Much attention has recently been given to the growth of payday lending and with very good reason.
In the first quarter of 2009/10, across the UK, just 1% of Citizens Advice Bureau debt casework clients had at least one payday loan. But by the same quarter of 2012/13 the figures show 10% of their debt casework had at least one payday loan. Similarly, in November 2012 the debt charity StepChange reported that the proportion of their clients with payday loans had soared, from 3.7% in 2009, to 17% in 2012.
This growth in incredibly expensive debt is of course the legal end of the market. We should never forget that on top of the growth of payday lending there has been a growth in illegal lending by loan sharks. To give some indication of the growth of loan sharks it is worth noting that research from Liverpool John Moores University suggests that one in twenty low-income borrowers in London, that have been refused credit, have then turned to a loan shark.
Facing up to these developments and having practical policies in place should be a key priority for Liberal Democrats. And while I would suggest a wide range of policies are needed I think very high on the list of priorities must be a greater role for credit unions.
Credit unions are widespread around the world. In the US and Canada around 40% of the population belong to one. The figure rises to 65% in the Republic of Ireland. Yet in the UK they are far less established, with less than 2% of the UK population belonging to one – with the figure dropping to just 1% in London.
Credit unions are important as they can be crucial in stopping people being driven into a cycle of debt, or alternatively helping people start to get out of serious debt, as they offer capped and low interest rate loans. They encourage people to save a little bit of money on a regular basis, but also enable people when necessary to borrow in a sustainable way, without generating enormous interest rate bills.
Of course the record of credit unions has not been totally uniform. Indeed, if you engage with the sector they will certainly admit that in the past there have been some specific credit unions that tried to achieve too much, and were not run sustainably for their regular savers and borrowers.
However, the central fact remains that the basic model of credit unions is a sound one. Well run credit unions, especially if properly supported, can and indeed must play a crucial role in our communities.
It is for this reason that I recently published a report –Payday London (pdf) – setting out a programme of policies to support their expansion, including a rolling programme of ensuring that every secondary school pupil has a credit union account.
Across the UK, there is widespread and often all-party support for the credit union sector. Their growth everywhere is much needed. The Westminster Coalition government has boosted funding, as has the Labour government in Cardiff, and the SNP government in Edinburgh is actively encouraging Scots to join their local credit union.
Yet, in London the Mayor is incredibly indifferent to this sector of the lending industry, preferring it seems to spend more time with the likes of Bob Diamond.
When there is such an urgent need for their growth, the Mayor’s lack of engagement and support for credit unions is alarming. It is time he started using his position to promote credit unions in London. It is time Londoners joined a credit union rather than turning to payday loan companies.
* Cllr Stephen Knight is a member of the London Assembly and a councillor in Richmond.
