Call for credit industry changes in Scotland

It’s time to end poverty premium for Scotland’s poorest borrowers, says credit group 

A step-change in Scotland’s approach to its credit industry is needed to break the cycle of financial exclusion experienced by many of the country’s most deprived citizens, according to The Carnegie UK Trust’s Affordable Credit Working Group.
The Group, which is made up of finance industry representatives, as well as those from the public and third sectors, says it has spent a year analysing financial inequality in Scotland.
It’s calling for the introduction of a range of measures – from investment in community finance and enabling workers to pay off debt via payroll, to Scottish Government leadership and facilitating access for Scotland’s poorest borrowers, to basic bank accounts.
Group chair Jeremy Peat, who is a former chief economist at RBS and a visiting professor at the University of Strathclyde’s International Public Policy Institute, said: “Access to credit in Scotland is not a level playing field. Credit is – for a mixture of good and bad reasons – most expensive for those who can least afford it.
“While the regulation of payday loans has reduced the supply of expensive credit, it has done little to affect demand for short term borrowing amongst the poorest members of society or to stimulate alternative sources of supply of credit. A step-change is needed because that demand is not going away.”
The group has published a series of 18 recommendations for government and industry to adopt in order to break down some of the barriers to accessing affordable credit. There are four key calls to action:
  1. The Scottish Government should assign Ministerial responsibility for financial inclusion
Peat said: “The Scottish Government will be critical to stimulating and supporting the provision of affordable credit, which is why we are calling for the creation of a Minister responsible for Financial Inclusion as a matter of urgency. While not a standalone portfolio, the Scottish Government must recognise the positive impact getting this right could have on disadvantaged communities in Scotland.”
  1. High street banks to allow borrowers to access basic bank accounts via local credit unions or community development financial institutions (CDFIs) thanks to pre-agreed ‘I.D. verification partnerships’ with those institutions
Peat said: “Basic bank accounts offer people access to a mainstream financial product and build their level of financial inclusion. With nine mainstream banks now offering free basic bank accounts, we would like to see them all accept applications from local community finance organisations who have assessed the appropriateness of the applicant and verified their identification.”
  1. Employers in Scotland should partner with credit unions to make repaying credit union loans via payroll a standard workplace benefit
Peat said: “Enabling Scotland’s poorest people to repay credit union loans via payroll will provide the structure and support required to help them access more affordable loan products and improve their financial position. It would also grow the membership base of credit unions, helping them to expand their loan book and become more competitive as credit providers to disadvantaged groups.”
  1. Identify additional, national investment to support the growth of Scotland’s CDFIs with investment from trusts, foundations and commercial and social investors
Peat said: “The CDFI sector needs to attract sufficient investment to develop its infrastructure and recruit and train skilled personnel. Unlike Credit Unions, CDFIs do not hold savings so rely on external investment to provide their loan capital. The public sector and other providers of ‘soft’ loans cannot support this process in the long term, so CDFIs must be able to demonstrate their viability, without subsidy and within a reasonable timeframe, to commercial investors.”
A national Action Group on affordable credit has been created to drive the process of change. That group already includes Scottish Government representation.
Social Justice secretary Alex Neil said: “The Scottish Government welcomes the publication of the Carnegie report on affordable credit as we recognise financial inclusion and accessibility plays an important role in our efforts to reduce inequalities and create a fairer, more prosperous society.
“We want to ensure that people are able to borrow affordably and treated fairly, that they can access good financial and debt advice, that they have access to basic bank accounts, where appropriate, and are assisted with financial management.  We are strongly supportive of community finance providers, and are already providing leadership in this area, including work to promote the credit union sector and grow their capacity in Scotland.”
Sharon MacPherson, Scotcash CEO, said: “Our system of credit penalises those least able to afford to service debt. We estimate the annual extra cost to customers of high cost credit in Glasgow, in the form of interest payments, is £20m. If even a quarter of high cost credit customers switched to use credit unions or Scotcash instead, the City would be saving £4.5m annually. We are hugely supportive of these recommendations.”
Very Reverend John Chalmers, principal clerk to the General Assembly of the Church of Scotland, will chair the new Action Group. He added: “There has never been a coherent, nationwide approach to resolving the issue of affordable credit in Scotland. Together we can avoid duplication of efforts, improve sharing of best practice and create new opportunities to tackle the big issues at scale.
“The inequality in our financial system has to change if Scotland is to overcome its wider social problems. Improving access to cheaper, small and short term loans to those who can afford to repay them could improve people’s quality of life – particularly those in disadvantaged communities.”Frank McKillop from the Association of British Credit Unions said: “As the largest providers of affordable credit in Scotland, we welcome support for the co-operation, innovation and diversification of services which will help Scotland’s credit unions grow and strengthen to sustainably offer affordable and accessible loans to people on all income levels.”

