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.
 

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Does her small majority mean Amber Rudd's hopes of becoming PM are already over?

The Home Secretary is well-liked at Westminster, but has a narrow hold on her seat.

Among Conservative MPs, there is only one politician at cabinet level who arouses any enthusiasm: the Home Secretary, Amber Rudd. As I wrote in my morning briefing yesterday, at present, she is in the box seat as far as first place among Tory MPs is concerned.

But Rudd has a problem: her wafer-thin majority. Her constituency of Hastings and Rye has gone with the national winner at every election since its creation, and appropriately in 2017 it was on a knife-edge: just 346 votes separated Rudd from her Labour challenger.

Although in some ways the problem is secondary – as if Rudd loses her seat, then Labour will be heading into power, whether in some form of minority government or as a majority one, at which point, the Conservatives would seek a new leader in any case. But as the Liberal Democrats have frequently found, the problem with having a leader in a marginal seat is it takes your biggest gun off the field of battle if they are continually having to pop back to their constituency to defend it.

At the last election, neither Theresa May nor Jeremy Corbyn had to campaign extensively in Maidenhead or Islington North, while Tim Farron had to fight a rearguard action to hold onto his seat, which was solidly Tory until he won it in 2005 and nearly flipped back to the Conservatives in 2017.

It also adds a note of soap opera to your general election campaign that no one wants or needs if your Prime Minister-designate is having to fend off questions about what happens in their own seat.

But there are two factors at play that are not commonly discussed. Firstly, it’s not as if Hastings (or Rye for that matter) are a particular part of the Rudd brand and she could very easily pop up in a safe seat elsewhere. Not least because you can easily finesse an argument about having been an MP in a marginal seat for seven years but now as Prime Minister you need to focus on the whole country, and so forth. Her supporters at Westminster are already discussing potential berths.

The second is the possibility of a wholesale boundary review on the basis of 650 seats not 600. Whatever happens, the current 600-seat review is dead in the water: neither the DUP, nor Conservative MPs who might lose out, will sign it off in its current form. But as the current constituency boundaries are so old and out-of-date, any review will be fairly destabilising, which would also allow Rudd to discreetly move to another, safer seat.

But as I've also said, the matter may not arise. Rudd’s pro-Europeanism and privately more liberal stance both mean that while she is well-placed to be the carrier of the Cameroon flame in the next Conservative leadership election, she faces an uphill battle to actually win.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.