October 2022 digital edition

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