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Big interview: Richard Priestman, president of East Sussex Credit Union
2:10pm Sunday 8th September 2013 in News
What is the credit union about?
Credit unions are local, not for profit financial services providers owned and run by their members. Ours is based in Brighton and recently celebrated its 13th birthday. We’ve enjoyed some rapid growth and serve more than 4,500 members managing in excess of £1.5 million in deposits.
We offer affordable, responsible, local savings and loans to the people of East Sussex.
Although we lend small amounts, we also provide loans up to £20,000; handy for major purchases or home improvements.
Every pound invested with us supports more loans to people in the community who might be struggling financially and in need of our help.
We run payroll deduction schemes with local authorities and employers as well as with government benefit providers and we have a cash card which can be loaded for use in most shops - it gives substantial cash back.
We’re dedicated to reducing the damaging effects of poverty and financial exclusion and we offer advice on money management and an ethical alternative to predatory lending practices.
There has been massive growth in credit union membership in recent years. Why is this?
The historic trust in banks has been seriously eroded by recent scandal and mismanagement and this has prompted people to seek out simpler, more cooperative financial solutions that support their local community and offer a better cultural fit.
Our members appreciate that we are an ethical business with profits being shared. All loans are made from their deposits and they welcome the opportunity to support others while helping themselves.
Being local is also a big plus. We work in the community and offer easy access for people to discuss financial concerns and money worries; a world away from how mainstream banks operate.
Those saving with the credit union receive little, if any, interest on their investment. Will there be a time it can compete with high street banks in terms of returns?
But we are already competing with the banks.
Our current dividend may be relatively modest but is still comparable to interest available from high street banks on instant access accounts. Our ‘Junior Savers’ rates are actually higher and the funds are not locked in.
When we make a major surplus we can also pay a larger dividend; something that might be significantly higher than current bank interest rates. Anything left is then invested back into the business to bolster reserves and enhance our financial strength.
We provide simple, ethical products, local service and competitive returns.
So although we’re a bit like a bank, we think we’re better.
In the USA, credit unions serve almost one-third of the country’s population.
Can they become as popular in the UK?
UK credit unions have one million members and £1 billion in assets, so the movement is doing quite nicely.
This will accelerate with the recent support of the government and organisations like trades unions and the Church of England.
We could do with more help to consolidate and build.
There are literally hundreds of credit unions but most are very small and lack the resources and investment to develop systems and processes to support success.
The Department of Work and Pension’s recent announcement of a £38 million investment to support expansion is a great step forward but we still need more assistance if we are to offer a sustainable and viable alternative.
For example, our sector is very heavily regulated and we would benefit from a lighter touch. Pay day lenders, banks and money shops suffer far less operational interference and we’d like to compete on a level playing field.
According to national figures, one in five credit union loans is in arrears with many never being paid back. What can you do to prevent this happening?
This is not our experience.
Our default rate is at least comparable and probably better than the rest of the lending community. This is partly due to our business model with customers being members and having savings as well as loans. There’s a mindset that says, “if I default I am letting others down too.”
We do lend smaller amounts and in a lot of cases to people who have few alternatives, so we incur some defaults but the rate is probably much lower than you might expect.
When loans default we do everything we can to recover members’ funds and we will be robust in our approach. However, we do review each case sympathetically and in some instances have rescheduled debts to a more affordable level over a longer term.
Despite the growth in membership, many still favour loan sharks or highstreet lenders over credit unions – why?
Sadly most people don’t believe they have an alternative and that is our biggest challenge. In simple terms not enough people know about us and those that do believe we are a lender of last resort, something that just isn’t true.
People don’t “favour” loan sharks or high street lenders, they just are not aware of the ethical alternative. We need to change this – and quickly.
Are pay-day lenders really unethical or is it just a viable business?
Some pay day lenders make exorbitant profits but like it or not, they are also providing a service that people want.
They make borrowing money quick and easy. We need to be able to match this.
Most pay day borrowers don’t repay their loan as they can’t afford it and so they extend and it becomes hugely expensive. It’s a vicious circle – particularly as those that can afford the least usually end up paying the most.
The real money is made by what happens after the first short loan and by the rates and fees charged on rollovers.
These can be extortionate and many, many multiples of what credit unions are legally allowed to charge.
People borrowing against next week’s pay for a few days really need to take a longer view of their needs and recognise that they might have a bigger issue.
If the right size and length of loan is arranged at the outset, problems can be avoided and the solution becomes more affordable.
Speak to us, we may be able to help.
Is debt a necessary part of 21st century life?
In hard times it’s probably the reality.
Most people are just not in a position to pay cash for larger purchases and use credit rather than wait.
But many still over extend themselves and find they cannot afford it. This situation is compounded when things take a turn for the worse and spirals out of control; so they borrow more to ease the pressure.
There’s no easy answer but I do feel that offering better financial education helps. We do our bit by running money management courses so that people learn to live within their means.
What are the next steps for the credit union? Where will you be in five years?
I see us becoming a significant local player with far greater public awareness and a full suite of products and services supported by the latest technology.
We are perfectly positioned. We provide good quality, ethical financial products that match the demands of our community. They want a better way of doing things and we can deliver it.
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