CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 437-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

SCOTTISH AFFAIRS COMMITTEE

 

 

credit unions in Scotland

 

 

Tuesday 18 March 2008

REVEREND GRAHAM BLOUNT, MS SUSAN McPHEE
and MS NANCY McGILLIVRAY

Evidence heard in Public Questions 1 - 79

 

 

USE OF THE TRANSCRIPT

1.	This is a corrected transcript of evidence taken in public and reported to the House. This transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2.	The transcript is an approved formal record of these proceedings. It will be printed in due course.

 

Oral Evidence

Taken before the Scottish Affairs Committee

on Tuesday 18 March 2008

Members present

Mr Mohammad Sarwar, in the Chair

Mr Alistair Carmichael

Mr Jim Devine

Mr Jim McGovern

Mr Charles Walker

________________

Witnesses: Reverend Graham Blount, Secretary of Scottish Parliament Cross-Party Cross-Parliamentary Group on Tackling Debt, Ms Susan McPhee, Head of Social Policy and Public Affairs, Citizens Advice Scotland, and Ms Nancy McGillivray, South Lanarkshire Credit Union Network, gave evidence.

Q1 Chairman: Good morning. Can I welcome you here this morning to our first session of our inquiry into credit unions. Could you please introduce yourselves for the record.

Reverend Blount: I am Graham Blount from the Scottish Churches Parliamentary Office.

Ms McPhee: I am Susan McPhee from Citizens Advice Scotland.

Ms McGillivray: I am Nancy McGillivray from South Lanarkshire Credit Union Network.

Q2 Chairman: Before we start on the detailed questions would you like to make any opening remarks?

Reverend Blount: We are pleased that the Committee is thinking about taking forward some of what was in the report on poverty. Broadly speaking, all three of us are agreed that credit unions have a significant part to play in that, without being the whole answer to the problem of indebtedness in Scotland.

Q3 Chairman: During our inquiry it was obvious that debt is one of the major factors towards poverty in Scotland. How big an issue is debt in Scotland?

Ms McPhee: Last year the CAB service in Scotland dealt with 91,000 new issues relating to debt, which works out to an average of about 250 debt issues brought to the bureau every day. The total debt we dealt with last year was £212 million. Year-on-year it has gone up substantially. In 2002 we dealt with £100 million worth of debt and now we are at £212 million worth of debt. It is fairly significant. We did some research on debt four or five years ago. At that point, we found that Scottish CAB debt clients had average debt levels of about £13,500 and between four to five debts each, but the real issue is that of debt stress levels, which is pound of income per debt, which we found, on average, was £1 to £22. That was pretty significant. That gives you some idea.

Ms McGillivray: I can put it into a local context only in South Lanarkshire. For the people seeking advice either from the local authority or from CAB in the six months April to September last year, there was £14 million worth of new debt, and that was purely in South Lanarkshire.

Q4 Chairman: Why do you think there has been a significant growth in debt over the years? What are the main causes of this debt?

Ms McPhee: We have not published this yet but we are about to. We were looking at older people in debt and so we have done a little bit of research in terms of people aged 60 and over, and most of the debts are on credit cards. The rise in credit cards has certainly a big part to play. In our earlier research across the whole spectrum of debt clients, one in four had a credit card and some had between five to ten credit card debts.

Q5 Chairman: You are right there, the credit card is a problem. My overdraft was going higher and higher and I decided three months ago that I must not use the credit card for at least three months, and it has helped. How can we create an awareness that, if something is on offer, you should have some resistance to use this credit card?

Ms McPhee: It is not just about using it for luxury goods at all. Our research showed there were two streams of client. One stream used credit cards and other things like personal loans from doorstep lenders because their incomes were too low, so used them as a budget management tool: it is not about resisting; they have to use it because they do not have enough income. The second stream was of people whose circumstances had changed: their overtime had been cut or they had lost their job or they were sick or they had to work part-time suddenly - these kinds of things.

Q6 Chairman: You do not think that overspending on the card during Christmas and at other times is a big problem then?

Ms McPhee: Not for CAB clients. Over half had income levels of less than £800 a month and I think for one quarter their income was benefits or pensions. We are dealing very much with the lower end of the scale and we do not tend to see that overspending that we read about in the newspapers.

Q7 Mr Carmichael: Your colleagues in England and Wales were talking this morning on the BBC about a massive increase in the number of people seeking advice with regard to mortgage arrears. Is that something you are seeing north of the border as well?

Ms McPhee: We are beginning to. Certainly with the older people in debt issue, about half of them were homeowners, and, in our previous debt research, about one third were homeowners. We are a bit concerned at that. A lot of people have borrowed on the strength of their home - not necessarily their mortgage but second or third loans - and they have not even realised they are secured. As they struggle to pay these, it is having an impact.

Reverend Blount: For people in poverty, often the total amount of the debt is not going to be as high as the more spectacular cases that make the papers but the margins are much tighter, and, therefore, they are much more vulnerable to a change in their circumstances, to temporary unemployment and things like that, so that a relatively small amount of indebtedness can very quickly become a major problem for somebody with virtually no income.

Q8 Mr Carmichael: It does seem to me that even in the last seven days there has been a big change in the expectations of our economy and individual financial circumstances for the next six months or maybe to a year or so. Are you anticipating an increase in debt problems, say of people not being able to service their level of debt, as part of your forward planning?

Ms McPhee: I think it would be fair to say that is probably likely because year-on-year over the last five years we have seen debt levels constantly increasing and the numbers increasing. Consumer debt has remained the single biggest issue in the Scottish CAB service for the last five years, so I would anticipate that it would continue to be that.

Q9 Mr Carmichael: You have given us some fairly horrific figures this morning, from £100 million to £212 million in a six-year period. What are you anticipating these figures being, say, in 12 months or 24 months?

