Angela Clements, CEO Citysave Credit Union
About Citysave Credit Union Birmingham-based, established for 25 years >10,000 active adult members >200 partnering organisations across 12 sectors Fully regulated by FCA & PRA Liquidity of 50% and capital of 15% Deposits covered by the FSCS All members have a savings plan 30% save through benefits; 50% through payroll; remaining on D/D New Payroll schemes monthly Loan book and savings rising annually A sustainable, modern community based credit union, paying dividends out of surpluses without grant funding
Schools & Colleges Community NHS Trusts Housing Associations
The need to do more: 9m adults without fit for purpose banking solution Home credit & mail order 3bn & growing Arrears on utilities - 637m risen 33% in 12 months 100k on prepayment meters in Birmingham Arrears on rent and mortgages common High cost, highly promoted and easy access payday lending sector now worth est 2bn Growth in Payment cards such as Paypal & Paypoint JRF report 2013 on Poverty Premium is that it is rising and now 10% of household income
Predators in our midst High cost lenders widely established 9 Money Shops & 8 Bright Houses in Brum Easy access, attractively packaged & highly promoted Cost is high in both interest and fees Easy rollover and debt grows rapidly Low visibility & barriers to redemption Misleading sales process aimed at vulnerable adults Not on credit searches (we work harder to assess loans) Rapid growth in debt interventions, debt management plans and debt relief orders showing clear adverse impact on those we have sought to support
One example of high cost lending: quoted in Guardian recently A 60cm Beko double oven costs 562 in BrightHouse. An almost identical Beko oven sells for just 389 at the Co-op. BrightHouse encourages customers to pay weekly, at an interest rate of 29.9%, that takes the cost of the oven to 809.64 over three years. (BrightHouse have just announced that its minimum interest rate will be rising to double this rate) On top of that, Brighthouse sells its service cover for 436.80, again over three years. At the Co-op, a three-year warranty on the same oven costs just 49.99. Brighthouse insists that you also buy damage liability cover in case the oven is damaged or stolen. This costs 1.20 a week or 187.20 over three years (this is also now higher) The add-ons turn a 389 oven at Co-op into a total outgoing of 1,433.64 at BrightHouse over three years. Bright House have raised prices since The cap on interest rates won t affect them The transfer to the new regulators will legitimise this trade and others.
So what is changing And more importantly what does it mean for Credit Unions in our communities?
Jobs market in finance For 5-6 years credit unions have been able to pick up skills for board and management Citysave has offered short term consultancy to 6 made redundant in the past 5 years, changing our finance firstly; our debt collection; our lending; our risk management and lately our marketing and communications; Paid below market prices and used gaps in careers between redundancy In 2014 salaries in banking are now rising again; recruitment is rising at skilled levels; Credit unions like Citysave won t compete;
Deposit rates For 5-6 years we have been able to pay small dividends yet remain above instant access savings rates of banks Growing pressure on interest rates to rise Credit union rely on savings to support their loan books Citysave we paid 1.5% annually, falling last year to 1% because of the 100k + investment we made in infrastructure (phone hubs; website; kiosks; automation etc) We paid this out of profits for first year in 10 without grant income; Would dividends at this level retain savings if Halifax are paying 5% is a growing concern.
Competition high cost lending The new lending regime is said to be tougher and we hope that protects consumers It will also legitimise the lenders that continue to trade The cap on interest rates will not impact most Speedy cash lend at almost 3000 % but a 50 loan over 18 months would not be capped! (genuine example) There are more lenders at high cost lending sector which continues to grow, only matched by the growth in debt problems including high cost debt They have funding lines from banks and equity providers which are cheap, plentiful and patient on return
New banks For some years credit unions such as Citysave have been investing in banking services DWP have also invested in CU provision of services 28 CU s signed up to provide credit union current A/c Others have looked at new systems & or forged links with prepayment card providers The level of investment and diversion from base activity has been considerable. 23 new banks are in approval stages with FCA 2 are being formed from our mainstream banks There are many jam jar type accounts entering the market funded by equity providers and banks Has the opportunity for us to compete already passed?
Rising costs The costs of operating credit unions is rising Property costs - rent and rates and utilities Staffing Banking costs we have to use the main bank systems for money in and money out of our members accounts Credit assessment is harder due to the growth in payday lending not on credit searches Regulatory, insurance and admin costs have risen Delivering services to members is more technical most young adults want to use their smart phone Are we agile enough to respond and overcome these? New entrants are coming in to this market responding to demand
support for credit unions? Daily there appears a story about working with CUs There is amazing support for our sector In a world where daily there are stories about PPI; rate rigging; bonuses; salaries; predatory corporate behaviour; low moral and ethical standards; Profit first mentality is a huge switch off so is there any wonder we look for a true regional membership based solution But there is no easy panacea for a broken regulated financial services sector
So what now for CU sector? We need to get more commercial We need to have clear forward looking business plans We need to focus on our strengths and core activities We need to focus on delivering sustainable and valuable services to our members We need to work together better We need to form a stronger and clearer voice to speak to policy makers we need to value and work with other partners where we can t deliver as well we need to recognise that we are not all the same there are different flavours of credit unions even in Birmingham that is great - we can serve more people!
Real and meaningful help 1. Narrow down the ask please Credit unions such as Citysave are agile and willing but I spend most of my time saying no to unrealistic requests some CU CEOs are not as clearly focused on delivering the plan agreed with their board 2. Urgently widen our regulatory space We need to be able to invest and own joint assets with other credit unions through collaborative vehicles We need to be able to access capital for lending and expansion projects Those serving communities need regional common bonds We need to be able to merge a failing credit union without taking responsibility for its liabilities 12 months ringfenced capital position
Regulatory space We urgently need a widening of our regulatory space Please allow us to be commercial and to compete Our competition has the widest regulatory space we have the narrowest Specifically my requests would be: 1. We need to be able to invest and own joint assets with other credit unions through collaborative vehicles 2. We need to be able to access capital for lending and expansion projects 3. CUs serving communities need regional common bonds 4. Need to be able to merge a failing CU with 12 months ring fenced capital position
Credit Union Service Organisations Funding for CUSOs to be widened We need to see a range of collaborative trading vehicles Drawing together like minded CUs each focused on delivering niche projects jointly Each can form a national network more simply- so we can achieve meaningful scale Providing real branded and trusted alternatives Providing access to skills for board; management and operation of CU s; shared working; supportive club Different CUSO s will have different focuses CURES is being formed & the vision is to deliver niche lending projects - a CU challenger to Bright House This limits exposure to risk for individual CUs but allows us to be valuable and transformational to those we serve
A vision to consider A trusted and recognisable single brand to operate in the CU sector, run commercially and sustainably High quality service throughout Slick lending process adopting analytics that suit market Modern delivery routes to market using our core strengths to provide a valuable service to more of in our communities Benefit to consumer - estimated savings of 2k per annum or 10% of household income - is transformational The benefit to the CUs is multi layered expansion with less investment; income with less risk; A vision of how we as a sector might, together, overcome the challenges that are ahead and quickly provide part of the needed solution in our communities But right now is it just a pipe dream.?