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October 18, 2011

Crunch time for credit unions

A few credit unions are very large but most are small – serving very localised community needs. Schumacher would approve. The Scottish League of Credit Unions is the umbrella body for these small ones and many of them came together recently for their annual conference in Stirling. Guest speaker, Lesley Riddoch urged them to become much more closely involved with other developments taking place in their communities. They’d better be quick. John Patton, doyen of the credit union world, thinks many won’t be around for much longer

Stephen Naysmith, The Herald, 23 Sep 2011


 MORE than two-thirds of Scotland’s credit unions will disappear over the next decade, according to a veteran of the sector, with many smaller companies being forced to merge or go out of business.

John Patton, who is secretary of the Scottish League of Credit Unions, believes a range of pressures will make it hard for many of the not-for profit community finance cooperatives, which offer an affordable alternative to high-cost borrowing on the high street, to survive. 

Writing in a personal capacity in today’s Herald Society page, he claims that only 40 of Scotland’s 130 credit unions are likely to remain in 10 years’ time.

The Herald reported earlier this month that the Royal Bank of Scotland and Clydesdale Bank were both looking at ending free banking for credit unions. Other pressures include a lack of strong support from the Scottish Government, reductions in support in kind from Scottish councils and rapid technological change, Mr Patton says.

Of the moves by banks, he writes: “Previously, when the sector was highly profitable, they happily allowed free banking services for credit unions which were not competitors in any real sense.

“The new levy will seriously erode any surplus revenue in small credit unions and I expect the impact will trigger merger discussions to pursue economies of scale.”

Mr Patton claims many countries including Canada and the US have already seen a drastic rationalisation of credit unions, which Scotland’s 130 credit unions have yet to endure.

“By the end of a long, delayed rationalisation process, I expect around 40 will remain. While many credit unions will close or merge, those that remain will have increased membership and a wide range of 21st century services on offer,” he says.

While changes to the law which will affect credit unions later this year will help some, it will increase the pressure on some smaller unions, he argues. 

“It will free those credit unions with appropriate resources to attract members from beyond their normal constituency and to offer additional services such as interest paying accounts. In effect, for many of the smaller credit unions, it may mean additional work with little tangible reward,” he says.

Mr Patton criticises some credit unions for lacking sufficient board-level expertise in computer literacy, business planning and accountancy skills, adding: “For years, trade bodies have tried valiantly to increase skill levels among volunteers but they have been defeated by the pace of change.” 

The SNP, while supportive of the concept of credit unions, has not been as overtly sympathetic as Labour was in the past, he claims. Meanwhile, councils are increasingly warning credit unions they must be self-sustaining, he adds. “For a sizeable minority, this is not a realistic option,” he said.

A spokesman for the Association of British Credit Unions said ease of use was more important than overall numbers. “Over the last ten years the number of credit unions in Britain has been reducing, but at the same time the number of people with access to a credit union has greatly increased as common bond sizes have grown and new areas have gained access to services,” he said.

“What matters is not how many credit unions there are, but how easy it is for people to access the services. Innovations such as the Credit Union Current Account and the Credit Union Prepaid Card make it far easier for credit union services to be accessed, and the potential link up with the Post Office network will bring credit union services closer to every community.”