Ms McPhee: I simply would not like to say. The original research I was quoting before was 2004 and the older people's debt research was last year. The average debt level for them was about £17,500 and that was more or less a 25 per cent increase in debt levels in a four-year period for them, but the debt stress levels were significantly worse - they were something like £1 to £38 - because their incomes tended to be much lower and so the level of debt had more of an impact.

Q10 Mr Carmichael: Are we seeing people dying in debt now?

Ms McPhee: Yes. That was the reason for us looking at the over 60s, because, as they end their working life, there is no way of repaying this debt. It is significant for the homeowners because their only asset will be their home. That is the only way they could repay. Although £17,500 was the average, we had some older people owing something like £98,000. Now they are never going to repay that.

Q11 Mr Devine: Whose fault allows somebody to get into that debt? We have heard stories of banks giving loans to 72-year old people. Whose fault is that? Who is causing that?

Ms McPhee: The CAB service would blame mainstream lenders in the main, because that is what we see - which is banks. The problem could be that someone has taken out a personal loan, they struggle to repay it, they get into debt with it, and then all the charges and penalty charges add up and make it worse. The way it is resolved, if you like, is a further loan, a consolidation loan, which means that they are ending up borrowing more than they started over a longer period of time. Even though the initial payments are perhaps smaller than they were paying, it is a load more debt overall and then it goes on and on. Having said that, doorstep lenders at the other end of the scale continue to do that too. It is that layering of loans. You can start off borrowing £200 but you only pay off maybe £100 of it, and then you borrow more and more and you just see it all escalate.

Q12 Mr Devine: That leads us on to the next series of questions. What are the main sources of credit used by people on low incomes? Is it simply the guy who is coming to the door every Friday night or whatever? The banks are not keen to take these people on, are they?

Ms McPhee: It depends on the client and the income levels. The majority of CAB debt clients have personal loans from banks but a significant number have doorstep loans and catalogue company ----

Q13 Mr Carmichael: When you say significant, what is significant?

Ms McPhee: In terms of our research, I think it would probably be about half of them.

Q14 Mr Devine: Half the people who come to you with problems are basically as a result of illegal money lenders.

Ms McPhee: It is not illegal, no. Doorstep lenders are like the Provident and Greenwoods, people like that who come to the door, lend money, lend cash loans, as it were, to people. But it is the rolling over of them - that is what makes it unrepayable.

Q15 Mr Devine: One of the things that came up in the Farepak scandal was that companies like the Provident were charging 177 per cent interest rates - and that was the legal money lenders, as such. One of the things we talked about in our paper on poverty was capping interest rates. Do you think that would be a good idea? Are there any arguments against it?

Ms McPhee: The arguments that are put against it are that credit would dry up. However, credit at levels of 185 per cent is ridiculous, unfair and unaffordable, because it is the people on the lowest incomes who are penalised the most. We have lots of examples like that, where the interest levels are very, very high. The reality for the individual is that it often works better for them because they know exactly how much they are paying. That is the advantage, if you like, for them with these loans: if they borrow £200, they know exactly how much they have to pay and if they miss a payment there are no penalties. For someone on a limited budget, that really suits them. With the banks, you can borrow at a preferential rate, a better rate, but as soon as you start to default on something it all gets completely out of hand.

Q16 Mr Devine: What is the most worrying case? For each one of you, what is the case that has come to you with the most outstanding debt? What has been at the top?

Ms McGillivray: To speak for credit unions, we do not see a huge amount because we do not give any money advice or debt advice to people - we would always refer them on to our colleagues at the CAB or at the local authority money advice shops - but we see them coming in with significant debts.

Q17 Mr Devine: What is significant?

Ms McGillivray: I can think of one person I know of, to a doorstep lender, of £8,000 - and this was a person on income support.

Reverend Blount: I can recall a case - and I cannot recall the exact figures - where somebody with severe mental health problems walked up the High Street and was actively encouraged to take out store credit cards in more than half a dozen different shops and to make significant purchases on all of them. Clearly this was somebody who was vulnerable, who was being exploited. I do not recall the figures, but I do recall very graphically the case.

Ms McPhee: Offhand, I can think of someone just a couple of weeks ago who was 72 years old and she owed something like £60,000 - which, again, was something that would never be repaid. But part of the problem is about small amounts of debt. Perhaps I could read an example out to you of a 19-year-old girl who was living with her parents and working part-time. She had two loans from two different doorstep lenders and she earns £250 a month. Her first loan was for £600 and it had an interest charge on top of that of £372 to be repaid at £18 a week. That loan was paying off a previous loan of £268, so in her hands she only got £232. The second loan she had was for £300 with an interest charge of £165 to be repaid at £15 a week. That loan paid off a previous loan path of £95, so for that loan, she then only got £205. That is how these people get involved: you are paying off previous loans, and they are getting bigger and bigger, but in your hands you are getting quite a small amount of money, and you are on a small amount of money. It is about the percentage of your income that is being repaid.

Q18 Mr Devine: The Committee, as you will have seen from the report, is very supportive of the principle of credit unions. We are going to go and visit Ireland, where credit unions started and are well cemented within the communities. I just wonder why Ireland has been so successful in developing credit unions. The membership is significantly higher per head of population and such like and I wonder what we need to do to improve membership and the profile of credit unions in Scotland.

Ms McGillivray: One of the problems in the United Kingdom as a whole is that credit unions have been seen as a poor man's bank and I think that has put people off. We have certainly had people come along to South Lanarkshire who have said, "I can't join you, I'm in work" and that is not the case. Also, it was the banks in Ireland - the people could not access them as easily as we can do in this country.

Reverend Blount: I think it would also be fair for me to say that the credit union movement in Ireland had very strong support from within the church, and in particular from within the Catholic Church. While both the Catholic Church in Scotland and the Church of Scotland and other churches have been supportive of the credit union movement I do not think that support has been as "hands on" as was the case in the history of the credit union movement in Ireland.

