CREDIT UNIONS (Hansard, 20 April 1977)

§ Miss Betty Boothroyd (West Bromwich, West)
On 5th April the Minister of State replied to a Question from my hon. Friend the Member for Farnworth (Mr. Roper) and promised that the Government would take an opportunity to put before the House legislation to enable credit unions to operate. Already, a Credit Union Steering Group has been set up consisting of interested bodies and talks have begun with the Treasury.
In this context I welcome the opportunity tonight to provide an airing to a subject about which a great deal of ignorance still persists, and to ask the Minister a number of questions beyond the actual legislation proposed—about the level of public awareness that it will be necessary to encourage and stimulate if the new legislative framework proposed is not to be stillborn.
The best method of describing credit unions is by saying that they are mutual savings and loans societies—a form of co-operative. A distinguishing feature is the common bond in that the members are known to each other—they belong to the same trade union, are members of the same tenants' association, work in the same factory, or come from the same immigrant community. Credit unions are non-profit making organisations voluntarily run, and, because the members are known to each other, the tendency to incur bad debts is rare. They encourage regular savings, give the members experience of financial management, and can provide loans at favourable rates of in- 334 terest. With all the advantages, there are still only 50 or so credit unions existing in Britain. This is partly because under the present legislation they are required to register as industrial and provident societies or as companies.
If the Government fear that a Private Member's Bill would not pass through all its stages before Parliament was prorogued, will they undertake to bring in the necessary legislation themselves before the end of the current Session? Will that legislation broadly follow the Northern Ireland model? Even legislation is not enough on its own.
Six years ago the Crowther Report on Consumer Credit said: There is a prima facie case for encouraging the credit union movement and for taking steps to make its existence, its aims and methods widely known in the hope that it may take root here and more credit unions may be formed in Britain. What are the Government prepared to do to encourage public awareness? The recent appalling statistics on the take-up of supplementary benefits is a reminder that there is a world of difference between legal provision of a facility and the actual use of it by the people who need it most.
In this case those who need the facility most are the poorer borrowers, the lower income groups, the majority of whom do not have bank accounts. If they want to borrow money, they can go to a moneylender, a pawn-broker, or friends—if they have rich friends—or they can go without. There is no evidence to show that low income consumers are unreliable borrowers. Indeed in America 16 per cent. of all consumer credit comes from such unions and they have a very good track record on defaulting.
I believe that there is very little difference between the Minister and myself in recognising the basic value of credit unions. The Minister's response is most needed on how we can put the advantages across to those most in need of the facility.
Is there not a case for a simple hand-book or some literature which the Government might produce? Will they encourage trade unions, voluntary organisations, womens' organisations and other bodies to make the benefits of credit unions known to their membership? Is a further advisory service necessary to supplement the work already done by the 335 Credit Union League and by what is now being done by the Steering Group? Given the success of credit unions, particularly among the West Indian communities, will community leaders be consulted when the Government are formulating their legislation, and is there any rôle that could usefully be performed by community relations officers among groups other than West Indians?
If I may sum up, there are clear advantages to be gained from the growth of credit unions. They strike at the high-rate moneylenders, to whom many in the low income groups too often have to resort. They make the individual realise that the big banks are not the be-all and end-all of financial respectability. They give more than respectability, namely, responsibility and a feeling of not letting one's colleagues down. They lead to the responsible education of members within a community and to union in the wide use of money and management of their own financial affairs.
I know that the Government recognise these advantages. The purpose of this debate is to offer the Government the chance to explain what further action they believe is necessary, outside the legislative framework, and what steps they propose to take to stimulate public interest.

§ Mr. John Roper (Farnworth)
rose—

§ Mr. Speaker
Has the hon. Gentleman reached agreement with the Minister about his intervention? There is a firm rule that the Adjournment debate belongs to the hon. Member who has raised the subject, unless agreement has been reached with the Minister on the intended intervention.

