Glasgow Credit Union
Figen Gunes speaks to an organisation flying the flag for responsible lending
A considerable chunk of the UK’s population excluded from personal loans by high street banks have long suffered at the hands of notorious payday lenders. But now thanks to the responsible lending by the biggest credit union in the country, a great example can set the stage for change.
For its ethical lending terms, Glasgow Credit Union (GCU), the largest in the country with its 33,000 members and £120m assets, recently picked up its second award from Social Enterprise Awards in the category of Best Consumer-Facing Social Enterprise. One in every 20 Glaswegians is a member of this credit union and can borrow and save after opening an account with only a £1 deposit.
Having won their first award from the Social Enterprise UK for their consolidation loan, a specific loan type for people with multiple debts, GCU predominantly acts like a financial education agency for its members with seemingly spiralling-out-of-control debts. As part of consolidation loan members benefit from a free-of-charge administration service offered by GCU to pay their members’ debts to other companies. Five million pounds have been lent in total so far just for consolidation loans, which began only 18 months ago.
Paul McFarlane of the GCU says they understand why some people take payday loans but they don’t see themselves competing in that market: “We think that payday lending is a significant problem in society. What is much more important is good financial education and good budgeting. That’s why we come up with two products: consolidation loans and everyday loans, which are our alternatives to payday lenders,” he says.
When a member loses their job, repayments are revised at an early stage. According to their figures, only one per cent of what they lend is a repayment loss each year, around £400,000.
They also lend to unemployed people and every member is charged the same interest rate for the same product. This year in the unsecured loan category, funds are increasing 10 per cent as more and more people feel the financial squeeze.
Another innovative product is the ‘everyday loan’ which works in a similar way to a cash advance function on a credit card. It enables borrowers to cover unexpected expenses and acts as a ‘buffer’.
At the height of credit crunch, when the major banks were struggling to provide mortgages, GCU was able to offer 95 per cent lending for the first time home buyers. And they still do whereas the banks can only do this with the support of ‘NewBuy’ government schemes. McFarlane stresses they could but chose not to compete with the major banks. “The Bank of England provides the banks with money as part of funding for lending schemes. We don’t want access to that money, because, we use our members’ savings to get financial rewards for them. We don’t think it’s right that banks give low interest loans to people but offer nothing for taxpayers whose money are lent in these schemes,” he adds.
Initially set up in 1989 for Glasgow City Council employees, GCU has expanded to serve anyone in the ‘G’ postcode area. In 2009, it became a totally independent institution operating separately from the city council. Their turnover is around £40m pounds per year, lent mainly in the form of unsecured loans and mortgages. The business has doubled in size in the last few years. “The number of people who borrow from us has grown because of the innovative products we launched but also people are quite disillusioned about high street banks and they don’t trust them anymore,” McFarlane emphasises.
Having a centralized HQ in Glasgow city centre, every loan decision is made by one of their employees. “With most banks computers make the decision on a loan, but computers are only as good as the programmes they operate by. They can’t make subjective decisions,” McFarlane says.
GCU say they offer interest rates cheaper than other credit unions and most high street banks. Their unsecured loans start from 6.9% which is similar to the best rates out there on the high street. But McFarlane says one difference is that commercial lenders will increase rates after risk assessments. With GCU, it stays the same for every member.
Ninety-eight per cent of their members choose to apply for loans over the phone or online and check their balances on the go after major investments into their digital operations. This keeps their 32-employee team good and lean, and besides, their member oppose the idea of a high street branch any way.
Write Your Comment