecured Christmas deposits lost in an instant and all three
weeks before Christmas. My credit union did bail out quite a few
people in offering them instant loans to tide them over Christmas,
but from that we then set up our own Christmas savings account,
and as the title of our credit union says, Portsmouth Savers,
we have been predominant in supporting savings of one way or another
since the concept of the credit union was started.
Mr Lyonette: It is perhaps worth
saying that there are, for all the Park hampers, still huge amounts
of unregulated savings clubs with employers, et cetera, that ought
to be just as much a focus I think as traditional hamper schemes.
Q182 Mr Newmark: Last December the
OFT quoted Farepak victims' groups as saying that credit unions
were not particularly popular because they were seen as getting
people into debt when all they wanted to do is to save. Do you
see any basis for this perception and are you doing anything in
particular to counter it?
Mr Lyonette: Yes. Sometimes people
have said that those words, "credit" and "union"
have been problematic words, shall we say, for some people in
terms of their associations, and it is not difficult to see that
a credit union would suggest that we are all about lending. I
think for 20 years that actually was one of the problems in the
sector; we were very focused on how could we help people with
affordable credit and not really realising that if you were going
to have a significant scale you actually need to build the savings
pot and it is only if you build the savings pot that you can really
have much of an impact. A poor credit union does not do much for
anybody. So we have introduced a financial monitoring scheme to
help credit unions to understand how to balance the balance sheet,
if you like, and to make sure that they are mobilising savings
at least as much as they are working on the credit because without
it it really limits our impact. Much as it has been very welcome
to have the government investment through DWP for us to lend government
capital, actually the future of the sector depends absolutely
upon raising savings from our members so that we can lend that
money out rather than relying upon government handouts to lend.
Q183 Mr Newmark: So is that a long-winded
way of saying that that perception is not real?
Mr Lyonette: No, we have no research
to justify it or challenge it but we understand anecdotally that
some people can see credit unions as being all about lending.
Chairman: Peter Viggers.
Q184 Peter Viggers: Do credit unions
use door-to-door sales techniques?
Mr Lyonette: No, not generally.
One or two have experimented with door to door collection for
loans in the way that the home credit industry does, but it is
not very easy to sustain that on an employee paid basis as opposed
to using a volunteer, and charge the really low interest rates
that we charge. On the savings side as far as we know nobody has
actually done that. I understand that when you have Professor
Elaine Kempson in front of you she talked about the joint research
project of business modelling project we are doing together with
her university and NCC and policies to look at what would it take
to set up a not for profit home credit collection service on the
back of all the Competition Commission findings? If we were not
to try and extract huge profit from this what sort of basis, what
sort of model would we need to do home credit? Of course, if one
of the ways that you might look at cost subsidies for that would
be to do home savings at the same time as you did home credit,
and that may be one of the ways in which we could get some internal
cost subsidy for such a service. So we are looking at that as
part of a Joseph Rowntree funded research project, but at the
moment there is no on the ground experience of it.
Q185 Peter Viggers: I take it that
there are no statutory or legal restrictions which prevent you
using door-to-door techniques and that you are studying what the
Commission would need to be to make it worthwhile?
Mr Lyonette: There is nothing
that would apply to credit unions that does not apply to other
people in terms of canvassing and all of those regulations, but
it is something that we are looking at, yes.
Q186 Peter Viggers: In your memorandum
to us you talk of ways that it might be possible to increase the
work of credit unions and one of the paragraphs is mobilising
the Post Office network to increase access to credit union services.
Who would you expect to do this? Is it not open to you to approach
the Post Office and seek to use the Post Office network, and would
this not be an ideal outlet for your services?
Mr Lyonette: In fact it is probably
no secretbecause I have given up counting how many questions
have been asked in the House about Post Office and credit unions
working togetherthe Post Office and credit unions have
been talking together since October last year. Absolutely we are
not necessarily expecting anybody to do anything other than work
out a proper partnership between us. One of the things I have
already mentioned there in answer to the first question is that
if we were really to use the Post Office to give us a face-to-face
service in parts of the country where we do not have a counter
based service then we need legislation change. One of the possibilities
for credit unions would be to bid for the replacement of the Post
Office card account, of which the DWP are starting the tendering
process now with a view to it being implemented in 2010. If we
were to have what are fairly small legislative changes in place
by 2010 then we would be able to be, I would suggest, a very attractive
offering in partnership with the Post Office to replace the POCA.
It is not just legislation, we obviously have to work out a means
of operating that would make sense because we are not envisaging
sub postmasters being able to make lending decisions on the fly
in a small rural post office. So we may be looking at something
like a credit union direct model so that there is some kind of
phone service, but actually there is a face to face person who
is trusted, used, etc, to do the collecting cash in, cash out,
perhaps doing the money launderinganti money laundering
requirements that we have to comply with, that kind of thing,
somebody who is there in a branch of the post office to do that.
