Credit Unions just might have a fighting chance

A real ethical alternative?

A recent report by the London Mutual Credit Union has given a real boost to the prospect of ensuring payday lending is undercut, not just by sensible regulation, but also by healthy competition from ethical alternatives.

The following figures, from that report, are astonishing:

According to the OFT, the average loan amount is £265 and the average cost of a payday loan is £25 for every £100 borrowed. This typical loan repaid over one month would therefore cost at least £66, compared to just £5.30 with LMCU. By borrowing through LMCU instead of high cost payday lenders, the 1,219 who borrowed during the pilot have collectively saved at minimum of £144,966 in interest charges alone, equivalent to almost £119 per borrower.

That saving could be used by consumers to ensure they don't get caught in a future debt cycle - and what a huge saving it is, too.

The report does some further number crunching:

If the 7.4m and 8.2m payday loans taken out in 2011/2012 from high cost lenders had been through a credit union alternative, we estimate that between £676m and £749m would have been collectively saved. This would equate to an average saving of at least £91.43 for every payday loan made through the credit union.

Millions and millions of pounds could be saved from going into the pockets of payday lenders if an alternative, based upon the LMCU model, could be secured.

There is, however, a caveat. A new report by Damon Gibbons of the Centre for Responsible Credit (CfRC) has the following discussion:

the evaluation of the London Mutual Credit Union pilot reported that the payday loan offering was a "loss leader", finding that on average each loan would require a subsidy of £6.85 to break even.

However the government announced earlier in the year that by 2014 the amount of interest that a credit union can charge on a loan will rise from 26.8 per cent now to 42.6 per cent. This way credit unions will be able to offer payday alternative products that break even.

The likelihood is that because of the slightly higher interest rate the savings that borrowers will be able to achieve will reduce slightly, but CfRC has worked out that for credit unions there will still be a healthy return on investment. What's more, it will provide immense savings compared to payday loans for consumers.

As is well known the Archbishop of Canterbury said recently that given time credit unions would out-compete Wonga, after which news came in that Wonga earned in profit £1m per week in 2012. Understandably many were sceptical. But credit unions now have a fighting chance. This is great news for consumers.

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.

Photo: Getty
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Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.