Sunday, 21 December 2008

Credit unions and social fund

I suppose as Chair of the mighty APPG on Credit Unions I should add my bit on the social fund story that's doing the rounds today. At the last meeting of the All-Party Group we touched on the social fund issue, and whether credit unions could play a role in administering it.
Obviously it's better for applicants if they can get loans from the social fund, rather than having to borrow from credit unions, but if, say, they can only get part of the money from the social fund, it's surely better that they look to a credit union to lend them the rest, rather than relying on doorstep lenders like Provident, who can charge up to 1000% interest. See also logbook loans (on here, I think, or the main website).
So if they're using the credit union for part of the funding, then perhaps the credit union could play an administrative role with the social fund element too? Although then the temptation might be for the DWP to point people towards credit union loans instead of the social fund loans... but that might mean the social fund goes further, i.e. meeting the essential needs of more people rather than running out around this time of year as it usually does!
Certainly my impression at the meeting though, which was attended by lots of credit union insiders, was that this was only a bit of kite-flying by both sides and no firm proposals were being made. And finally, I think Kitty's right in her comments to the BBC that we need to remove the deception surrounding social fund applications, where people feel they have to say they desperately need a new bed or a fridge, whereas they really need money to buy the kids Christmas presents. Although I think that's a classic example of where a credit union - either with loans or with its savings schemes - could fill the need.


Remember Remember said...

Or you could not give so much foreign aid and use our money at home :-0

Stephen said...

Kerry, the danger of this proposal from the Credit Unions' side is that we may appear to be acting on behalf of government in carrying out social policy & there is a real risk it would compromise our independence, without necessarily increasing the financial capability of Credit Unions.

Paul said...

Interesting one this, allowed to spin out of control - a credit union administering the money does not imply 27% interest unless that is the deal government does. I have some professional interest in the fund and how it is spent (and community care grants) so will be making comments into the consultation

The Bristol Blogger said...

Alternatively you could stop sitting around in committees devising ways to lend people money they cannot afford to pay back and use the time instead to shut down a couple of tax havens and give every benefit claimant with kids £500 for Christmas and still make a profit for the Exchequer.

Kerry said...

Stephen - yes, similar comments were made at the meeting.

BB - and you think if we closed a couple of tax havens, the money would automatically come into the UK coffers? I suspect you'd just make a Swiss banker a little richer.

Kerry said...

Also, actually BB - how do you think your proposal would play with people who struggle to get by in low paid jobs? Don't they deserve a slice of the cake too?

And if so, where do you draw the line? Should it taper off, e.g. 20p withdrawn for every £1 earned over a certain sum, rising to 30p, then 40p, etc? Or should there be a strict cut off point - income of less than £300pw, you get your £500 Christmas bonus; income of £301pw - sorry, no money for you pal?

Or are you including tax credits as 'benefits'? In which case, we're kind of already doing what you're suggesting anyway, but spread out over the year - any idea how much better off the average family is with tax credits?

And yes, I know there are administrative problems, but if you go down that route I'll assume you're avoiding my questions.

Kerry said...

Also, BB - and you will note I am channelling the Christmas spirit and trying to encourage a less cynical BB in 2009 - I think it's a bit mean of you to suggest that the credit union meeting was a waste of time.

There were probably 50 people there, mostly from the credit union movement, all people who do what I am sure you would regard as a worthwhile job. Or are you saying credit unions shouldn't lend money at all? How would that work then? Should they just give away all the money that other, low-income savers, have deposited with them?

Old Holborn said...

I do most of my banking in Lichtenstein, in Euros and out of the reach of Gordon or Brussels.

The Bristol Blogger said...

On the whole I haven't got much of an axe to grind with credit unions.

They're a good idea badly executed. They just urgently need to get a proper marketing approach together don't they?

That whole charity/amateur/Fair Trade sandal wearing image thing they've got is going nowhere. Right kids?

My problem is with the Social Fund. Why lend money (with or without interest)for very basic things to people and families who can't afford to pay it back?

As for Credit Unions taking on the Social Fund , it'll be a disaster. It's managerially and administratively way beyond credit unions' capacity.

All that will happen is you'll have a fund that's even more badly run than it is at present and a lot of credit unions collapsing under the strain.

According to my brief research, the Social Fund is worth £500m pa while Credit Unions are worth about £350m in total. That's a very lopsided merger.

And where do you get the capacity and skills from in Credit Unions to design, manage and implement a £0.75bn merger?

This is about voluntary sector managers with delusions of grandeur. Tell them to sort out their marketing before they start trying to take on outsourced government services.

ps. I do my banking at Lloyds, Broadwalk in pounds.

Kerry said...

Why lend money? Because then the pot gets refilled and there's more to go round. Would have thought that was obvious. A few other points - Bristol Credit Union is very well-managed, by James, who used to work in mainstream banking and does not have Fairtrade sandals, or at least if he does, he doesn't wear them to work. They're administering things like the Child Trust Funds, and the DWP Growth Fund very successfully. But I'll see if I can get him to respond on here, or Stephen.

JamesB said...

Thanks Kerry for inviting me to post a comment, great story for the media to hype just before Christmas.

As ever the devil would be in the detail of any proposal - and no concrete plans have been put forward yet as far as I know.

If a credit union like Bristol CU was able to engage people with saving and managing their money better through being involved in the admin of social fund loans, or by receiving a referral from DWP then this could be a good thing for those who are receiving loans from the Social Fund, giving them some practical help, and an introduction to the wider credit union services which they may not have come across before, and which can help to make them better off.

If the proposal was for credit unions to do the admin for Social Fund on the cheap, as a quasi-DWP ourselves, then we probably wouldn't be doing anyone a favour by getting involved.

So let's wait & see what (if anything) comes of this.

Credit unions are here to serve our members to the best of our ability with good value co-operative financial services.

Bristol Blogger's quite right in the point that credit unions vary across the country. Part of this is inherent within the system - as democratic organisations you'd expect differences in services reflecting the different wants & needs of different membership groups.

More and more credit unions, like BCU, are moving towards offering a full range of professional financial services. From January we'll be offering a current account, with VISA debit card; we already offer the Child Trust Fund; and will be introducing an ISA in the next 12 months too.

Can we be better at marketing ourselves? Of course! But to do that we need resources, and they come from achieving a critical mass of membership to build from.

We're not too far away from that in Bristol - 3,500 members and counting...

With more people like Bristol Blogger joining us and supporting us by saving with us, we can do even more. And on a positive note - if there are any specific things we could be doing better in Bristol let us know!

We're here for the people of Bristol, and not for the kind of fat cat bosses or shareholders who've made such a great job of running the banking system over the last few years.

James Berry
Bristol CU
Good memory Kerry, I was in banking before joining the credit union sector (marketing)!

thebristolblogger said...

I'll try and do a further reply to this but it might be after Christmas ...

Kerry said...

Blimey, do we have a proper debate going on here?

Emerald said...

Heart-warming to know that not everybody's immutably dug in to rigid views, isn't it?

This is one of the most interesting posts and comment threads that I've read here so far, thanks.

James wrote: "to engage people with saving and managing their money better" - this has surely got to be one of the top social priorities nowadays, as financial incontinence causes enormous misery, so let's hope the Bristol CU gets fullest possible support from all quarters.

You can't go wrong following the traditional Micawber principle, imo.