Ms McPhee: I do not know why, but I can say that why I think doorstep lenders are successful is because they are literally there, they are on the doorstep, and they are recruited from within the community. They are there offering you money at a time when you really need it and they are prepared to give you it in cash and then collect it on a weekly basis - so there is not any effort involved, if you see what I mean. I think that is the success of it and credit unions cannot compete with that. Very few could do that kind of doorstep collection.

Ms McGillivray: We certainly saw this in Livingston, when we had some immediate loans that we were able to give out to people through the SGI scheme in Scotland. We found that people could not organise their lives to get to a collection point to pay the credit union loan back, despite us having standing orders and things like that available for them. It was just a chaotic lifestyle really.

Q19 Mr McGovern: I had a case with a constituent in Dundee which it might be helpful to pad out a bit. Jim asked you for the most notable cases you have heard of, and I suppose every MP gets people coming to them as well when they get into difficulties. This case was of a man and a woman, both pensioners, living on the state pension, and the man had a small occupational scheme. He was 69 years and six months old - and the six months is significant. They were offered a loan and they took a loan of £14,000 to buy a caravan. They also took out the insurance on the loan. The man died a year later and the woman obviously thought the insurance would clear the debt. This supposedly reputable company told her that the insurance was only valid up to the age of 70, so they paid this massive premium to get, in effect, six months' insurance for the man. Thankfully, after a lot of badgering and bad publicity, we were able to get the debt cleared. When you speak about doorstep lending, you were saying, Susan, that it is the physical presence on the doorstep, but this couple took this loan as a result of cold calling, just a telephone call. I think everybody gets junk mail through their door every day offering them loans, offering them money. Also, if you are unlucky enough to be in the house during the day watching daytime television, a lot of the adverts in the afternoon, presumably aimed at people on low incomes or unemployed people or pensioners, are offering: "Put all your debts into one pot and come to us" and in some cases it has taken something like 25 years to clear the debt. When you talk about doorstep lending, is it specifically people who knock on your door or is it all these other forms where you can take debt on in your home without leaving your home?

Ms McPhee: There are two different things there. The doorstep lending I am talking about is about people on the doorstep who are lending money to you. They are the people who lend to you, but then there are these other issues about how you manage these debts when you realise that you are in a wee bit over your head. We have lots and lots of case evidence of problems with debt management companies. People have responded to the adverts and gone to them because they are a bit over their head, and they can then find that they are paying quite a hefty fee to these debt management companies and they are taking that off first, before they even start repaying some of these loans, and they are not necessarily repaying all of the loans either. For instance, sometimes they do not pay over your council tax. You think you are paying this lump sum and it is being dealt with and it is not and whoever is not being paid comes back to get you later on. Why do they not go to Citizens Advice Bureaus? We do not have this massive advertising budget that other companies do.

Reverend Blount: Advertising is quite important. We talk a lot about financial education and that is an important part of financial inclusion. The advertising on daytime television offers something that looks hugely attractive: the amount that you are paying a month goes down significantly, you only have one person to worry about, you do not need to worry the next time the door gets chapped about who it might be looking for money from you. You can see the huge attraction in all of that and what you do not see is your indebtedness stretching out for years and years and years into the future, taking a long time. Companies are investing a huge amount and CABs or credit unions are not in any position to compete in terms of the advertising. That is getting to people in their home, as you say, at a vulnerable moment and it sounds attractive. As part of a financial inclusion package, as part of promoting credit unions, I think we do need to look at ways of making people in their own homes aware of that as an option.

Q20 Mr Carmichael: How are all these individual cases aimed? You have this picture you are painting here of debt consolidating into growing debt. Eventually somebody has to pull the rug out from underneath this. Who is doing that? What is happening? Is it insolvency?

Ms McPhee: Nothing has been happening for a lot of people. The charges, et cetera, will continue to accumulate and the debt becomes unrepayable. The CAB will try to work out some kind of voluntary repayment, or else, in some cases, some people have been able to go through to the debt arrangement scheme that is run by the Scottish Government. There have been flaws with that because it does not allow for debt write-off. It has only just started, some time last year, to freeze interest as well, so it is still very new to see how that is working out. For a lot of people who have not been able to access bankruptcy, even if it is the best way for them, what has been happening, in some cases, is that the local authorities are bankrupting them for council tax.

Q21 Mr Carmichael: Is that something that we are seeing again as an increasing phenomenon?

Ms McPhee: It has been very much so in Scotland. In April there are new provisions coming in that will allow people on low incomes with small amounts of assets to access bankruptcy. That may make a difference. That may allow them to write off their debts and start again. Up until now, however, part of the problem has been that creditors do not do what they need to do to allow people to access bankruptcy, so they are just sitting there.

Q22 Chairman: During our inquiry it was clear to us that banks and building societies and financial institutions are charging very high interest rates and penalty charges and particularly to those who are the most vulnerable and needy in our communities. The Committee's view was that the courts should be empowered to impose a cap on the interest rates they charge to their clients. What is your view on this?

Reverend Blount: I certainly would strongly support that. I have been part of the Debt on our Doorstep campaign that has had that as one of its major campaign asks for several years. It should be part of a wider strategy that is also looking at ways of making affordable credit available to the people who are most vulnerable to doorstep lenders at the moment. With banks, it is not so clear cut in terms of being a problem with interest rates, but, as you have said yourself, it is about penalty charges, default payments and all these kinds of things that are in the cost of credit whatever title they are called by. Doorstep lenders are the ones who are charging very high APR interest rates. I think we do need to restrict their activities and their interest rates but that has to go along with the promotion of credit unions. I would also mention maybe a wider use of the Social Fund in terms of making available small amounts of credit, especially for necessary items.

