Ely Sage Productions

Why are there so few Credit Unions in Britain?
Credit Unions are non profit organisations run by members for members, which are part of the co-operative movement and run for mutual benefit. They are very much to be encouraged and indeed their promotion is certainly part of the Progressive Pulse vision. However British credit unions have strikingly failed to become widely established despite strong government support (on both sides of the house), leaving the ‘sub-prime’ sector vulnerable to pay-day lenders such as Wonga with very high interest rates which can reach as much as 1509% APR.

In contrast Credit Unions have a capped rate of 1% per month or 12.7% APR.

Err, the rate cap means they can’t attract the deposits?

11 thoughts on “Ely Sage Productions”

  1. “So why have Credit Unions been such a success in Ireland but not in Britain? The success in the South of Ireland is fairly understandable as it happened in the 1950’s and 1960’s when it was far more difficult to get bank loans (almost impossible as a ‘sub prime’ customer) and had strong support from the Catholic church at a time when respect for the church and church attendance was very high. ……….There is also perhaps a strong sense of community sometimes lacking in Britain. ”

    It almost sounds as if a culturally, religiously and ethnically homogeneous country has higher levels of societal and institutional trust than a diverse one.

  2. It almost sounds as if … the institution was better suited to a backward country like Ireland of the 50s.

  3. Wonga is for the desperate who have nowt.

    Credit Unions WERE supposed to be for less well-off but otherwise prudent people to save in regularly and then get a lower cost loan out for some item of need. Not for capital goods always but for something within the loan takers powers to pay back. Even a loan for a holiday if it could be judged that the saver’s record was such that the loan was likely to be repaid in a reasonable time.

    If feckless twats on both sides of the counter have been using CUs as a leftist substitute for Wonga–and esp lending to the desperate feckless and those who simply don’t give a rat’s arse for repaying OPM–then it is little surprise CUs are not thriving.

  4. Well the pay-day loan companies are easy, non-judgemental, and work on short-term timescales. Credit unions are not capable of the last, less capable of the middle and this makes their questionable capability on the first of these things fairly irrelevant.

    Plus the pay-day companies can work online. I’ve not seen a credit union that works on that model.

  5. I did a bit of research a few years ago. Their financial model just doesn’t work. If you want to compete with banks either on price or service you need a lot of customers and a lot of transactions to cover your overhead. Cutesy little local unions are nowhere near.

    Their only hope is probably a franchise model. Someone sets up a white label banking product, with the IT in place and the big regulatory stuff taken care of, and local unions can take deposits from do-good-types and true believers, and lend them, out in a socially blah blah fashion. They’d still have to take care of their own funding, but they’d get a viable banking product and share the overhead.

  6. Judging by his throwaway comment about Wonga, short term loans and “1509% APR”, APR – how it’s defined, derived and what use it is – is another topic on which his knowledge is pretty bloody thin (although it must be said, he’s joined in that by all financial journos and almost the entire population of the country).

    But he’s a perfesser! Accountant! Economist!

  7. Well, on the basis of ten minutes dicking around in Wikipedia, I’m with TTG, Watchman and, err, Ecksie on this.

    The UK had friendly societies and building societies well before we had credit unions. Two things probably did them in; relaxation of credit led to the whole carpet bagging thing, and the building societies became banks as members decided they’d be better off as shareholders, and the expansion of the welfare system undermined the original purpose for thrift/savings in the first place.

    This is curious though;

    “The first recorded British credit union was the Hornsey Co-operative, established 1964 in North London by Caribbean families, and is the foundation of what is now London Capital Credit Union. Credit unions were popular in the Caribbean and large numbers of first generation Caribbean-British would become members of credit unions. By 1998, 38% of Caribbean British adults were members of credit unions.”

    From https://en.m.wikipedia.org/wiki/Credit_unions_in_the_United_Kingdom

    A homogeneous group with high internal trust levels​? What did the situation look like later? Oh, hang on…

    “Amendments to the Credit Union Act 1979 were made by the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 (SI 2011/2687)] which came into force on 8 January 2012. The main changes were the removal of restrictions of membership to reach out to new groups by serving more than one group of people.”

    Ah. I think that might be what is known as A Clue.

  8. Most of the Australian ones were bought out by banks after deregulation of the financial industry in the 1980s. Those that remain are now obliged to follow similar rules to banks, and offer very little advantage. We took out an account with a credit union twenty-seven years ago because it had a local branch; but that branch closed down when it was absorbed by a larger industry-based credit union. We’ve kept the account as a mild protest against the bank oligarchy, but when we set up our daughter’s account five years ago, we went with a major bank.

  9. Would have been nice if they’d done just a little bit of research – the 1% per month cap hasn’t existed for well over a decade.

    I fact, a few years back the cap was increased to 3% per month, or 42.6% APR.

    Enterprise credit unions, where they only lend to workers in a specific business/industry, work just fine. Repayments are taken straight from the borrowers wages, so generally the loans get repaid. The police have their own credit union called No1 Copperpot, for example.

    It’s the ones open to anyone who walks in off the street that struggle. They’re trying to compete with the likes of Wonga, but can’t offer the same convenience. Of course if they give out loans too easily too many go bad and they’re sunk by debt. There are currently a number of big credit unions that are making large and unsustainable losses with no solution in sight…

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