Peter Viggers: Thank you, Chairman. Obviously
work in progress which we will be following.
Q187 Chairman: "Doing the money
laundering" means making sure that there is no money laundering,
Mr Lyonette: I always say money
laundering and not anti money laundering.
Chairman: Just for the public record!
Jim Cousins and Andy Love.
Q188 Jim Cousins: You have mentioned
the DWP already and the evidence of the Savings Gateway is that
the DWP channel into the Savings Gateway brought in people from
much lower incomes than the other channels that were used. Do
you see yourselves having a role possibly with DWP in a future
Mr Lyonette: We would be absolutely
delighted to play a big part in the Savings Gateway. The ways
in which we could do that are slightly dependent upon review of
the legislation, but even without the legislative review many
of our credit unions now receive people's benefit payments directly
and one of the things we would say to you about people on low
income savingand I think this was actually backed up by
the Park peopleis that the key product feature is convenience,
not necessarily return on interest for depositing your funds.
We find that people paying in their benefit to the credit union
are actually leaving part of that benefit in their account. That
is not an argument for saying that benefit levels are set too
high, it is an argument for saying that actually if the convenience
and the mechanism is there people will save. One of the things
that we found over the last 25 years is that credit unions used
to make people save before they borrowed. That was not a very
attractive credit product and we have reformed that and we do
not do that any more, we do not encourage people to do that; but
the irony of that was that that actually produced an incentive
to save for people. So we have tens of thousands of bus drivers
alone in that sector, who outside London earn less than £10,000,
and they have hundreds of pounds of savings. That is because they
had that incentive. We employee-based credit unions use payroll
deduction and I would suggest that the OFT and others who are
trying to encourage low income saving look at this as a tool because
it is that whole thing of what you have not had you do not miss.
If it comes out of your salary before you have seen it actually
you do not miss it so much and before you know it you have a savings
pot, and we found that that is a hugely powerful tool. I suspect
that the banks would like to be able to arrange payroll deduction
with employers too, but for employee credit unions, particularly
in low income employment industries, it is a really powerful tool.
Ms Winkworth: Could I just add
there that we run a benefit direct account in our credit union
and it is very popular, and 25% of the members who have their
benefits paid through the credit union also put savings into the
Christmas club account so that they are not going to be short
come Christmas. It does help to save without even having to think
about itelectronic transfer and it is done.
Q189 Jim Cousins: It is suggested
by the last questionhave you had any approach from the
DWP to perhaps extend that work bearing in mind the Social Fund
operation of the DWP?
Mr Lyonette: We have noticed over
the many years the interest in reforming the Social Fund; we have
followed the debates around the Savings Gateway. We would very
much like credit unions to be in a place where we could offer
to help in a significant way with both or either of those initiatives
Q190 Jim Cousins: The Savings Gateway,
of course, was a single channel thing and there was an argument,
a discussion, a debate about whether it was possible to have a
Savings Gateway type scheme with a multiplicity of providers,
like the Child Trust Fund that was set up, and the conclusion
was probably at this stage it was not. Presumably your view is
that that would be a mistake?
Mr Lyonette: I think so. We would
very much like to be not just an intermediary as the research
talks about it in terms of having good contact with people to
encourage them to save, but we would also like to be the deposit
taker as well.
Q191 Jim Cousins: Yesterday we were
told by Sir Ronald Cohen, who chaired the Social Investment Task
Force, of course he reminded us that that task force had made
a recommendation that banks should operate special schemes in
the very less well off areas. Have you ever had any approaches
from main banks, the main financial institutions perhaps in partnership
with yourself to operate such schemes, picking up the idea he
had those years ago?
Mr Lyonette: Yes. Probably about
ten years ago a number of the high street bankstwo in particularwere
very keen for credit unions to act on an agency basis providing
in effect their current accounts, and perhaps alongside that the
deposit account. I have to say that they got very short shrift,
though, from the sector because what credit unions are interested
in is providing those services themselves in a way that meets
people's needs. So we actually waited five or six years until
we were able last year to launch our own current account with
the assets sitting on the credit union balance sheet working for
the credit union and therefore working for its members rather
than the assets sitting on the balance sheet of the bank and working
for the bank. So we are not particularly interested in agency
arrangements in that sense, which are very one way. We do, however,
have strong partnerships with a couple of banks, both with Barclays
and the Cooperative Bank, and they provide a range of services
to us and indeed the Cooperative Bank is our processor for our
current account offering, and we need that in order to partake
in the payments system, the clearance system, etc.