Q23 Chairman: Do you think there should be a cap from the Government imposed? Let us say the base rate is now 5 per cent or 5.25 per cent, that banks and financial institutions should not charge over 20 per cent or 25 per cent. Do you think there is a need for this?

Reverend Blount: Yes, I think so. Many other European countries, for example, seem to operate with such a system. It eliminates some of what goes on here but it does not appear across Europe to be creating the credit deserts that are predicted by some of those in the industry.

Q24 Chairman: When we deal with our constituents, it is not only the doorstep lenders or the illegal lenders who are charging very high interest, the banks and building societies and those institutions have charged high interest rates, high penalty charges and default charges, and in some instances people pay 100 per cent more than that.

Ms McGillivray: If you look at credit unions, they are already capped. It used to be 1 per cent per month and it is now up to 2 per cent per month, which is a maximum of about 26 per cent APR, so there is already capping here in the United Kingdom on credit unions.

Q25 Chairman: No, I am talking about other banks. The point of principle is that if this can be imposed on credit unions, why can it not be imposed on other financial institutions.

Ms McGillivray: Credit unions are not allowed to charge an administration fee or anything like that. That is all within the 1979 Act. It says that the 1 per cent or any other sum thereafter is what is covering all the administration in credit unions, so there is a precedent there within the United Kingdom for capping.

Q26 Chairman: Would you support his campaign, then?

Ms McGillivray: Yes.

Q27 Chairman: I have been personally campaigning for this for the last many years, because I think it is outrageous when the banks can charge up to 100 and 200 per cent and get away with it.

Ms McPhee: What Graham said was correct: it is not just about the interest rates. It would concern me if interest rates were capped and then there were other ways around it in terms of charges and all these things.

Q28 Chairman: It would have to be a complete package.

Ms McPhee: It needs to be taken in the round - all the ways in which creditors can get their money, if you like. One of the other issues for us is the irresponsible lending of creditors. We have seen that over the years. People have been lent money that they could not possibly afford in the first place and then, particularly the banks, when they get into difficulties they are forced to take out another loan because otherwise banking facilities will be withdrawn. So they do not have the choice and yet they are taking on a loan that they know they cannot repay and nothing happens to the banks. There are no penalties for irresponsible lending and yet there are constant, constant things going on for debtors.

Q29 Mr Carmichael: I am going to move the discussion on to financial inclusion and financial literacy, but you have raised an interesting prospect there. Are we talking about some sort of penalties for banks that seem to be acting irresponsibly?

Ms McPhee: I think there should be some kind of penalty for irresponsible lending.

Q30 Mr Carmichael: And can we charge them £20 a letter for telling them that we are imposing it!

Reverend Blount: It is a very tempting thought. One way of dealing with this that has been proposed in the past has been, for instance, that if a bank or anybody else lends to somebody without proper inquiry into their ability to repay that amount of a loan, if they do that, the debt should be unenforceable.

Q31 Chairman: If any financial institution or bank or lender charging high interest rates which are unreasonable and courts are given the powers to make a decision as to what is unreasonable in terms of charges, default charges or in terms of interest, do you not think this will deter people charging high interest rates and high financial charges?

Reverend Blount: I think the experience of the previous legislation, which talks about extortionate interest rates, was that courts were very reluctant indeed to describe something as extortionate. My feeling would be that "unreasonable" would be a much better word to use than extortionate but that there might perhaps be some guidance in subordinate legislation about what was reasonable and unreasonable, with an area of discretion for the court.

Q32 Mr Devine: In the case study you gave us earlier on, Graham, of somebody with a mental health problem, with a lack of income, who goes up the High Street and ends up with half a dozen cards - and these store cards are extortionate, it has to be said - what should be the penalty in that situation? What do you see should be the retribution?

Reverend Blount: That is really what I said to Alistair Carmichael a moment ago. I think that where people are effectively extending credit with no proper inquiry into the ability of the person to repay that credit, the debt should be unenforceable at law.

Q33 Mr Carmichael: It would just be a new species of avoidable contract.

Reverend Blount: Yes.

Q34 Mr Carmichael: Perhaps I could turn to financial inclusion and financial literacy. We have had government priorities, taskforce, every gimmick and piece of jargon known to man and politician. In a nutshell, do you think the Government is doing enough to improve financial inclusion and financial literacy in Scotland?

Ms McPhee: I do not know, as yet. We are hoping to engage with the Thoresen Review that came out in March, which, if it is implemented, should have a significant impact. In terms of preventative measures, it is trying to give money guidance at a much earlier stage and I can see that as being very beneficial. One of the things it is suggesting is to start with a couple of pathfinder projects and we really like to hope that one would start in Scotland. I think if we can see something starting in Scotland before it is rolled out, that could be helpful. That is not necessarily reaching CAB clients; that is reaching people in advance of getting into debt. I think that is very much needed.

Q35 Mr Carmichael: Your ambition surely should be to put yourselves out of business as far as this is concerned.

Ms McPhee: Yes, absolutely.

Ms McGillivray: Perhaps I could talk about one of the schemes that we have going in South Lanarkshire. We are looking at primary four children and talking to them at a very basic level and trying to make it fun. Out of the 22 schools approached, 17 headmistresses immediately said yes they would like this. Linked in with that is a junior savers club, so the children then are encouraged to come along and bring in their money, usually first thing in the morning, in case they lose it, they spend it or whatever happens to it. It is a practical sense of coming along and starting to save, so that you are giving them the education, you are giving them the practical experience of saving. We see from that, hopefully, that the ripples go out, that the adults then join the credit union, they learn the benefits of the credit union and it would change the debt culture into one of savings.

Q36 Mr Carmichael: You have used the word "culture" there which I think comes to the centre of this. I think we have seen a cultural change - probably in my lifetime, somebody in his early 40s - from a culture where my parents' generation would not borrow - they saw credit as the last resort of the last resorts - to one where there is a much greater acceptance. Do you think we could be doing more about the education, getting a younger age to change the culture, to reinstate this saving effect that we seem to have lost.

