Why credit unions must replace the loan sharks
THE demise of short-term lenders like QuickQuid earlier this month – and before that Wonga – might be a cause for cheer among those who loathe such purveyors of loans that charge sky-high interest rates to those who can least afford them.
But speedy and easy access to loans is vital for many people faced with bills out of the blue who do not have any savings to fall back on or the luxury of going cap in hand to a bank for reasonably priced credit.
These borrowers fall between a rock and a hard place. They can often get a loan rapidly from the army of short-term lenders out there but if they subsequently cannot meet the high repayments they can tumble into further hardship.
Keen to help keep such vulnerable borrowers afloat – and out of the hands of legal loan sharks – are the nation’s Credit Unions and other community lenders. These are membershipbased organisations, many of which have operated for more than 50 years. They serve local communities or people who share a common bond (such as the police or NHS workers).
These operations already offer affordable credit – with interest capped by law at 3 per cent a month or 42.6 per cent a year (compare that to 200 per cent a year charged on many ‘mainstream’ short-term lending deals).
But not a lot of people know that. So HM Treasury wants to put the nation’s scores of credit unions on the radar by encouraging them to shape up their offerings. It believes the red tape involved in joining a credit union combined with being late to the party in using technology have been holding back community lenders.
This is why the Treasury partnered with innovation charity Nesta earlier this year to launch a competition for credit unions to link up with specialists in financial technology – or fintechs – to develop new ways to access their loans. A shortlist of six finalists was selected last week
– each now having up to £150,000 to spend on further developing their ideas.
Chris Gorst of Nesta tells me it is imperative that credit unions catch up with the times. He says: ‘Technology is transforming how we manage our money but our trusted community institutions – like the local credit union – have fallen behind in the use of technology. This means they often struggle to reach customers or compete with the speed and convenience offered by high-cost lenders.’
The shortlisted ideas look very promising. They include an app designed to make it easier to join and interact with a credit union (hopefully this will appeal to young people). Another is investigating a different style of credit scoring. Customers can give their permission for credit unions to access their financial information for a true snapshot of their credit worthiness rather than the lender going to traditional credit reference agencies. The winners will be announced in the spring. Good luck to them all – struggling borrowers need you.
Speedy access to short-term loans is vital if you do not have any savings to fall back on
TURNING from borrowing a pot of money to building one up. Even better, why not think about doing good while saving. This time next week is Remembrance Sunday – and to commemorate this, the 101st anniversary of the Armistice, Coventry Building Society has launched its popular Poppy Fixed Isa and Poppy Bond. The accounts pay interest as well as giving a donation to The Royal British Legion (£17 million since they first launched in 2008).
The new three-year versions – fixed until November 30 and December 31, 2022, respectively – pay 1.7 per cent annual interest. The charitable donation equates to 0.15 per cent of the total balance invested in these accounts as of December 31 this year. The accounts can be opened over the phone, online, by post or in branch with just £1. Best-buy, three-year bonds pay around 2 per cent – but typically require the use of a computer to open one up.