§ Mr. Roper
I am aware of that. I saw the Minister and told him that I hoped to intervene. In view of the small amount of time taken by my hon. Friend the Member for West Bromwich, West (Miss Boothroyd), I shall keep my intervention brief and will give the Minister sufficient time to reply to the points which have been made.

§ Mr. Speaker
I wanted to put it on record that that was the situation, otherwise Adjournment debates will no longer belong to those who obtain them.

§ Mr. Roper
I am aware of what you say, Mr. Speaker, and I appreciate your ruling. I repeat that I shall be brief.
I am grateful to my hon. Friend for having raised this matter, which is of considerable interest. There is a considerable potential for the development of credit unions, which exist in every other country of the Commonwealth.
I hope that the Minister in his reply will be able to say not merely that the Government will be proceeding with legislation, but that the Government's plans for a co-operative development agency which are being studied by the Department of Industry will allow help to be given via this new form of co-operation. I believe that such a move would add considerably to the general pattern of the co-operative movement in this country.

§ The Minister of State, Treasury (Mr. Denzil Davies)
Just before Easter, on 5th April, I announced, in a Written Answer to the hon. Member for Farnworth (Mr. Roper) that the Government would take the opportunity of the proposed legislation on the licensing and supervision of deposit-taking institutions to put before the House legislative provisions to enable credit unions to operate and develop within a suitable statutory framework. Therefore, I am most grateful to my hon. Friend the Member for West Bromwich, West (Miss Boothroyd) for raising this subject tonight, because it gives me the opportunity to expand on that announcement. My hon. Friend has given a brief but good resumé of the purposes of credit unions, and perhaps I can take this opportunity to go into the matter in a little more detail.
Credit unions have received little publicity in this country and the objectives of the credit union movement are not well known. This is perhaps surprising because of the strength of credit unions in many other countries, especially English-speaking countries such as the United States and Canada—where credit union loans represent a little over 10 per cent. of all instalment credit granted for the purchase of goods and services—Australia, the West Indies, and, more recently, Ireland. Since we are proposing to base legislation on a Northern Irish model, it is perhaps worth saying a little about the Irish experience.
337 Credit unions were first established in the Republic of Ireland in 1958 and in Northern Ireland in 1961. By the end of 1976 there were 360 credit unions in the Republic of Ireland with 280,000 members and approximately £50 million in assets, and 94 credit unions in Northern Ireland with 80,000 members and total assets approaching £10 million. In 1966 the Dail passed the Credit Union Act, which regulates the operation of credit unions in the Republic, and in 1969 their operation in Northern Ireland was regulated by the Industrial and Provident Societies Act (Northern Ireland) 1969. In both countries regulation has stimulated growth.
This aroused interest in Great Britain. As my hon. Friend has said, the Crowther Committee on Consumer Credit, reporting in 1971, concluded favourably, as she has quoted, in respect of credit unions. In 1972 my hon. Friend the Member for Farnworth introduced a Private Member's Bill to regulate credit unions, but this failed to reach the statute book because of lack of time.
Meanwhile, about 45 credit unions have continued to operate in Great Britain, but there has been little expansion in numbers of unions, membership or assets. Their supporters maintain that their development has been handicapped by the lack of a satisfactory legislative framework within which they can operate. I am not sure that, even when regulated, credit unions will catch on in Great Britain in quite the same way as they have in Northern Ireland because there may be special circumstances, but I am persuaded that legislation will encourage growth in credit unions' activities.
The Government propose to legislate on credit unions for two main reasons. First, and most importantly, we are sympathetic to their aims. They encourage regular savings, they provide cheap loan facilities for their members, they encourage self-help and foster community spirit, and they have an educational objective in giving their members some experience in management. These are all very worthy objectives, and we hope that legislation will facilitate their fulfilment.
The second reason for legislating stems from the realisation that there are dangers in not having any regulation of credit union activities. First, regulation and supervision will provide protection for the 338 members of credit unions. At present, credit unions are unregulated and unsupervised, and are potentially vulnerable to fraudulent practitioners. I hasten to add that as far as I am aware there have not been any cases of fraud and that the existing credit unions appear to be managed by honest, law-abiding citizens. But there is a potential danger, and credit union representative bodies—such as the Credit Union League of Great Britain and the National Federation of Credit Unions—are themselves aware that one case of fraud could somewhat discredit the movement and set back its growth. They, therefore, welcome regulation and supervision.