The full list of 18 recommendations from the report are: 

  1. Cross-sector Affordable Credit Action Group
  2. Ministerial responsibility for financial inclusion, including affordable credit
  3. Government support for the Action Group and development resource
  4. Community Planning Partnership representative in each area to have designated responsibility for affordable credit
  5. Local affordable credit partnership in local areas
  6. Additional national resource to support the development of community lending sector
  7. Employers to partner with credit unions to make saving and repaying loans via payroll a standard workplace benefit
  8. Support for CDFIs to demonstrate investment case
  9. Social investors to offer innovative debt models to community lenders to demonstrate business models
  10. Commercial investors to dedicate time and energy to analysing CDFI business models
  11. Mainstream financial services to refer unsuccessful loan applicants to CDFIs and credit unions
  12. Mainstream lenders to partner with credit unions and CDFIs to help customers access basic bank accounts
  13. Fees to be reduced for community lenders submitting files to credit agencies
  14. Advice agencies to offer clients advice on cheapest, most appropriate forms of credit
  15. Joint branding approach for social, community lending
  16. Access to affordable credit to be recognised in national and local performance measurement frameworks
  17. Further research on impact of recent FCA regulations on borrowing patterns
  18. Lenders to release borrowing data by postcode or ward level#
The members of the Carnegie UK Trust’s Affordable Credit Working Group are:
Jeremy Peat, OBE (Co-chair)
Strathclyde University Visiting Professor, International Public Policy Institute
Angus Hogg, MBE(Co-chair)
Chair, Carnegie UK Trust
Niall Alexander
Financial Inclusion Consultant
Allison Barnes
Scotland Manager,  Money Advice Service
Sharon Bell
Head, StepChange Scotland
Jamie Black
Consumer Affairs Manager, Royal Bank of Scotland
Kevin Cadman
Chief Executive, Grameen Foundation
Leah Cameron
Project Manager, Money Advice Scotland
Very Rev. John Chalmers
Principal Clerk to the General Assembly of the Church of Scotland
Sharon Collard
Professor, The Open University
Alastair Davis
Chief Executive, Social Investment Scotland
Martyn Evans
Chief Executive, Carnegie UK Trust
Russell Hamblin-Boone
Chief Executive, Consumer Finance Association
Joseph Henson
Senior Researcher, Centre for Social Justice
Karen Hunter
SRT Project Coordinator, Church of Scotland
Donald Jarvie
Head of Business, Scotland’s Futures Forum
Rev. Dr. Martin Johnstone
Secretary, Church of Scotland’s Church and Society Council
Susan McClelland
Deputy Chief Executive, Scotcash
Frank McKillop
Policy Manager (Scotland), Association of British Credit Unions Scotland
Yvonne MacDermid
Chief Executive, Money Advice Scotland
Dr. Murdo Macdonald
Policy Officer, Church of Scotland
Sharon MacPherson
Chief Executive, Scotcash
Eric Munro
Director of Community Finance and Social Enterprise, Royal Bank of Scotland
Stephen Pearson
Senior Adviser, Virgin Money
Ray Perman
Director, David Hume Institute
Neil Ritch
Deputy Director Scotland, Big Lottery Fund
Michael Ross
Development Manager, Young Scot
Yvonne Strachan
Head of Equality, Human Rights and Third Sector, Scottish Government
Robert Tamburrini
Chief Executive, ng homes
Douglas Thomson
Paul Vaughan
Head of Community and Corporate Development, Fife Council
David Walker
Trustee, Carnegie UK Trust
Douglas White (secretariat)
Head of Advocacy, Carnegie UK Trust
Jenny Peachey (secretariat)
Policy Officer, Carnegie UK Trust
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