Ms McGillivray: Yes. From the experience that I have, both in South Lanarkshire and in Livingston of going into schools, the children then start to save and it becomes almost addictive to see their savings growing. Credit unions also have to do their part in that, in providing little incentives to the kids or in getting them to design posters, so you are continually educating them. I think we have to start as early as primary school. You are talking about your experience and I think a lot of us in the room here could echo that. When we went for our first mortgages we were grilled and no-one offered us loans or anything, and there has been a real change in the culture in the United Kingdom.

Ms McPhee: While I absolutely agree with what Nancy was saying, one of the things that we may not be able to get away from is that people sometimes are just too poor. They are too poor to save money and will always be, and that is why they will always have to be in debt because their incomes are not enough. Our research has shown that for half of them their income levels were just too low and they will always need some kind of eventuality. That is where the Social Fund comes in and other things. If that was working better and giving them access to more money, that would help some of it.

Reverend Blount: That would be why, for instance, for somebody going into a CAB with debt problems, one of the things that would be discussed would be income maximisation; if there are benefits that they may be due that they are not claiming. Again that was part of your earlier report about minimum income. There is an intractable problem. It is not that poor people are necessarily being seduced, but that making do, living on benefits long-term, is very, very difficult indeed. Coping with the unforeseen, relatively small thing to perhaps all of us sitting here, is a huge bump in somebody's financial position.

Ms McGillivray: I can certainly agree with Graham in that. For a lot of us, if the washing machine breaks down we can go and buy a new washing machine, and we have people coming into the credit union looking for £50 to repair that, looking for a loan for that. Obviously we can supply that to them.

Ms McPhee: In the next couple of months we will be publishing a suite of briefing sheets on employment issues and the difficulties in trying to get into employment and staying in and what happens after you leave. Certainly one of the biggest problems we have found - even when you are in employment - is getting your pay. A lot of the jobs are very short-term, casual employment, and people are not even receiving pay that they have worked for, so there are lots and lots of problems there.

Q37 Mr McGovern: I have a very brief question to you, Nancy, on what you were saying about visits to schools. I think 17 out of 22 is very, very impressive - and perhaps a slightly sad indictment on the times in which we live - but of the other five, have they just not answered yet or do they have an argument against it? I cannot think of an argument against it but I am wondering if there is one.

Ms McGillivray: This was just a pilot study for my own network. Our network is a charity that seeks out funders and we have not been able to do the 17 schools, we have not been able to give them education there or start up junior savers clubs because we are not funded in that way at the moment, and we are looking for funding for that. Of the other five, off the top of my head three of them approached us within about two months and the other two have not come back to us as yet.

Q38 Mr McGovern: There have been no refusals.

Ms McGillivray: No.

Q39 Mr Carmichael: Is there a role in this for our colleagues in the Scottish Government?

Ms McGillivray: Inevitably.

Reverend Blount: The previous Executive had a financial inclusion action plan that had some successes. Obviously the problem has not gone away and we would hope that the new Scottish Government would look seriously at this.

Q40 Mr Carmichael: To take it away from the realm of government, do the larger lenders, the banks, the credit companies, the store cards and whoever else, have some sort of corporate social responsibility in all this?

Ms McPhee: Very much so. Maybe they could finance some of it.

Ms McGillivray: Yes.

Reverend Blount: There are two aspects to that: the CSR bit around the edges, where financing something like Nancy's project would be very welcome, but, also, there needs to be serous conversation with the financial institutions about their practice. Some things can be done by legislation and some things are probably better done in partnership and by talking to them about the impact of some of their policies.

Ms McPhee: One of the things we mentioned before at the last committee meeting was about the community reinvestment that happens in the States, where banks are obliged to publish their information in terms of lending within communities. Then at least you know how much they are paying back into their community but there is also an element of social responsibility, that they have to make a contribution to their community. I think something like that would be very helpful.

Q41 Mr Walker: On the corporate social responsibility of banks, I think the reputation of banks right now is completely shot to pieces. Regardless of whether you are living in total poverty or relative wealth, banks will lend you money with little safeguards put in place and now the chickens are coming home to roost. When you talk about corporate social responsibility, do you think banks have any credibility in this area whatsoever? They talk about it but they do not seem to act it out.

Reverend Blount: I think the scenario you paint is fairly accurate, but if I were - which I am unlikely to be - a senior person in a bank, I would be looking very keenly at ways of recovering some of that credibility.

Q42 Mr Devine: He is a very rich Tory.

Reverend Blount: There are opportunities here for them to ... the religious word would be "redeem" themselves.

Mr Walker: I think the financial sector needs to do a lot of redeeming, to be perfectly honest. I personally find it rather offensive that we meet good people, like yourself, who are struggling on behalf of people living in poverty who cannot get access to mainstream banking services, whereas major Scottish banks think nothing of spending tens of millions of pounds sponsoring sporting tournaments. Do you not think there is a slight disconnect here, between what they talk about in the area of social responsibility and what they deliver?

Mr Carmichael: Perhaps I could put it a different way, Graham: before you have redemptions, do you not have to have repentance?

Q43 Mr Walker: I know his parents go to church every week!

Reverend Blount: I am sure that is so, but the offer of forgiveness is perhaps what initiates the process.

Q44 Mr Walker: It is a serious point. When we came up to visit Scotland we visited various parts - we have been to Dundee, Aberdeen, Inverness. There is a shortage of opportunity for people living right at the bottom of the income scale to access financial services because they are not deemed as being profitable, yet at a time when banks, up until about six months ago, were making vast profits. Why do you think that not even a fraction of this or a measurable fraction of this was ploughed into providing services for the very least well off? How better can you example your commitment to a community than that?