Second, legislation on credit unions is desirable to ensure that the proposed legislation on the licensing and supervision of deposit-taking institutions will be effective. It is possible that credit unions, if left unregulated, could form a loophole in the arrangements proposed for the supervision of banks and other deposit-taking institutions. The proposed legislation on credit unions would close that loophole by specifying that a credit union should not receive money on deposit.
This is why we need to legislate on credit unions before or at the same time as we legislate on banks and other deposit-taking institutions. Our preference is to legislate at the same time. Although we are sympathetic to the cause of credit unions, we do not think that the problems caused by a lack of legislation are at present great enough to justify a separate Bill when the legislative programme is already so full.
Second, there are some technical reasons for legislating for deposit-taking institutions and credit unions in the one Bill. For instance, the provisions on deposit-taking institutions will probably include new definitions which will be applicable to that part of the Bill dealing with credit unions. The legislation on credit unions will not, therefore, be enacted this Session. I recognise that this is a disappointment to some of my hon. Friends, but I hope that they will take comfort at least from the Government's agreement at last to introduce legislation on this subject.
It might be helpful to the House if I now say something about the form that the legislation will take. We expect that 339 it will follow the pattern of the Nortern Ireland enactment. This regulates the size of a loan that a credit union may make to a member, the value of a member's shareholding in the credit union, the rate of dividend payable on members' shares, and the rate of interest payable on loans. The total value of all loans must be kept within defined limits, profits can be appropriated only in accordance with the Act, and surplus funds may only be invested in the manner prescribed by the Act. Useful consultations have taken place between my officials and the Credit Union Steering Group, which is chaired by my hon. Friend the Member for Farnworth and which includes members of the Credit Union League of Great Britain, the National Federation of Credit Unions and the National Consumer Council, on possible amendments and additional provisions.
My hon. Friend the Member for West Bromwich, West asked two questions in this respect. First, what publicity do we envisage when the legislation has gone through the House to promote credit unions? I think that in the first instance the best people to publicise credit unions are the Credit Union League of Great Britain and the National Federation of Credit Unions, which have been involved for a long time. The Government should not get too involved in actively promoting the credit union movement. By its very nature it is better that those organisations which I have mentioned should do so.
Secondly, my hon. Friend asked whether we intended to have consultations with ethnic groups. I recognise the importance for ethnic groups of credit unions. In the United States they have grown rapidly as a result of their importance to ethnic groups. But we should not differentiate in this way between ethnic and other groups in our society. Again, it is better to consult the recog- 340 nised bodies which understand the problems of ethnic and other groups in our communities.
As I have said, I think that there are good reasons why credit unions should be encouraged. I do not think that their growth will be at the expense of existing savings institutions. The greatest customer potential is probably among those who are at present unbanked.
Credit unions will not, of course, provide the wide range of facilities offered by the commercial banks, the Trustee Savings Banks and the Giro, and the rates of interest offered on savings are not high. Any growth in credit union activities could, however, be at the expense of the existing lending institutions, which have to charge much higher rates of interest than credit unions are able to charge. But would it be right to restrict competition in the field of providing credit to the poorer sections of the community? The Government recognise that for many people a sudden cash crisis caused by some unforeseen event can compel them to use some quite expensive forms of credit the interest payments on which can impose a severe strain on their current resources. Membership of a credit union could enable such people to keep a line open to cheap credit facilities.
I wish that it had been possible to introduce a Bill in this Session to deal with this important matter. I am sorry that it is not possible. However, we have done the best we can. The best that we can do and the most logical course is to include clauses in the bill on deposit-taking institutions and to deal with the problem in that way. I hope that it will be my privilege, if the time comes, to introduce those clauses, because this is a worthwhile social advance. I hope that it will find its way on to the statute book.