Community Finance: Capping the cost of credit is a job half done – here’s how to finish it

13^th April 2015

A priest, a rabbi and an imam walked into a bank. It sounds like the start of a bad joke, but in fact it was the start of a very effective campaign. The year was 2009, and with the effects of the global financial crisis starting to really bite on ordinary families, the Citizens UK alliance of civil society groups had identified the rising cost of credit as one of the key problems. Their response was to bring together faith leaders to present RBS with copies of the three major holy books, the Bible, the Torah and the Koran, as a reminder that the financial system needed to take heed of the wisdom contained in religious traditions. They also had a very practical ask of the Government – to cap the cost of credit.

In the years that followed the Just Money campaign put down roots in the local alliances that together make up Citizens UK. In Nottingham they celebrated Canada Day by reminding the Money Shop that they were still able to turn a profit under much stricter regulations (including a cap on the cost of credit) in Canada. In Newham the University of East London undertook research that found almost 1 in 10 of their students had taken out a payday loan at some point during their university career. In Hackney they collected over 900 signatures for a successful petition calling on the local council to ban payday advertising in publicly-owned spaces.

Eventually the pressure paid off, and together with the actions of MPs, Peers, other campaigns and the Archbishop of Canterbury,  the Government agreed to the historic move of capping the cost of credit. The Just Money campaign celebrated by marching to the Wonga Headquarters on the 1st day of the new regulations wearing baseball caps with a banner asking all payday lenders to ‘respect the cap’.

But the campaign has not stopped and accepts that  stopping exploitative lending is only half the battle. The nature of the economy means that access to short-term credit is a must for many families. That’s why Just Money groups have been promoting community finance like credit unions, for example in South London where one church signed up over 140 local people to the London Mutual Credit Union.

Whilst this grass-roots support is important, the lesson from Canada, America and Australia, where credit union membership is over 30% of the population, is that the community finance sector will never reach the levels seen in many other countries without the national infrastructure to enable it to flourish. That’s why the Just Money campaign has been working with experts to develop a proposal for a Community Finance Foundation, endowed through £200 million of fines on banks and payday lenders over the next parliament. The Foundation would do three things – grant funding to help community finance organisations improve their infrastructure and tap into the resources of civil society, investment to increase their loan book and expand into new markets, and capacity building to make sure that best practice is shared and sustainability is built into business models. It’s not a question of subsidising loss-making businesses, but of helping more community finance organisations reach sustainability so that they can grow to meet demand. And with Financial Conduct Authority fines of over £2 billion in this parliament, there’s an obvious and appropriate source of funding that would establish the Foundation in perpetuity.

The proposal has the backing of the community finance trade bodies, a number of leading think tanks and the Archbishop of Canterbury’s Task Group on Responsible Credit and Savings. The next step will be on May 4th, when Citizens UK will hold a unique General Election Accountability Assembly in Westminster Hall. There David Cameron, Nick Clegg and Ed Miliband will all be asked to commit to supporting the proposal and working with Citizens UK to make sure that the job that was started with the capping of the cost of payday credit is seen through to completion. It’ll be well worth watching.

David Barclay is a Community Organiser on the Just Money campaign with Citizens UK. He was President of the Oxford University Student Union having studied Modern History there.