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November 7, 2012

Unite to beat Wonga week

Until we have legislation that puts payday lenders with their interest rates of 4,000+% APR out of business, those on the lowest incomes will be forever at their mercy. Perhaps sensing that legislation of this nature is not high on the Coalition Government’s priorities, Britain’s largest union, UNITE,  is determined that the UK’s credit union movement should be mobilised in order to mount a credible alternative.



Britain’s largest union is mounting a challenge against payday lenders with plans to establish a nationwide credit union network.

Unite has pledged to abolish the “Wonga week” phenomenon whereby families use payday lenders to head off cash shortfalls at the end of the month, amid widespread criticism of Wonga and its 4,214% APR interest rate charge. A typical credit union – which normally recruits from a local area or workplace – uses its deposits to make small loans to members, making the model a viable alternative to payday borrowing.

Steve Turner, Unite’s director of executive policy, said it plans to use the recently launch of a Unite-backed credit union in Salford as the model for a nationwide network. He said: “We are in discussions to try to establish a UK-wide credit union that will give access to cheap finance and cheap credit to millions of people. We are trying to get to the point where you can get emergency loans through credit unions, to stop that third week being Wonga week. And that is for the working poor, let alone those people who are not in work.”

The UK has 400 credit unions, with more than 950,000 members, and Unite is seeking links with some of them as well as considering forming its own branches. Restrictions on the take-up of credit union membership have also been relaxed by the government, so organisations such as community groups and local authorities can join.

But a report commissioned by the Department for Work and Pensions warned this year the credit union sector is “not financially sustainable”. The study recommended the maximum annual interest rate for a credit union loan should be raised from 26% to 42%. It also called for more taxpayer support for the sector.

The Consumer Credit Counselling Service, one of the UK’s largest debt charities, said that the number of people experiencing difficulties with payday loans more than doubled in 2011, as the number of calls to the CCCS related to short-term borrowing rose from 7,841 in 2010 to 17,414. Last year the average debt on a payday loan was £1,267, according to the charity.

Adding to the drive for community-focused measures to alleviate squeezed incomes, Labour has launched a SwitchTogether campaign that aims to reduce utility bills for communities by bulk buying gas and electricity. The party has also proposed a regulatory limit on the duration of short-term loans and the interest charged.

A credit union push is one of the economic alternatives being highlighted by the Future That Works march in central London on Saturday. The march, organised by the Trades Union Congress to highlight counter-austerity policies such as a financial transactions tax, will be attended by tens of thousands of people.