Examination of Witnesses (Questions 740
- 759)
TUESDAY 19 JUNE 2007
MR MIKE
DAILLY, MS
SUSAN MCPHEE,
MR JOHN
PATTON, MS
LORETTA GAFFNEY
AND MR
CHRIS MALLON
Q740 Mr Davidson:
I understand the issue, and I also understand that a lot of the
pensioners have not bought the houses at all, it is their sons
and daughters who have bought them in order to have a capital
gain when their relative pops off, I understand that, fine. I
am not entirely sympathetic to the idea that then having bought
the house they should be able to avoid paying for their share
of repairs, but this question of the policy on 12 months, is that
a Westminster issue or is that a Scottish Administration issue?
Mr Dailly: That is a devolved
issue. It could be tackled very easily. The Scottish Executive
has the powers because, remember, they are the regulators of Community
Scotland and Community Scotland are the charity regulator for
housing associations and the GHA is a housing association, yet
I have been on their case trying to get this sorted.
Q741 Mr Davidson:
This has not been done!
Mr Dailly: I think this is a huge
issue for Glasgow. I am not saying for a second that people should
not pay these bills, they should, you have got to pay your bills,
but the difficulty is if you are a pensioner and you get a £5,000
bill and you are living on a state pension, to be told that you
have got to pay it within 12 months or we are going to take you
to court—
Q742 Mr Davidson:
I understand that, but let us be realistic, most of the people
living on a state pension have not bought their houses themselves,
it has been bought for them by relatives.
Mr Dailly: The thing is if you
are on a state pension—and in 1980 the Tories introduced
the right to buy—I see people who have exercised the right
to buy and it has resulted in them paying a mortgage of just £100.
You cannot blame people for exercising their right to buy
because it is like giving somebody a bag of gold.
Q743 Mr Davidson:
I completely understand that, but the point I am making is in
the vast majority of cases, in my experience, where pensioners
have become the owners of these houses it has been the sons and
daughters who have paid it for them in the expectation of a capital
gain and it is, therefore, unfair upon others to argue that in
those circumstances either the debt should be written off or they
should be given enormously advantageous terms which would obviously
fall to be paid for by somebody else.
Mr Dailly: With respect, if I
may say so, that is an absolute myth and I will tell you why.
In the factoring deed for the whole of Glasgow, which the district
council back in the day introduced, there is a ten per cent interest
charge built into it. Say, for example, I get a £5,000 bill
as a pensioner, and I take your point about sons and daughters
and things like that, that is a fair point, but, nevertheless,
if I am saying, "Can you not give me three years or five
years to pay it back?", the GHA is making ten per cent interest.
Nobody is being subsidised, that ten per cent interest is above
the bank base rate.
Q744 Mr Davidson:
Why are they so keen to collect the money right away then?
Mr Dailly: Because they do not
have the heart or the soul of a genuine housing association. They
are not really a housing association. Legally they are, but in
every other sense of the word they are not.
Q745 Mr Davidson:
I would be interested to know whether or not they rely on the
money. Presumably they want to pull it in in order to rotate it,
to revolve it in order to do other projects, because if they have
got a whole chunk of money lying about and it is not coming back
in then does that hold up other projects? I am just thinking of
what the rationale for this could be.
Mr Dailly: I can see that point.
The difficulty is that the GHA have been making big multi-million
pound surpluses because, as the Chairman said, whereas the council
have to pay 55 per cent in the pound in rent to the Treasury,
that has now gone. They have actually returned a surplus, so they
have had £700 million of taxpayers' money and they can draw
down £1 billion, yet they are intent on putting people into
a state of physical alarm by taking them to court just because
they are not prepared to give them two to three years to pay back
the debt.
Q746 Chairman:
I think all of us accept that high-class money lenders, legal
or illegal, are a part of the problem and not a part of the solution,
so there might be some help from credit unions. What type of things
are credit union loans used for? Are they used to pay off other
debts, thereby moving poor people on to more favourable repayment
terms? Are credit unions any use to those for whom saving is an
unaffordable luxury?
Mr Patton: That depends, Chairman—and
Chris will obviously have ideas on this—on the size of the
credit union, how long the credit union has been in business,
the number of members it has and the amount of money it has for
lending. The bulk of credit union loans are small loans which
are used mainly for household purposes, but that can have a wide
range of causes. A holiday, for example, at this time of the year
would be seen by a credit union, if the person is in a position
to repay the loan, as being quite reasonable, for a family to
borrow the money for their summer holiday from the credit union
and repay it within a year. Credit committees who do the lending
in credit union I would think for the most part would make that
stipulation because it obviously makes sense if it is going to
be an annual holiday that it is a 12 month loan. The credit union
would say to them, "Go and find the best deal you can from
the holiday provider". It covers a huge range. There is some
consolidation of debt and that depends on a whole lot of things.
