Scotland's Credit Unions: Investing in Our Future

Areas for further discussion

150. As noted in the introduction, the credit union movement is diverse in size and outlook, and this was reflected in a range of topics considered by the Working Group and for which in the case of some topics, it was agreed that further discussion was required to reach a consensus and conclusion. It was felt at this point that these issues were less relevant to the growth of credit unions as the key themes outlined earlier in this report.

Basic Bank Accounts

151. The Credit Union Working Group recognised and discussed the reluctance of banks to provide Basic Banking Accounts (BBAs), including for undischarged bankrupts. Some of the credit unions considered that they could provide this type of account on behalf of the banks and that the service would potentially be of better quality.

152. Officials, on behalf of the Working Group, sought clarification on the issue, which has evolved over 2015.

153. Whilst legislative restrictions apply to the operation of bank accounts post-bankruptcy in terms of obtaining credit, undischarged bankrupts are not prohibited by law from operating a bank account.

154. Undischarged bankrupts would not necessarily find it easy to open or operate a bank account. Individual banks tended to make their own commercial decisions on whether to provide an account, with terms and conditions containing a clause that bankruptcy would result in account closure. Many banks also had a policy of refusing to operate accounts for undischarged bankrupts.

155. The risks created by bankruptcy legislation, and the uncertainty as to how it operates in relation to bank accounts, was viewed as one of the primary reasons for banks not offering accounts to undischarged bankrupts. The concern was that they could be sued by a trustee if they did not stop an undischarged bankrupt from withdrawing money from an account which would be of interest to creditors.

156. In Scotland, the Bankruptcy and Debt Advice (Scotland) Act 2014 amended the Bankruptcy (Scotland) Act 1985. The effect of the amendment is that in situations where the trustee is aware of any vested estate which comprises funds held by a bank, the trustee must serve a notice on the appropriate bank or institution and provide sufficient information for them to identify the debtor and the funds held.

157. If the trustee does not issue the relevant notice, then they will not be entitled to a remedy against the bank for transactions made on relevant funds in the identified accounts.

158. The notices introduced by these legislative changes will reduce the risk of banks being sued by trustees in circumstances where funds are withdrawn from the account of an undischarged bankrupt. As such, this should result in more banks offering accounts to undischarged bankrupts, although it remains a commercial decision for banks as to whether they do so.

159. In December 2014, nine high street banks[ Barclays; the Co-operative Bank; HSBC; Lloyds Banking Group (including Halifax and Bank of Scotland brands); National Australia Group (including Clydesdale and Yorkshire brands); Nationwide, RBS Group (including NatWest and Ulster Bank brands); Santander; and TSB.] (covering over 90% of the UK's current account market) signed an agreement with HM Treasury, committing to provide basic bank accounts to those previously excluded. The accounts will be free from failed payment charges, and offer increased access to all of the UK's ATM network and over the counter services in branches.

160. The banks undertook to provide these accounts by 15 December 2015.

161. In light of the banks' offer, the Group decided no further action was needed until it became clear whether or not this initiative had resolved their concerns.

Partnership with Scotcash

162. Scotcash is a Community Development Finance Institution based in Glasgow city centre. With support from Glasgow City Council, Glasgow Housing Association, Royal Bank of Scotland and others, it offers financial services to those (living within a 25-mile radius of Glasgow city centre) who experience difficulties accessing mainstream financial services.

163. Scotcash offers a range of services and products, such as affordable credit, savings accounts, white goods packages, basic bank accounts and money advice, and works with Glasgow Central Citizens Advice Bureau to provide integrated money advice services.

164. Scotcash offers interest rates lower than those given by most high street lenders. One of Scotcash's main objectives is to provide more affordable loans to low income families, whilst providing additional money management advice.

165. Many of Scotcash's customers are those for whom, due to a variety of reasons, the services of credit unions are not suitable. Scotcash's services therefore are a valuable complement to the work of credit unions, in those areas where both operate.

166. However, Scotcash do refer customers to credit unions where appropriate. Four credit unions (Glasgow, Scotwest, Pollok and Drumchapel) currently operate in partnership with Scotcash and are featured on their website. Scotcash highlight these credit union partners to their customers when explaining savings options.

The need for a balanced membership

167. The need to ensure a balanced membership within a credit union is highlighted by the faster increase in savings than lending over recent years.

168. Although credit union lending in Scotland reached a record high of £275 million in June 2015 (Bank of England, 2015), lending has nonetheless declined as a proportion of assets to 53%. The recommendation of the World Council of Credit Unions is that credit unions should have a lending to assets ratio of between 70% and 80% (Lyonette, 2015).

169. While this trend is not unique to Scotland, it underlines the need for credit unions to ensure they are attracting borrowers as well as savers. This is not unrelated to the skewing of credit union membership - and in particular, of those members who volunteer to serve on credit union boards - towards an older age group. There is therefore a pressing need to attract a younger generation of borrowers who might have a range of options for the variety of lending products they are looking to access.

170. ABCUL has initiated a discussion of this challenge as part of its "2020 Vision for Credit Unions", which is drawing on expertise from other credit union sectors around the world and from other lenders in Britain to consider what might be the right mix of credit union products to attract borrowers and provide the best service to members.

171. Since many Scottish credit unions are only offering unsecured personal loans, there is a view that the sector is essentially excluding itself from some of the markets where consumers are most active and where they might most benefit from the ethical solution that credit unions might be able to offer, such as in mortgages, car loans and credit cards. Once more looking to the most successful examples of credit union systems, it is notable that in the United States, less than 11% of all credit union lending is in the form of unsecured loans (CUNA, 2015).

172. ABCUL consider that in order to develop a competitive product offering, credit unions will need to co-operate and work together, as in the Credit Union Expansion Project.