October 2022 digital edition
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The cost of borrowing<br />
Credit unions as an<br />
alternative to unethical<br />
sources of finance<br />
p A Leeds Credit<br />
Union branch at<br />
Kirkgate Market<br />
(Image: Leeds Credit<br />
Union)<br />
By Anca Voinea<br />
Credit unions around the world are doing<br />
their bit to help with the cost of living crisis by<br />
providing low-cost loans.<br />
A March <strong>2022</strong> report by the Centre for Social<br />
Justice, an independent UK think-tank, identified<br />
credit unions as a key player in the affordable<br />
finance ecosystem which could help vulnerable<br />
people. It found that 62% of those who became<br />
victims of loan sharks had an income of below<br />
£20,000 a year, with about half of this number<br />
on less than £15,000. It also revealed that 66%<br />
also had debts owing to legal creditors and 75%<br />
were on benefits.<br />
In June, Bank of England figures showed that<br />
credit card borrowing had risen by £740m month<br />
on month,13% higher than the year before and<br />
the biggest year-on-year rise since <strong>October</strong> 2005.<br />
And research by SmartMoney found that two<br />
in five UK adults will take out a new form of<br />
credit in the next year, and they predict they will<br />
need an average of £5,250 each.<br />
The Co-op Credit Union in Manchester has<br />
raised concerns about the mental and physical<br />
health impact of the crisis. A recent survey of<br />
its members found two-thirds of respondents<br />
were either “very” or “extremely” worried about<br />
the cost of living; 14% had skipped meals,<br />
and another 14% had used all their savings.<br />
Around 8.5% reported difficulty with debts.<br />
These challenges have left their mark, with 57%<br />
reporting a deterioration in their mental health.<br />
In light of these challenges, 54% of<br />
respondents acknowledged the value of their<br />
credit union membership, saying that its services<br />
have helped them through the crisis so far.<br />
Matt Bland, chief executive at the Co-op<br />
Credit Union, said: “These survey results paint<br />
a sobering picture of the real-life health impact<br />
that the cost-of-living crisis is having on our<br />
members, the majority of whom are earning low<br />
incomes in part-time retail work.<br />
“The recent announcement from government<br />
on freezing energy unit prices is of course a very<br />
welcome intervention. But our survey reflects<br />
the impact that the increases we’ve already seen<br />
are having on our members' lives and those of<br />
their families. This suggests that more targeted<br />
support is needed for the poorest.<br />
“It is very encouraging for us to see the<br />
positive impact our services have for people<br />
struggling to cope with a once-in-a-generation<br />
crisis. We are doing everything we can to support<br />
members through our core savings and loan<br />
services as well as providing tools and support to<br />
help people budget and maximise their income<br />
through benefits and tax credits.<br />
“We call on government and its agencies to<br />
do everything it can to support those on low<br />
incomes to find a sustainable way through the<br />
crisis. We also call on government and bodies<br />
like Fair 4 All Finance to consider what they<br />
might do to help credit unions and other social<br />
lenders to expand their services to support lowincome<br />
households. In many ways, the current<br />
crisis is more damaging than Covid-19 was for<br />
low-income households and we need a response<br />
on an equivalent scale.”<br />
Similar concerns were expressed by Leeds<br />
Credit Union, which warns locals not to turn<br />
to unethical lenders. “We are acutely aware<br />
of the challenges facing many members of<br />
society during these tough times,” it said. “As<br />
a long-established credit union, we are used to<br />
supporting our members throughout challenging<br />
periods and proudly continue to do so today.<br />
34 | OCTOBER <strong>2022</strong>