Reverend Blount: I think so. I suspect that, from the bank's point of view, sponsoring rugby tournaments seems more attractive: you get more publicity and you get your logo on the telly for six hours on a Saturday. There is more to be gained.

Q45 Mr Carmichael: You cannot erect a big tent at Murrayfield and give them free drink to see somebody come and get their loan to get a new washing machine, in other words.

Reverend Blount: No.

Ms McPhee: In the last two years running we have asked the Citizen Advice Bureau advisers to tell us who they think is the worst company that they deal with - and this is right across the board. Banks have come top for the last two years running - all the main banks. We are having more problems now in terms of bank accounts. Although they are supposed to have basic bank accounts, people who are becoming bankrupt are not getting bank accounts - they are being shut down. Some banks will shut down a bank account as soon as they know a CAB is involved because then they know this person is possibly in trouble. They shut down the bank account and then there are the difficulties of trying to get another loan there. If we do see more and more people becoming bankrupt - which is what we are expecting - there is going to be a big difficulty in accessing bank accounts and I do not know what will happen. They could do a great deal more. They could do things with overdrafts. In France and Germany I think credit is run for low income people, using just a £200 or £300 overdraft. People could do that if the charges were not so punitive. There are lots of things the banks could do.

Q46 Mr McGovern: It is my understanding that credit unions were originally based on a small business model. The Government are now trying to encourage them to expand and take on more business but the counterargument to that is that too much expansion would mean moving away from their community-based roots and possibly defeat their original objectives. What is your view on that?

Ms McGillivray: I think credit unions are there to serve the community and each and every person in the community. They are a not-for-profit organisation and their members own them, so, therefore, their members control them. I know some of the larger credit unions have expanded and taken over quite a large area. To do that, you really do need to have very good and very strict financial controls on them. Some of the larger credit unions now offer cheque accounts, now offer bank services to their members. Within credit unions, there are two different levels really. We have the community credit unions, such as I am involved with. We cover the unitary area of South Lanarkshire, and the other one which I am involved with covers Livingston. That allows you to grow that business there and to grow that business using sound business practices.

Reverend Blount: The Trustee Savings Bank movement was initiated in Dumfries by a Church of Scotland minister a long time ago for very much the same kind of ethos and reasons that the credit union movement now works to. That Trustee Savings Bank movement grew and developed from the 1960s, from local savings banks that were very much like the credit union movement, by a process of amalgamation and adopting a fairly aggressive business model to Lloyds TSB today - which I would not say is any worse but not substantially different from any of the other major banks. I think the challenge is to find a way of growing the Credit Union Network which does not set in train the dynamic that took us from Trustee Savings Banks to Lloyds TSB; so that there is still part of the ethos of the credit union movement; so that which was lost in the other example can be retained.

Q47 Mr Walker: That is a critical point, because you do not want to diminish the strength of credit unions by turning them into quasi banks or large building societies, and that is going to be a significant challenge for you. I am sorry I was late, but would it be possible for somebody to explain to me briefly, in about two minutes, how credit unions are financially structured. What is their loan book? What interest rates do they charge? Where do they get their revenues from? Can they borrow off mainstream lenders? Do they go to the Bank of England? How do they work?

Ms McGillivray: The credit unions are strictly regulated by the Financial Services Authority. We must have a common bond - which is that people have to either live or work together, or it can be associational; for example taxi drivers or something like that. The credit unions form from that. The board of directors who run the credit union will be volunteers. Many of us now have paid staff. The pot of money that we have to lend out is members' savings.

Q48 Mr Walker: That is all you have, the savings.

Ms McGillivray: That is it. We do have the facility to be able to go to another credit union and borrow if we are exceeding what we have in the savings and that is what we have. Many of us have other projects that are being funded through local authorities, through government or through private charities, financial education and things like that, but, in essence, all the money we have and the way we run credit unions is purely by members' savings and the interest we charge on the loans. That is normally 1 per cent but we can go up to 2 per cent per month; so it is normally 12.68 per cent or it can go up to 26.8 per cent APR

Q49 Mr Walker: What interest rates do you pay savers? Five per cent?

Ms McGillivray: Some of the larger credit unions now can actually offer savings. Many of us, though, cannot say that we will pay you back - because you are investing your money, so you own the company, you get a share of the profits.

Q50 Mr Walker: There could be profit.

Ms McGillivray: If there is any profit.

Q51 Mr Walker: Is there ever any profit?

Ms McGillivray: Normally in community credit unions it is about year eight or nine. However, I will say that the one from Livingstone has paid a dividend since year one and that dividend has range from 1.75 per cent this year up to 3 per cent.

Q52 Chairman: You say share the profit. Obviously credit unions are growing and expanding and you need to have your expansion costs as well.

Ms McGillivray: Yes.

Q53 Chairman: What percentage of the profits goes to the shareholders and what percentage of the profits goes for expansion?

Ms McGillivray: Because credit unions are autonomous, it is really up to their board of directors what they do. We are guided by the FSA on what we should have in reserve. Obviously we have a bad debt reserve as well, because people do not always pay back their credit union loans. For example, if I talk about the Livingston one, we have a development reserve so that we are continually looking to expand and offer new services there. Anything that is left after that is shared out between members. As I say, this year it is 1.75 per cent on our savings and it has been as much as 4.5 per cent in previous years.

Q54 Mr Devine: I obviously have to declare an interest here because I am a member of the Livingston Credit Union. Could you give the figures of turnover, loans and what-have-you?

Ms McGillivray: If I talk about Livingston: since we started, which was ten years ago, we have given out over £2 million in loans. At the present moment we are sitting with £600,000 worth of members' savings.

Q55 Chairman: Is there any criteria where you say, if you have £2 million in the pot, that you can give 50 per cent of that or 80 per cent of that?

