September 21, 2011
Who’s in charge of these banks?
The phenomenal rate of growth in credit union membership is epitomised by the recent experience of East Kilbride Credit Union. The range and affordability of the services that credit unions are able to offer is in part due to the free banking facilities they’ve enjoyed from the high street banks. All that’s about to change. But if the taxpayer still owns these banks, why should they be allowed to get away with it?
Scotland’s 150 credit unions (CUs) are a considerable success story. Set up to provide financial services to people denied credit facilities by high street banks, because they were unemployed or on very low wages, they have flourished to the point where one in five Glasgow residents is a member of a credit union.
Since the banking crisis, membership of Scottish CUs has grown by 16%. This is a consequence of the economic downturn on household budgets as people lose their jobs or have working hours reduced. But that is only part of the reason. The appeal of the CUs’ old-fashioned, no-frills approach increased as distrust of mainstream banks grew with the bail-outs for Royal Bank of Scotland and HBOS.
Nevertheless the credit unions themselves must deal with the banks. The question is on what terms. As not-for-profit organisations they fall between being a business and a charity, thus causing the banks to make a decision on what rate to charge for handling their accounts.
That appears to vary across both banks and credit unions. Until now some CUs have benefited from free banking but are now facing unexpectedly high charges.
In the case of the Discovery CU in Dundee, in discussion with RBS about tariffs, these could be up to £800 a month.
Another CU in Johnstone, also having to pay fees for the first time, has been offered a 50% reduction on the standard business tariff by the Clydesdale Bank. The Bank of Scotland has always levied a charge but at a reduced rate.
CUs, whose members have a common bond such as living in the same community, operate on trust and have attracted a wide range of savers who feel the taxpayer-backed banks have failed to demonstrate a commensurate sense of social responsibility.
As a result of Government pressure, the banks now offer similar services through basic accounts to people who were previously excluded.
This inclusive move will have been negated for many by the decisions by RBS, 83% owned by the taxpayer, and Lloyds, with a 41% Government stake, to prevent basic account holders accessing their accounts through ATMs of rival banks, including, in the case of Lloyds, those in the same group such as Bank of Scotland.
New legislation is expected to enable CUs to expand considerably next year. They will no longer have to restrict membership to people with a common interest, will be able to pay interest on savings and provide services to community enterprises and businesses.
The banks can play a responsible part in this much-needed diversification of financial services by recognising the social inclusion provided by credit unions and charging them a fair rate.