On occasions we have consulted with Citizens Advice Bureaux or
Money Advice Scotland as to whether it is in the best interest
of the member, because credit union is concerned with the best
interest of the member, not on making money for the credit union,
but what serves the member best, whether it is in the best interest
of the member to take a consolidated loan, and it obviously depends
on the amount of debt that there is. It also depends totally,
of course, on the member being open and transparent with the credit
committee and admitting to what exactly their financial situation
is. If a credit union is to advance money to pay off loans, particularly
if there are going to be charges in paying off debt, it may not
be a good idea to borrow from the credit union, it may well be
better to pay off the original creditor. A lot of loans are used
for household purposes, the kind of thing which Susan mentioned,
when a cooker goes, when a washing machine breaks down, it can
be borrowed from the credit union. The money from a credit union
is at one per cent per month, that is an aggregate of 12.6% APR,
so £100 borrowed from a credit union repaid in a year will
cost the borrower just over £6 in interest, a total repayment
of £106 as opposed to going to Home Credit. I came across
a young woman six years ago who had borrowed money for school
uniforms, a household necessity, £100. She had repaid it
and a year later she still owed the Home Credit company £40
interest on that. Had she borrowed it from the credit union that
£100 would have cost her £6. The list of things which
credit union lends money for is almost as long as this meeting
has been; it is a long, long list! One of the things we are wary
of is advancing money for weddings. They are happy enough, for
example, to lend money to a mother and father to finance a wedding,
but they have some concerns about financing a prospective bride
and groom because there is a feeling in the credit union that
is not a wise loan to take on, a lot of debt at the beginning
of a marriage.
Q747 Chairman:
If we compare the Credit Union movement with other parts of the
United Kingdom, would you say that proportionally we are stronger
and more advanced in Scotland or weaker?
Mr Patton: I think at the moment
Northern Ireland is still part of the United Kingdom, so if we
compare it with Northern Ireland, no, it would not compare strongly.
As I said at the beginning, I began life as a credit union director
in Derry Credit Union in 1965. Derry Credit Union was established
in 1960 with assets of £8; it now has assets of £100
million, 25,000 members and over the 40 years of its existence
it has lent something in the region of a quarter of a billion
pounds in an area of high deprivation and high unemployment, but
an area where there obviously has been a great respect and an
awareness of what credit union can do to enhance lives and raise
esteem. That is the important thing about credit union, and it
is a point I would like to make to this Committee, it is not just
about lending money, credit union has got great implications for
individuals, for families and for communities because debt, as
Mike and the others here and Susan know, really lowers self-esteem
and decreases confidence. As an educationalist I know that confidence
is a prerequisite to learning. The credit union, while it allows
people to become in charge of their finances in the family, raises
the self-esteem of that family, raises the self-esteem of the
children, opens up opportunities for them to learn and advance
in the community and that is a ripple in a pond which spills out
across the whole of the community. John Hume, the Nobel Prize
winner, spoke here in Glasgow University a couple of years ago
and he said he did not attribute the Celtic Tiger solely to the
impact of credit union, but he said it could not be distanced,
that part of the confidence which has affected the Republic of
Ireland in particular, as the fastest growing economy over the
last ten years in Europe, has come from the confidence instilled
in people which they garnered from the Credit Union movement.
If you compare the Credit Union movement with what Northern Ireland
Unionists like to refer to as "mainland Britain", in
Scotland it is proportionately stronger than in England and in
Wales and that is an historical fact. The reasons for it, I am
not certain, quite possibly the connection with Ireland is a factor,
but Chris may have ideas on why it is stronger in Scotland.
Mr Mallon: I would not say it
is stronger. The Strathclyde area, this Glasgow area is very much
in Scotland somewhere that is there for credit unions. You go
outside of that, you go up sometimes to the Highlands, the Islands,
Shetland, et cetera, credit unions have been tried, there have
been feasibility studies et cetera done, but the cost has prohibited
the establishment of that. Recently the Western Isles have launched
a credit union but there is a lot of money going to be going into
that to support that. Within Glasgow, yes, credit union is strong,
but once you go outside there it is not a story of in Scotland
everybody having access to a credit union because a lot of Scotland
does not have access to a credit union.
Q748 Mr Davidson:
That is partly because a long time ago the Strathclyde region
was promoting credit unions, was it not?
