Competing payday lenders ‘out of existence’: why we should push to treble membership of credit unions

The rise of payday lenders has been one of the most destructive elements of the cost of living crisis over the last few years. Last week, Wonga wrote off £220m worth of loans to 375,000 customers it should never have lent to.

At a time when many are struggling to make ends meet all too often, credit unions are a far cheaper alternative to the temptation of resorting to a payday loan company with their huge rates of interest.

That is why this year’s Co-op Party Conference will be discussing how and why membership of credit unions should treble in the next ten years. There are approximately 1 million members of credit unions at the moment, and with more support, we could have 3 million members within the next decade.

Justin Welby, the Archbishop of Canterbury, has accused payday lenders of destroying lives, and has said that he wants credit unions to compete firms like Wonga ‘out of existence’. Co-op MPs like Stella Creasy have led the fight against the spread of payday loan companies, and we would like to see a levy on their profits to be used to fund support for credit unions.

We also need to see a change in attitude from public sector bodies to encourage employees to join credit unions. The ability for employees to pay into their savings direct from payrolls, via a payroll deduction facility arranged between the employer and credit union, is often a valuable and crucial factor in determining whether someone decides to join a credit union.

Many police forces, and some hospital trusts and local authorities have begun to offer a payroll deduction facility for employees, and much more can be done to encourage other public sector bodies to follow suit.

The Co-op Party has been leading calls for a military credit union to be established, similar to Navy Federal, the US credit union which has about 5 million members, over $50billion in assets, 220 branches worldwide and almost 9,000 employees. It offers some of the cheapest credit, and many other financial services such as insurance and savings accounts to US military personnel and their families.

In the UK, the Royal British Legion’s dedicated Benefits and Money Advice Service has seen an increase in requests for help, from 2,400 army personnel in its first year in 2007, to more than 11,000 in 2013. Many sought advice after taking out loans with payday lenders such as Forces Loans, which claims to be the number one lender to the military and whose loans have an APR of 3,551%.

The Government could, and should, do more to help establish a military credit union, to help ensure our soldiers, sailors and other military personnel are less at risk of needing to use payday loan companies. Indeed, military charities including the Royal British Legion are now backing the Co-op Party’s campaign for a military credit union.

According to the Citizens Advice Bureau, a number of teachers have got into financial trouble and on occasion payday loans have felt like the only option open to them. A dedicated teachers union would also be part of the solution to stopping teachers, teaching assistants and other academic staff falling victim to the worst practices of payday lenders.

There are already a number of successful credit unions in the UK. For example, Glasgow Credit Union has over 32,000 members and more than £100million in assets. If we’re to stop the exploitation of too many of our poorest citizens, then now is the time for more action to support an ambitious expansion of credit union membership.

Gareth Thomas MP is Chair of the Co-op Party