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 Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.