Mr Mallon: That was very much
the case, very much so, yes. Glasgow still very much promotes
credit unions. Glasgow still has a strategy group for credit unions
and Glasgow still has a strategy which has been put together by
credit unions, et cetera, through that.
Q749 Mr Davidson:
I apologise for the length of the meeting. Everybody recognises
that credit unions by and large are a good thing, and I know that
the Government in Westminster have done a great deal to try and
help, are there any particular outstanding issues where there
have been requests or demands you have made which you think would
boost the service that have not been granted, or is it simply
a question of practicalities which are holding you back?
Mr Patton: Ed Balls has indicated
that he proposes to amend the legislation for the co-operative
movement in general and the existing 1979 Credit Union Act will
be part of that. There are obviously parts of that instrument
which have held credit union back. Through regulation the FSA
has been able to increase the amount which people can borrow and
the length of time they can borrow from, but for a period of time
we have not been on a level playing field, to use the cliché,
with other lenders and that would certainly be welcome, if those
changes could be expedited and if we could now get the consultation
which we have been promised.
Q750 Chairman:
Can you drop us a brief note about these changes which you look
for and we will be happy to look into it, and probably make recommendations.
Mr Patton: We would be happy to
submit those to the Committee, yes.[29]
Q751 Mr Davidson:
All of that is being addressed though, is it not? I want to be
clear whether or not there is anything else which is major that
is outstanding and there is not, is that right?
Mr Patton: There are things which
the Treasury has done that some of us in Scotland have taken exception
to. Last year the Treasury decided that credit unions could increase
their interest rates to two per cent per month. The credit unions
certainly that I represent unanimously rejected that. They felt
it was not in the egalitarian principles of credit union. We felt
that with the Chancellor in particular, and he was involved in
this because he was contacted by a number of people personally
on this issue, there was a failure to understand the nature of
the Credit Union movement. Decisions about policy within the Credit
Union movement should be made by the credit union people because
it is a self-governed, self-managed, self-owned co-operative organisation.
However, the Treasury went ahead with this, and I felt that was
probably one of the most damaging things which has happened to
credit union in the last ten years. Certainly when I spoke to
credit union people in Ireland they were aghast at the idea that
credit union should be increasing its interest rates when across
the world, particularly in Ireland, because of the euro they are
decreasing interest rates. Indeed, what the Treasury was saying
was more risky loans could be made, which is against the whole
ethos of credit union, because it is not my money I am lending,
it is your money, it is the people of credit unions' money. Ethical
lending depends on the fact that there should be a capacity to
repay, so you do not take chances with other people's money, nor
are you helping people if you take chances. Indeed, to charge
them two per cent we felt is exactly the point which Mike made
earlier, the most vulnerable in credit union, the poorest in credit
union will be paying the highest interest rates. It would not
be egalitarian because some people would be paying one per cent
and others would be paying two per cent. Maybe the same members
of a family in a credit union, one brother could be paying one
per cent and his other brother, who was considered a greater risk
because he had a big student loan, could be paying two per cent.
That has been damaging.
Q752 Mr MacNeil:
Where credit unions are strong—you have cited the Republic
of Ireland, Northern Ireland and Scotland—are the strengths
of companies like Provident lesser in Dublin and Derry than that
in Glasgow?
Mr Patton: Mr MacNeill, I have
not got empirical evidence on that, to be frank, but I would assume
in a place like Derry where there are 47,000 credit union members
out of a population of just under 100,000 that most people are
fairly savvy, including Scots are fairly savvy, and if they know
that paying Provident is going to cost them four, five, six times
the amount than it costs in credit union, then the credit union
is the obvious place for them to do their borrowing and lending.
To this Committee I would like to emphasise that credit unions
are not about lending money, by the way, they are savings organisations
and principally they are thrift organisations. In Scotland, in
particular, we are trying to renew the image which Mike presented
of the Scots who saved up for something before they borrowed.
Q753 Mr MacNeil:
While credit unions are strong, you would say they have less of
a problem with debt? Could you say that on the basis of empirical
evidence?
Mr Patton: There will always be
some people in communities, no matter where it is, who because
of circumstances outwith their control will find themselves in
extreme debt.
Q754 Mr MacNeil:
Can you identify a general trend in a community?
Mr Patton: I would certainly say
that for most working-class people in Northern Ireland credit
union would be a generic term for them, in the same way that we
use banks as a generic term. Credit unions would be their first
port of call. Indeed, it is not just working-class people who
join them but, as I said earlier in my first submission, it is
a cross-community thing. People, MPs and others on high salaries,
regard it as quite a noble thing to put their money at the disposal
of others to borrow and, indeed, for a credit union that is successful
and paying an interest rate on savings it is quite an attractive
savings proposition.
