Credit Unions: A real alternative to banks

I took advantage of a very kind invitation from CUNA Mutual to speak at their Scottish Credit Union Conference recentl at Glasgow Science Centre. It certainly was an eye-opener as speaker after speaker talked in glowing terms about the advances made by credit unions in recent years and the unique products they now offer their members.

Scottish government minister Fergus Ewing opened the conference and talked about the difference between credit unions and banks and how the credit union movement is well placed to fill the space that the banks seem to have vacated these days. I was then able to expand on Fergus’s opening and look at how credit unions and their staff can help the tens of thousands of Scots who are feeling the financial pressures caused by years of slow income growth and poor rates of interest on savings.

George Hofheimer, Chief Knowledge Officer of American think-tank Filene Research talked about the characteristics of successful credit unions, and suggested that credit unions in Scotland share several of these characteristics with their counterparts in the USA. “Credit unions were founded to serve the credit needs of everyday consumers, and the high performers continue to execute on this age old need in a differentiated and competitive manner. They are bound by regulations to hold a special rainy fund called capital, and the high performers do not hoard their capital, but rather utilize it for growth activities. No two credit unions are exactly alike; however our analysis of high performing institutions concludes the best institutions have a unique strategy that they execute consistently over a long timeframe.”

CUNA Mutual offer unique products for the credit union market and for CUNA Chief Executive Officer Paul Walsh, this is critical. “Almost all loans offered through the Credit Union have an in-built promise that any ‘debt dies with the debtor’. Credit Unions leverage the scale and expertise of their own insurance operation, CUNA Mutual, to provide indemnities within their loans so that if a borrower passes-away, the Credit Union can forgive the loan. To encourage a positive savings habit throughout their time with the Credit Union, savers are given an additional incentive, not found with any other savings institution, a Life Savings Benefit. This is a benefit of up to double the member’s savings, paid upon the member’s bereavement, to their respective family for end-of-life expenses. The Governments’ Financial Services Compensation Scheme safeguards all Credit Unions deposits, so savers have the same strength of guarantee as high street banks.”

Paul Walsh also reckons that the credit union sector has a critical part to play in the financial well-being of families in Scotland. “Regardless of family wealth or background, most people in Scotland encounter the same basic financial needs throughout their adult life. We get or first job, meet a partner, start a family and somehow we’ll need to fund this. Throughout our 20s, 30s and 40s we are net borrowers, that is we spend more than we save. It’s at times like this that most people across Scotland will have their first encounter with lenders. Its at these crucial times in our lives, that many will experience the uniqueness of Credit Unions for the first time.”

Almost 1 in 4 people in Glasgow have realised the importance of having a lending institution that they effectively own and influence. Credit Unions are credit co-operatives, operated for and with their members. The loans they offer are usually more accessible, affordable and through a process that is more amenable than other lenders.

The credit union sector in Scotland has been providing ethical financial services to its members and owners for over 40 years now and is, in fact, the most advanced of any credit union sector in the UK. The scale of this financial co-operative model continues to grow and develop all the time, and with over 7% of the Scottish population now members of a credit union the ultimate objective is that more and more people embrace the culture of a savings ethos and access to fair and affordable credit when they need it most.  The financial services landscape has changed remarkably over recent years as consumer confidence in banks has plummeted and people are now looking for a fair and transparent model for their household finances that is accessible and puts service before shareholder returns.

Robert Kelly, who took part in a very lively Question Time type session at the end of the Conference, is the General Manager of the NHS Credit Union based in Glasgow. The NHS Credit Union is a perfect example of this fair and transparent strategy in action.  “All health service employees in Scotland are eligible to join the NHS Credit Union and membership levels are now over 12,000 with over £15m currently held in savings, over £53m in affordable lending activity since the credit union was established in 1998 and more than £1m per month saved through payroll deduction schemes.”

The NHS Credit Union is seen as a key strategic partner to the main health board’s employers across Scotland and product and service innovation lies at the heart of the business development agenda of the credit union now and in the future, as Robert Kelly explains. “These are truly exciting times for the NHS Credit Union and for the wider credit union sector across Scotland and collaboration, co-operation and leadership is evident right across the country.  The financial services industry will continue to evolve rapidly as technology advances and consumers change the way they interact and access products and services.  For the credit union sector consumers are members and ultimately the owners of the business and that business model will ensure credit unions become a more natural mainstream and ethical fit for household finances in the months and years ahead.  Credit unions are for everyone and make a real and tangible difference every day across Scotland and throughout the world.”