Payday lenders have lessons to learn from credit unions

A cap on interest is the first step to transforming predatory lenders into responsible ones.

We know we have come a long way when Iain Duncan-Smith says, "for too long now predatory lenders have been plaguing the homes of vulnerable people." But what does his government intend to do about it? Not a lot so far.

Admittedly, if there was to be an interest rate cap on the loans dealt out by predatory lenders, then they would just find ways around it, like loading up administrative fees and charges elsewhere. So what then? A cap on the total cost of credit is what we should pine for today, placing a cost ceiling on how much a loan, inclusive of charges and administrative fees, would be to a consumer.

The benefits to a person taking out loans would be unprecedented.

Since the "Big Bang" – the sudden deregulation of the financial markets back in the 1980s – policymakers have been loath to right the wrongs of market irresponsibility with anything other than mere guidance. The same must be said of the credit market. At an official level, we require responsible lending, but it is all self-regulated. This has to change.

However there is one financial product that does have, imposed upon it, a legal cap. That is a loan from a credit union. Currently a credit union cannot lend at more than 26.8 per cent interest. This has always been the main pull of a credit union’s appeal – it can lend at a low interest, and offers advice and encourages savings as well.

The first credit union in the UK was likely to have been born out of the first properly documented cooperative institution which was in Rochdale in 1844. As Ann-Marie Ward and Donal McKillop in their paper on the relationship between credit union objects and cooperative philosophies point out, it probably wasn’t the first credit union as such, as the unions grew out of less formal savings groups – but certainly it was the most successful of the day on which many others were subsequently modeled.

Political support for the institutions didn't occur until the 1980s/1990s as they started to become part of local and central government discourse on tackling poverty and disadvantage. In the late 1990s/early 2000s, the Association of British Credit Unions (ABCUL), the sector’s largest trade association, decided to encourage credit unions to be a bit more like a business, so as to encourage middle-class savers and shift the image of being the "poor person’s bank".

Credit unions have been subject to many levels of so-called modernisation. In the Blair years there was a commitment towards more funding for credit unions, which was perfectly consistent with the "third way" appeal to a savings culture assisting with welfare, such as the savings gateway and the child trust fund.

Unions received a great boost from the Department for Work and Pensions (DWP) in 2011, receiving a funding package of £73m for a modernization, but given that only 2 per cent of the UK population is a member of a credit union, something is missing the mark.

A recent report commissioned by the DWP has said that the sector is not financially sustainable. This might suggest that with continued funding, in the amounts that it has been coming, credit unions cost more than they are worth. I take a different view.

It is not how much they cost in funding that is the problem, but how the money is spent. When I asked Sally Chicken, Chairman (Volunteer) at Rainbow Saver Anglia Credit Union, how to make credit unions more appealing to a greater amount of people, she told me:

We are already very appealing to people once they have heard of us, so we really just need a good loud marketing campaign, I don’t understand why ABCUL is so against a national marketing awareness campaign… in the US there are still such public information radio ads, even though there is already high awareness. We need to use modern media in a better way, radio, TV, even Facebook.

The same DWP report suggests raising the maximum annual interest rate from 26.8 per cent to somewhere in the region of 42 per cent. This is bound to cause gasps. But I think it is rather modest – especially given the finding from the Community Development Finance Institutions (CDFI)'s project My Home Finance that credit unions need to charge 68 per cent to cover its costs alone.

One of the modernising moves I recommend is for credit unions to offer a home credit service. A regular feature that always comes up in Provident Financial’s annual reports is that the majority of their customers find the convenience of the loans, from their doorstep, very satisfactory indeed. So much so, in fact, people are willing to pay way over the odds for it.

On the face of it, home credit, at a representative APR of 272.2 per cent, seems irrational, particularly given the availability of lower cost loans elsewhere. Taking note of this, the Joseph Rowntree Foundation, back in 2009, published a report assessing whether there could be scope for a not-for-profit home credit provider – taking the best from the industry and seeing whether it could be achieved at a price that doesn't exploit the customer.

The resulting conclusion from the study found that even without profit, at a break-even rate, 129 per cent APR was going to be typical on a loan of £288 over an average 56 week loan, assuming an investment of £18m with the intention of becoming cash-positive, operating without further investment, after five years.

Credit unions should enjoy continued investment, and in the last few years have received far more than £18m, so a lower rate home credit service could be feasible. This is guaranteed to get people to join credit unions, and signposts a more creative approach to modernisation.

If we want better credit unions, interventions like this one are the way forward. The stock answer that credit unions, as they are, will help wean people off high-cost credit is simply not good enough.

A supporter of credit unions in Los Angeles. The organisations are more widespread in the US. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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The vitriol aimed at Hillary Clinton shows the fragility of women's half-won freedom

The more I understand about the way the world treats women, the more I feel the terror of it coming for me.