Mr Mallon: Credit unions are not
all the same, there are some with a very small number of assets,
maybe £100,000, and you have got some with £30 million
in assets, so what you expect in the common bond from one cannot
be replicated always in the same common bond by another. You will
get the Provident living side-by-side sometimes with the credit
union. You will sometimes get a credit union member also taking
a loan from the Provident. It does happen with it. I am sure when
they come along to you they will not just have loans from the
credit union but there will be other lenders there with it. It
is making sure the credit union becomes an accessible lender.
We are brilliant and our philosophy and ethics are great, but
we have to be accessible to people. I think sometimes one of the
reasons people will take from something like the Provident is
it is accessible. They come around to you, they visit you, they
build up a relationship, in general we do not do that. We are
more "There, you come to us" and we will try and deal
with you in that way. With credit unions, it is not just that,
it is not like a yellow box, there are very, very many different
sizes of them, different types of services which are provided,
different sorts of products. With some of the larger credit unions
their interest rates will be less than some others. Some will
pay a higher dividend on savings than others, so it is not just
as simple as saying, "A credit union provides this or provides
that".
Q755 Chairman:
Community Development Financial Institutions arose because of
the criticism about coverage and scale levelled at credit unions.
How have credit unions responded to the criticism levelled at
them? What do you think the role of Community Interest Companies
should be?
Mr Mallon: I think one of the
problems for credit unions at the start was a lot of CDFIs were
to do with business, which is not an area for credit unions to
lend into, then they went into personal lending and came into
that. One of the best ways of looking at the criticism, in Scotland
we have not really had the CDFI sort of scenario until recently,
so to comment on that one would be unfair at the moment because
it has not come through. Some of the evidence coming through from
the English side of it has been, for example, in Portsmouth £5
million has been invested into it and half a million pounds has
been lent out in loans through the CDFI. That does not make a
good figure when you think some credit unions start with nothing
other than volunteers' work and yet have turned into organisations
which can lend out half a million pound loans. As an investment
of money, I do not think that stacks up. Also, a credit union
in the Midlands has shown a great way of dealing with the criticism.
It has had the CDFI business from Sandwell transferred to it because
it was going out of business. That is a good way for the credit
union to show how it worked. On the Scottish side, we do not have
much evidence at the moment to give a Scottish angle to that.
Mr Patton: I have very little
experience of CDFIs. My attitude is an ambivalent one; they are
there to service business. I am not quite certain why they have
arrived. I see credit unions as a totally different animal. I
would like to see credit unions totally dependent on their own
resources. I mentioned John Hume speaking here in Glasgow and
he was asked a question about the closeness between government
and credit unions and he felt it was one of the things which maybe
helped to smother the Credit Union movement to some extent in
Britain in that he called it, and I quote, " ... a dangerous
proximity to the whims of government ... ". Mr Davidson has
referred several times to a change of administration here in Scotland.
Credit union is apolitical; we are not allied to any political
party. CDFIs seem to be greatly dependent, as far as I can gather,
on public financing. I would like to see credit unions standing
on their own two feet, supported by the members, owned exclusively
by the members, and totally independent of government, both national
and local.
Q756 Chairman:
How is the community based approach reconciled with the need for
scale which brings stable, sustainable and efficient operations?
Mr Patton: Derry Credit Union
is a community credit union, I should say, but here in Scotland
I think there are examples of community credit unions. Indeed,
Dalmuir Credit Union is one of the largest credit unions in Scotland
and is totally a community credit union. You asked me how does
it become sustainable, it does it by attracting the trust of members,
by returning that trust, by building on that trust, by showing
that it can deliver a service and, remember, the best advocate
for credit union is the happy satisfied member. They are our best
marketing device, and positive support obviously from our friends
in the media where credit union is seen not as an outreach of
the social fund or attached to a social work department, but is
seen as a community banking service which is there to support
the needs of individuals in that community.
Mr Mallon: We have got a lot of
community credit unions that have done things with mergers, transfers
of engagements, which is your transfer of business, expansion
of common bonds to make their own organisation more viable, because
when they were first set up the common bonds were very restrictive.
Now under the FSA there is an idea that you can expand these common
bonds, bring more membership in and hopefully through that extra
membership you will get more footfall and you will be able to
build up the business of a self-sustainable credit union. It is
difficult for some community credit unions if they are poorly
financed and are dependent on volunteers because you are asking
a lot of volunteers to provide financial services which other
people are paid good wages for on a weekly basis, these people
are providing it for nothing, but they still do it and the community
is very successful. If you can get a community credit union with
800 members, for example Yoker has got £600,000 in assets,
it is putting out £500,000 in loans, it has one member of
staff who they pay for themselves, they have bought their own
premises, which was a bank, that is a community credit union.