Ms McGillivray: We would normally give out between 80 and 90 per cent of our members' savings as loans. If we have a pot of money sitting there of £100,000, we are probably lending out £80,000 at that time. We are keeping the 20 per cent to make sure that we have money to pay back share withdrawals and things like that. The children's savings are kept separately from that, so that we can always pay out the children's savings. Obviously under 18 they are not allowed to take loans out.

Q56 Chairman: How long does a member have to be signed up with the credit union before he or she is given a loan?

Ms McGillivray: It varies from credit union to credit union. In some we are now starting to do flexible lending, so that someone coming in showing us proof of income may immediately get a loan, but normally we are looking to build up their credit history with us, so you are probably looking at 13 weeks saving with a credit union and going on to a loan and then graduated on to the second loan and the third loan. Again, just quoting Livingston, their third loan is three times their savings. If they have £1,000, they can have up to £3,000.

Q57 Mr Walker: What is the average pot?

Ms McGillivray: The average loan since we started Livingston is about £900 to £1,000.

Q58 Mr Walker: About £300 per saver.

Ms McGillivray: No, that is an average loan.

Q59 Mr Walker: What is the average saving account.

Ms McGillivray: We can only take up to £10,000.

Q60 Mr Walker: That would be the largest, but, in the main, what are people saving?

Ms McGillivray: People are saving about £1,000, £2,000 - something as much as that.

Q61 Mr Walker: They have accounts of £1,000 to £2,000.

Ms McGillivray: Many of them under the £1,000, but we have people who have a lot more there because they want to save with the credit union; they want to put something back into the community.

Q62 Mr Walker: Say someone is saving with you on a weekly or monthly basis, is the average deposit £5 or £10 a week or £5 of £10 a month?

Ms McGillivray: Off the top of my head and not being the financial director, probably about £5 a week, something like that.

Q63 Mr Walker: A note, basically - which, if you are on £100, is quite something, to hand over a note.

Ms McGillivray: Yes.

Q64 Chairman: What is the percentage of bad debt?

Ms McGillivray: Traditionally we have been lower than banks. I could not give you the figure off the top of my head. I would have to have the accounts here. We are under 2 per cent for bad debt.

Q65 Mr Carmichael: If you are responsible in your lending, you are not going to see a problem with bad debt. You were speaking there about regulation and the Financial Services Authority and you also have all the money laundering regulations. Are these influences now giving you a pressure within your organisation to be bigger, because, in order to cope with that level of regulation, there is an economy of scale?

Ms McGillivray: I do not think that is what is driving us. I think what is driving us is that we want to provide the services to more people and we want to provide the best service we can to the majority of people in Scotland.

Q66 Mr Carmichael: Do you think the regulation of you as a sector - which has been done by the same people regulating Northern Rock, for example, the big banks, the credit companies - is appropriate?

Ms McGillivray: I have been down and spoken to the FSA on a number of occasions and I have to say that, while they regulate us in the same way, I think they are more lenient with credit unions than they are with the other big lenders. I think the money laundering regulations that have come in may cause a problem but it is not insurmountable.

Q67 Mr Carmichael: What is the nature of the problem from the sharp end?

Ms McGillivray: If you talk of the sharp end, it is purely logistics of managing to get things copied, making sure that everyone knows exactly what it is that the member has to have to join a credit union. It is really the logistics of getting all that copied. I would love to see us being able to have a wireless system, whereby we can stand things in a collection point -because obviously we have our main base and then we have several collection points. To have the new technology to enable us to communicate there would make life a lot simpler.

Q68 Mr Carmichael: You are talking about copying things like driving licences, wage slips or whatever.

Ms McGillivray: Yes.

Q69 Mr Carmichael: If you have a credit union in a village hall or community centre.

Ms McGillivray: The one group we have problems with are the 16-year to 18-year olds who do not have driving licences. Some do not have passports; they do not have utility bills and things like that. That is the group we have problems with, in finding something there.

Q70 Mr McGovern: We heard earlier about the success of the credit unions in Ireland and various views as to what bred that success. Part of it seemed to be that they attracted membership from all sections of the community. Probably the most successful organisation in Scotland that I know of - although that does not mean it is the most successful - is the one the Scottish Affairs Committee visited in Brigdon. You mentioned that credit unions are now employing people full-time and that one certainly does. Do you believe it is crucial for the credit unions in Scotland to attract more affluent members of the community.

Ms McGillivray: It is essential that they attract the more affluent members of the community. There was a report published in 2006 from the Joseph Rowntree Foundation by Peter Goss, Charles Ferguson and Donald McKillip that identified that this was one of the major recommendations. Perhaps I may read this to you: "... placing greater emphasis on credit union development based upon a cross-section of the population, including affluent sections of society. This offers a more viable long-term model than concentrating only on financially excluded people." If we concentrate only on the financially excluded, then the credit union will not be there, because we need the savings from the other people to offer the services. As you may have seen, some credit unions have become insolvent. Many of these were highly dependent on grants purely focused on the financially excluded.

Q71 Mr Devine: Is it right that one of the other things you have lobbied me on is that the legislation needs to change to include groups, like mother-toddler groups and various other community groups, so that they can sign up.

Ms McGillivray: Yes. I have to say within West Lothian we have lobbied Jim about this quite frequently. On average, we hear from one community group per week asking to join the credit union and to put their savings in there rather than go into a bank. Because now there are not as many branches of the banks and things like that, we are more readily accessible for them. To have the legislation changed to allow groups to stay with credit unions is essential to these small groups.

Q72 Mr Devine: Why can you not do it now? Why can you not accept Jim Devine's Livingston South playgroup?

Ms McGillivray: We are not allowed to do that by law.

Q73 Mr Devine: That is the law.

Ms McGillivray: From Westminster.

Q74 Chairman: What more can the British Government or the Scottish Executive or local government do to promote and expand the credit union movement in Scotland? Graham has mentioned that the church played a major role in promoting credit unions in Ireland. What more can the church do, what more can we do, and what more services can be allowed in the development of credit unions which can help them to expand?

