HC 271 Money Advice Service

Written evidence submitted by the Association of British Credit Unions Limited

1. Executive Summary

1.1 ABCUL supports the need for better financial capability in the UK. Our member credit unions, in carrying out their work to support those experiencing financial difficulty and in providing financial services more generally, have considerable experience of intervening to remedy consumer detriment arising from an insufficient knowledge of financial matters.

1.2 In principle, therefore, we support the Money Advice Service and its objectives. We agree that it is necessary to improve the financial capability of the UK population and thereby facilitate a properly functioning market for financial services whereby empowered and informed consumers use their choice to ensure effective competition and improve consumer outcomes.

1.3 We therefore wish to see an efficient and effective service which offers value and fairness for funders and is effective in reaching the people it needs to.

1.4 Because we support the Service’s aims and objectives, we are pleased to see that MAS has put in place plans for evaluating its performance and demonstrating the value that it brings to consumers and the economy. If it does appear that some sections of society are being missed out of the work of MAS then the delivery model should be adjusted to ensure that the needs of harder to reach consumers are being met. Face to face delivery in conjunction with trusted intermediaries may be necessary in order to ensure that all consumers can access the services they need

1.5 We acknowledge that the feasibility of charging OFT licence holders as well as FSA regulated firms was explored, but we still have some concerns that this has not been deemed possible. We hope that this will be revisited, particularly if the Financial Conduct Authority takes over the OFT’s responsibilities with Consumer Credit.

2. Introduction

2.1 We welcome the opportunity to respond to this consultation. ABCUL is the main trade association for credit unions in England, Scotland and Wales, and our members serve around 70% of Britain’s credit union membership. Credit unions are not-for-profit, financial co-operatives owned and controlled by their members providing safe savings and affordable loan facilities. Increasingly a small number of credit unions offer more sophisticated products such as current accounts, ISAs and mortgages.

2.2 At 30 September 2011, credit unions in Great Britain were providing financial services to 837,339 adult members and held more than £703 million in deposits with more than £570 million out on loan to members. An additional 115,549 young people were saving with credit unions. [1]

2.3 At 30 September 2011, credit unions belonging to ABCUL were managing around £516 million of members’ savings on behalf of over 576,000 adult members.

2.4 The Credit Unions Act 1979 sets down in statute the objects of a credit union; these are four-fold:

· The promotion of thrift among members;

· The creation of sources of credit for the benefit of members at a fair and reasonable rate of interest;

· The use and control of their members’ savings for their mutual benefit; and

· The training and education of members’ in the wise use of money and in the management of their financial affairs.

2.5 Credit unions in Britain are small, co-operative financial institutions often extending financial services to those unfairly excluded from the financial services the majority take for granted. They are owned and controlled by a restricted membership and are operated for the sole benefit of this membership. The Credit Union Act 1979 sets down these operating principles in law.

2.6 In the past decade, British credit unions have trebled their membership and assets have expanded four-fold. As this growth has taken place, the role that credit unions can play – both in providing equitable financial services to the whole of their communities and providing diversity in the financial services sector – has been increasingly recognised by government and policy-makers.

3. Evaluation of the Service

3.1 We feel that there should be a robust system of assessing the efficacy of the Money Advice Service based on a thorough baseline assessment of financial capability which can be used to measure improvement alongside detailed analysis of people reached and any changes in behaviour that result from their engagement with the Service.

3.2 We look forward to seeing more transparent and open assessments of the effectiveness and value of the Service based on robust metrics, and we welcome the commitment in the 2012/13 Business Plan to conduct research to establish a baseline against which progress can be benchmarked.

4. Fairness of funding

4.1 When originally proposed, the Consumer Financial Education Body (forerunner to the Money Advice Service) was to be funded in part by OFT-regulated firms and powers were taken in the Financial Services Act 2010 [2] to enforce this.

4.2 We acknowledge the difficulties discovered in raising a contribution from OFT-regulated consumer credit lenders (since they do not report their level of activity to OFT), however, it does seem unfair, given the fact that OFT-regulated lenders – especially high cost lenders – often play a role in exacerbating over-indebtedness and financial difficulty, that these lenders will not be required to contribute to the costs of the Service at least in the immediate future.

4.3 We recognise that over the medium to long term, it should become easier to levy these firms as they move into Financial Conduct Authority oversight. We would therefore seek assurance that when this transfer has been affected, levies will be raised from consumer credit firms as well as mortgage lenders and deposit-takers, both in the interests of fairness to other financial services providers and to place a greater responsibility on such lenders to consider the implications of their business practices.

5. Implementation

5.1 We feel that there is a need to closely monitor the effectiveness of a remote delivery model and the appropriateness of this mechanism for reaching the target audience of the Service. Our members’ experience of dealing with those in financial difficulties is that often they are most receptive to face-to-face delivery. While we recognise that the planned website re-launch may create a better and more accessible experience for its users, we are especially concerned that many of those who could most benefit from the Service will be excluded from it because they do not have internet access. Given that 23% of UK households do not have internet access [3] - many of them households in economically disadvantaged circumstances – we believe it is important that the Service maintains its efforts to reach out to everyone.

May 2012

[1] Figures from unaudited quarterly returns provided to the Financial Services Authority

[2] See Financial Services Act 2010, Schedule 1A, Section 13: http://www.legislation.gov.uk/ukpga/2010/28/schedule/1

[3] Office for National Statistics, Internet Access – Households and Individuals, 2011 , published 31/08/11

[3] http://www.ons.gov.uk/ons/rel/rdit2/internet-access---households-and-individuals/2011/stb-internet-access-2011.html

Prepared 15th June 2012