The Cost of Borrowing – Credit Unions as an Alternative to Unethical Sources of Finance

Friday 26 January 2024

Research conducted in a report by the Centre for Social Justice, identified credit unions as a key player in the affordable finance ecosystem which could help vulnerable people. Co-op News have explored how credit unions across the country are providing additional support to members during the cost-of-living crisis by providing low-cost loans.

The report found that 62% of those who became victims of loan sharks had an income of below £20,000 a year, with about half of this number on less than £15,000.

In June, Bank of England figures showed that credit card borrowing had risen by £740m month on month,13% higher than the year before and the biggest year-on-year rise since October 2005. And research by SmartMoney found that two in five UK adults will take out a new form of credit in the next year, and they predict they will need an average of £5,250 each.

The Co-op Credit Union in Manchester has raised concerns about the mental and physical health impact of the crisis. A recent survey of its members found two-thirds of respondents were either “very” or “extremely” worried about the cost of living; 14% had skipped meals, and another 14% had used all their savings. Around 8.5% reported difficulty with debts. These challenges have left their mark, with 57% reporting a deterioration in their mental health.

In light of these challenges, 54% of respondents acknowledged the value of their credit union membership, saying that its services have helped them through the crisis so far.

Matt Bland, Chief Executive at the Co-op Credit Union, said: “These survey results paint a sobering picture of the real-life health impact that the cost-of-living crisis is having on our members, the majority of whom are earning low incomes in part-time retail work.

“It is very encouraging for us to see the positive impact our services have for people struggling to cope with a once-in-a-generation crisis. We are doing everything we can to support members through our core savings and loan services as well as providing tools and support to help people budget and maximise their income through benefits and tax credits.”

Elsewhere credit unions across the country are partnering with charities or providing training on how to manage budgets. Bradford District Credit Union

A financial wellbeing project funded by Somerset Council has also involved credit unions in the county and works to give people the tools to understand and manage their finances better.

Through the scheme, charities, organisations and credit unions offer free expert and confidential help, with free information, events, and training to local residents and employees of Somerset businesses who face financial anxiety.

The initiative is backed by Westcountry Savings & Loans, Great Western Credit Union, Somerset Community Credit Union, and Mendip Community Credit Union.

Similarly, Wave Community Bank in Hove, UK, runs webinars to provide free tips to members on how to manage monthly budgets, control their debt and check what benefits are available.

Robert Kelly, CEO ABCUL said: “ABCUL is acutely aware of the potential seismic negative impact that the cost-of-living crisis may have on our member credit unions and the individual members they serve across.

“We are devising a strategic lobbying plan that will include discussions and negotiations with a range of stakeholder groups and direct input from member credit unions on how best to shape our messaging and support services.

“As always, ABCUL stands ready to support our member credit unions in building and maintaining financial resilience. Our sustainability will be a critical factor in our future success but there is no doubt that the months ahead will create significant challenges to the credit union sector as a whole.”