I’m worried about my age. I’m 36. There’s a line between my eyebrows that’s been making itself known for about the last six years. Every time I see a picture of myself, I automatically seek out the crease. One nick of Botox could probably get rid of it. Has my skin lost its smoothness and glow?

My bathroom shelf has gone from “busy” to “cluttered” lately with things designed to plump, purify and resurface. It’s all very pleasant, but there’s something desperate I know at the bottom of it: I don’t want to look my age.

You might think that being a feminist would help when it comes to doing battle with the beauty myth, but I don’t know if it has. The more I understand about the way the world treats women – and especially older women – the more I feel the terror of it coming for me. Look at the reaction to Hillary Clinton’s book. Too soon. Can’t she go quietly. Why won’t she own her mistakes.

Well Bernie Sanders put a book out the week after the presidential election – an election Clinton has said Sanders did not fully back her in –  and no one said “too soon” about that. (Side note: when it comes to not owning mistakes, Sanders’s Our Revolution deserves a category all to itself, being as how the entire thing was written under the erroneous impression that Clinton, not Trump, would be president.) Al Gore parlayed his loss into a ceaseless tour of activism with An Inconvenient Truth, and everyone seems fine with that. John McCain – Christ, everyone loves John McCain now.

But Hillary? Something about Hillary just makes people want to tell her to STFU. As Mrs Merton might have asked: “What is it that repulses you so much about the first female candidate for US president?” Too emotional, too robotic, too radical, too conservative, too feminist, too patriarchal – Hillary has been called all these things, and all it really means is she’s too female.

How many women can dance on the head of pin? None, that’s the point: give them a millimetre of space to stand in and shake your head sadly as one by one they fall off. Oh dear. Not this woman. Maybe the next one.

It’s in that last bit that that confidence racket being worked on women really tells: maybe the next one. And maybe the next one could be you! If you do everything right, condemn all the mistakes of the women before you (and condemn the women themselves too), then maybe you’ll be the one standing tippy-toe on the miniscule territory that women are permitted. I’m angry with the men who engage in Clinton-bashing. With the women, it’s something else. Sadness. Pity, maybe. You think they’ll let it be you. You think you’ve found the Right Kind of Feminism. But you haven’t and you never will, because it doesn’t exist.

Still, who wouldn’t want to be the Right Kind of Feminist when there are so many ready lessons on what happens to the Wrong Kind of Feminist. The wrong kind of feminist, now, is the kind of feminist who thinks men have no right to lease women by the fuck (the “sex worker exclusionary radical feminist”, or SWERF) or the kind of feminist who thinks gender is a repressive social construct (rechristened the “trans exclusionary radical feminist”, or TERF).

Hillary Clinton, who has said that prostitution is “demeaning to women” – because it absolutely is demeaning to treat sexual access to women as a tradeable commodity – got attacked from the left as a SWERF. Her pre-election promises suggest that she would probably have continued the Obama administration’s sloppy reinterpretation of sex discrimination protections as gender identity protections, so not a TERF. Even so, one of the charges against her from those who considered her not radical enough was that she was a “rich, white, cis lady.” Linger over that. Savour its absurdity. Because what it means is: I won’t be excited about a woman presidential candidate who was born female.

This year was the 50th anniversary of the partial decriminalisation of homosexuality, and of the Abortion Act. One of these was met with seasons of celebratory programming; one, barely mentioned at all. (I took part in a radio documentary about “men’s emotional experiences of abortion”, where I made the apparently radical point that abortion is actually something that principally affects women.) No surprise that the landmark benefiting women was the one that got ignored. Because women don’t get to have history.

That urge to shuffle women off the stage – troublesome women, complicated women, brilliant women – means that female achievements are wiped of all significance as soon as they’re made. The second wave was “problematic”, so better not to expose yourself to Dworkin, Raymond, Lorde, Millett, the Combahee River Collective, Firestone or de Beauvoir (except for that one line that everyone misquotes as if it means that sex is of no significance). Call them SWERFs and TERFs and leave the books unread. Hillary Clinton “wasn’t perfect”, so don’t listen to anything she has to say based on her vast and unique experience of government and politics: just deride, deride, deride.

Maybe, if you’re a woman, you’ll be able to deride her hard enough to show you deserve what she didn’t. But you’ll still have feminine obsolescence yawning in your future. Even if you can’t admit it – because, as Katrine Marçal has pointed out in Who Cooked Adam Smith’s Dinner?, our entire economy is predicated on discounting women’s work – you’ll need the politics of women who analysed and understood their situation as women. You’ll still be a woman, like the women who came before us, to whom we owe the impossible debt of our half-won freedom.

In the summer of 2016, a radio interviewer asked me whether women should be grateful to Clinton. At the time, I said no: we should be respectful, but what I wanted was a future where women could take their place in the world for granted. What nonsense. We should be laying down armfuls of flowers for our foremothers every day.

Sarah Ditum is a journalist who writes regularly for the Guardian, New Statesman and others. Her website is here.