It works in a very tight area and is very successful. It has taken
about ten to 15 years to do that, but it is successful in that
area.
Q757 Mr Davidson:
Can I follow up on the point about the credit unions. As member
of the Co-op, I know that the Co-op, both party and movement,
have provided tremendous support to yourselves in terms of the
easing of passage through things. I was not entirely in favour
of what the Chancellor had said about the two per cent until I
heard your denunciation of it. One of the things which strikes
me is credit unions are in danger, are they not, of being a bit
picky in the sense that they are only taking on people who are
really of very low risk? We are also concerned with those who
are slightly below that level. We raised this point yesterday
when we were meeting the Illegal Money Lending Unit, that people
who fall below your standards are then left either to go to the
Provident or the Greenwoods people who are charging them quite
substantial rates, or if they fall below those they go down the
illegal money lending route. Is the Chancellor's line about two
per cent for higher risk people an effort to move you a bit more
downmarket without then proposing a risk for the money which is
put in by other people who are of a higher standard of lender.
My worry is you are only catering for a certain group of people
who are respectable and are good risks and so on. What do we do
about those who are a lot below that? I understand the point about
supply, about regulations and lending and so on, but how do we
widen your remit?
Mr Mallon: As a credit union trade
body, ABCUL did encourage the increase in the interest rate and
the reason was, very much as you say, some of our credit unions
felt if that was allowed they could lend to people who they normally
turned away. Very few of them have taken that up, if any. Most
are below the 12 per cent, which is what we are lending out. Traditionally
our lending was a timeshare, it was a shares multiplier, so you
had to save £100 with us and then, for example, maybe we
would give you a £200 loan. In recent times there has been
a move away from that. Maybe you have not saved with us, but you
now can get a loan automatically on capacity to repay. Some of
the funding coming through has been a compensation funding source
so that you can deal with people, where if you have a loss through
that lending you can then apply to get compensated for that loss.
That was monitored through SGEI. There have been initiatives such
as that and they have been coming through. Credit unions have
applied for funding to do this and they have been working in that,
so changing the normal trend of people. There was a problem in
the past, sometimes people could be turned away because a credit
union could not lend to them. As John said, it is members' money,
you have to take care of that money too, you have to be prudent
with that, but that is something which is being worked on at present
and has been moved through. Recent funding initiatives have been
part of that. SGEI, had a product, for example, it was a savings
product, but it did not have to be linked to loans. You had to
have a loans product but it did not have to be linked to savings,
it was the ability that the person could come in and repay, but
you then had a fund which you could apply to to get back the loss
on it. If you were a credit union you could go through this funding
initiative to do that. Some have, and they have been successful
in it, but they have just started to come through that, so to
be able to say, "This is working" or "That is not
working", it is too early for us to be able to do that. Also,
it has not been widely publicised that these loans are guaranteed
for a very simple reason. If they are guaranteed, there is a very
good chance that people may decide, "It is not a problem
if we do not pay it back". That is not good either because
you want to sometimes get people into the habit that they can
take the loan and pay it back and we do not want them to become
another bad debtor, we give them that history of a build-up of
credit.
Mr Patton: I would reject the
idea that we are selective in recruitment. Credit union is open
to everybody. Whether or not they get a loan, of course, is something
we have to be selective in and that is about being responsible.
If a credit union feels it can salve its conscience by charging
two per cent by giving a loan to someone who is already deeply
in debt, then that is a matter for that credit union, but personally
I would not like to be a part of it. Certainly we are selective
about those to whom we lend our members' money because that is
what an ethical and principled approach to lending requires of
us, that is what helps to prevent debt. We are not in the least
selective about whom we admit to credit union within the terms
of the regulation. We obviously can only admit to credit union
those people who qualify under regulation.
Q758 Mr Davidson:
There was a question which we had about the social fund but, unless
I am mistaken, we have covered most of that and the social fund
problems all flow from the fact there is not enough money in it,
do they not, and, therefore, it has to be tighter in the pursuit
of that? That is fair, is it?
Ms McPhee: It is not wide enough.
Ms Gaffney: Those who are on incapacity
benefit do not have access to the social fund but they are only
on a couple of pound more than people who are on income support,
so it could be widened. Again, if you are widening it, you are
probably going to have to have more money.
Q759 Mr Davidson:
That is in the memo which you have sent us in, is it not, on the
social fund?
Ms McPhee: I think you need to
look at it, yes.
29 See Ev 382 Back
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