Reverend Blount: Perhaps I could respond to what you say with relation to the church. I was involved with a report within the Church of Scotland which must be nearly ten years ago now where the General Assembly recognised the value of credit unions but one would have to say that very little happened on the ground. One of the factors in that - and it has been alluded to by Nancy in the last conversation - is that it is quite intimidatingly complex for a group of people. However well disposed they are to the idea, it is not something where you can form a wee group of half a dozen people and they will get it running by next week. It is a huge commitment. In one sense it should be, because there is a huge amount of responsibility. You would not want anybody to be able to set up a credit union and take people's money and disappear. The element of trust is why there is an important strategic role for churches, because I think people do feel that if it is set up under the aegis of a church then the people to whom you are handing over your money are not about to disappear off to the Caribbean with it next week. That is why there is a contribution to be made. Providing accessible support to groups of people within communities who do want to do this, does not always seem to be a meeting of minds between local authorities - some of whom have had or still have credit union development officers - and groups on the ground that are interested. Somehow connections are not always being made there. I think that is an area we can look to, in supporting people in getting involved in the credit union movement.

Q75 Mr Devine: In a previous life, I was Head of Health in Unison when they set up the Glasgow Health Boards. I started with a man called Robert Ray in Southern General and then we negotiated with the Health Board to deduct at source. It seems such a logical way for the likes of local authorities, health boards and, I am sure, companies. Do you target companies in this sort of area?

Reverend Blount: Many of the most successful credit unions, at least in terms of numbers and the total amount of money that they are dealing with, have been employee-based. There is Capital Credit Union in Edinburgh which was originally Lothian Regional Council's credit union. It has now expanded its common bond to be a wee bit wider. A lot of the success has been with ones that are workplace-based.

Ms McGillivray: As you say, a lot of the credit unions that were workplace-based have been very successful. We ourselves can offer payroll deduction. As long as we have a live or work common bond within the area, then we can offer pay roll deduction and things like that. Certainly within South Lanarkshire we are looking at perhaps opening up even more access to people and I think that is one of the things that we really do need for credit unions. We have paypoint access, whereby people can go into post offices or stores that accept paypoint and pay into their credit unions. That was very successful. It brought back dormant members, so it showed that they needed the access that we were not able to give them. It also helped with their bad debt problem because people were embarrassed about coming into the credit union and paying again. However, we are looking towards more technology-based stuff as well, to allow for people who are more affluent, who are working, who are lone parents who cannot get out of the house, carers, or the housebound, and to give them access by using interactive websites or SMS texting and various things like that. We want to bring credit unions right into this century. Also, we have set up a group within Scotland where all the trade bodies are involved, as well as National Association of Credit Union Workers and the co-operatives, and we are looking there at trying to get training for credit union officials and also for credit union workers and for the volunteers. We have a big base of volunteers in Scotland and they are superb at giving their time. Many of the credit union volunteers I am involved with in South Lanarkshire are people who perhaps have mental health problems and this has assisted them back into mainstream. We have had students who have come in and it has assisted them into work. We have had people who are asylum seekers who are giving to the community as well. There are lots of reasons to be a volunteer and the credit union is ideally placed for them there, because we can give them cashier experience, we can give them computer experience, they can come onto the board and they can make strategic decisions and things like that. There is a lot that can be done there with training and with development but that takes money. It takes funding there for the credit unions or the Credit Union Network, whichever way people have set themselves up.

Q76 Chairman: Could you please tell us how small credit unions are competing against High Street banks.

Ms McGillivray: We have a community credit union in my area that has 400 members. They are competing obviously on a different level there. They are competing on the much smaller level and the community level. I do not think any of us could go to a bank and get a £50 loan. They would not give it to us. I can state here that if I cannot get £50 and the minimum is £500, I will find a use for the £450 and I do not think anyone is any different. We are offering that type of loan to people. That is a small community credit union. I think the organic growth of credit unions is great because it starts small. My experience in Livingston is we started small. We started from a church in Livingston and the first collection netted £20. If someone had told me ten years ago that we would have given out £2 million in loans and be sitting in charge of £600,000, I would be frightened, and I think anyone would have been. We have grown with the credit union. We have grown to be able to offer more services to people and we want to be able to offer these services.

Q77 Chairman: Since large banks, in my experience, are not interested in small customers, do you not think there is a huge potential here now for the credit union movement to grow?

Ms McGillivray: I think there is a huge potential. I will give you an instance of somebody who came and spoke to me about a loan. He was a chap who had multiple sclerosis and he wanted to adapt a car and he wanted quite a substantial loan for that. We were able to give him that loan, but, while I was interviewing him, as a responsible person I said to him, "If you go to a bank you will get this at a cheaper rate," and he said to me, "No. You will. I won't." That was the difference. He could not get that. This is also their insurance. Because there is free life insurance with it, many people are using that as the basis for paying for their funerals.

Q78 Chairman: Can I thank you for your attendance today. Before I declare the meeting closed, do you wish to say anything in conclusion, perhaps on areas that have not been covered in our questions?

Ms McPhee: I have just one thing. While absolutely supporting credit unions they will not be the answer to the debt problem. They may be the answer for the future but not for the existing debt problem. Something needs to be done about that.

Q79 Chairman: Are there any pearls of wisdom to come from you?

Reverend Blount: I would agree with what Susan has said. What you mentioned in your earlier report about flexibility and expansion of the Social Fund is part of the same agenda as the promotion of credit unions.

Ms McGillivray: I welcome an inquiry into credit unions for Scotland. I would like to see us leading the way for credit union development there throughout that country so that we are covered completely by credit unions.

Chairman: Thank you for your attendance. I am sure your evidence will be very useful for us when we compile the report.