Q192 Mr Love: We talked earlier about
the new Credit Union Act. Have you done any research on what the
impact would likely be of an Act on the growth of the credit union
Mr Lyonette: We have done two
things. One is that we have given the Treasury information about
what has happened in other countries that have recently gone through
a very similar legislative change. The closest credit union country
is actually New Zealanda very similar stage in development
to here and it has had a massive impact on the growth of their
sector. The other thing we have done is we are giving them evidence
about just how many employers, for examplelots of national
named employerswould like to offer credit union services
to their employees on a range of incomes, but often quite low
incomes, but at the moment they have a stark choice. Their choice
is, we either create a new credit union for this company across
Britain, across England or Scotland or Wales, or we cannot get
them involved because our typical credit union model is one local
authority area. We had an approach from a big retailer in the
Midlands who wanted to say that this credit union that covers
the whole of Birmingham, could you deal with all of our employees?
No, they could only take the employees who lived or worked in
Birmingham and employers do not particularly want to do something
with their payroll that only works for the employees here and
not all the employees everywhere else. So we are not asking for
legislation in the expectation that it will create demand but
what we are saying is we have demand from lots of people for us
to serve them and at the moment we are frustrated from doing that.
The demand is there. It is really disheartening to turn away major
Q193 Mr Love: I understand that,
but based on those international comparisons would you confirm
that in your view there would be a significant additional growth
in the credit union movement as a result of a new Act?
Mr Lyonette: Absolutely.
Q194 Mr Love: You mentioned earlier
about the research project that Elaine Kempson is carrying out
under the Rowntree Corporation. In her comments to us she did
cast shall I say just a little doubt on the ability of the credit
union movement to undertake doorstep type activities, mainly based
on a reputational issuein other words, whether it would
be appropriate for them to charge a very high rate of interest
in order to gain a return when they are supposed to be providing
low rates of interest. How much of a reputational issue is that
for you or do you not see that as a barrier to going into home
Mr Lyonette: If you remember,
the Association was one of the bodies that championed actually
getting a bit more flexibility in our maximum interest rate precisely
so that we could serve some more people than we were managing
to serve at the old rate. So within reasonI do not want
to sound like an apologist for the home credit industry but actually
the costs of an agent network are huge and it is also something
that is very dependent upon the length of time an agent has been
Q195 Mr Love: When does it become
a reputational issue50%, 100%, 150%? When you are doing
12.8, 12.68 or
Mr Lyonette: 25% is our maximum.
Obviously it is not something for the trade body to impose, I
should say that, but I cannot see our members being comfortable
lending people money at much higher rates than we presently have,
so it would be a question of whether we could provide those services
perhaps with an optional charge for home collection as opposed
to paying in some other manner. Obviously we would want to be
very transparent with people about if you switch from requiring
home collection and you were to pay through some other means then
obviously we could drop the rate really significantly. We are
not looking to make profit from people; we are looking to cover
our costs of that service.
Q196 Mr Love: Turning to encouraging
savings, in your submission you made a number of points to us,
especially about those that are still in debt or are emerging
from debt. What more needs to be done to promote savings amongst
those in debt and what special role can credit unions play in
all of that?
Mr Lyonette: One of the things
that some of our members do, when some of them themselves have
consumer credit licences and develop debt management plans for
people, many of those people will continue to save because if
you are saving while you are paying off your creditors it actually
gives you that protection against some emergency happening in
that period, and if your typical debt management plan can last
up to five years then it is quite likely that many people will
have some kind of lump or lack of income or some kind blip or
Q197 Mr Love: I am being pressed
for time and I wanted to ask you
Mr Lyonette: I think the key policy
issueand we are working with Citizens' Advice on this,
with whom we have a strong partnershipis to look at whether
the common financial statement that debt advisers use and some
creditors have agreed to, whether that could include as standard
an element for savings as part of the agreed expenses. I think
that would be very good.
Q198 Mr Love: Let me just ask you
finally, you mentioned earlier about the term credit union being
problematic in terms of public understanding. Would a term "community
bank" be more appropriate or do you think that there is confusion
in that terminology as opposed to credit unions?
Mr Lyonette: This is a really
difficult question. I was asked this yesterday at the seminar.
We know that some of our members want to use that term. I would
say two things: I would say that credit and union are for some
people problematic words. We have, however, found that where people
are getting what they want from the credit union they get over
that barrier. Glasgow Credit Union, which employed Credit Union
originally for the council, 60% of everybody who works for the
council and its ex private contractors, belonged to the credit
union. No bank has penetration anything like that. So people clearly
get over the name when they are getting what they want from the
service. However, that said, in many ways using the term community
bank would be a better description of the savings and loans products
and the transaction banking that we are now doing. Our problem
with it is what it would mean for the folk in Brussels.
Q199 Chairman: Were you consulted
by the OFT on their consumer campaign?
Mr Lyonette: Yes, we were.