MSE News: Government: Why we're putting £38m into credit unions

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"Lord Freud, Minister for Welfare Reform, explains why the Government is investing in credit unions..."

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Government: Why we're putting £38m into credit unions

Consumerist

Anything which helps people to escape the clutches of pay-day lenders and the obscene bank charges on tiny overdrafts has, surely, to be encouraged.

spikyone

Wow, two stories in one day where someone quotes the meaningless interest rates of payday loan companies. It's disappointing that a government representative working in the area is repeating such misinformation.

It's also disappointing that Lord Freud's column contains so little of real substance - where is the investment actually going, how will it help the credit unions, and more importantly how will it help those who are in financial need?
Some explanation of how it will help these small organisations to be sustainable whilst offering low interest rates to - seemingly - higher-risk borrowers, and at the same time offering a worthwhile dividend to savers, would have been nice.

Consumerist

"The £38m fund . . . will help credit unions to buy in new IT systems and infrastructure needed to increase the numbers of people they help to save and borrow." There's a bit more hyp <here>.

dealer_wins

Consumerist wrote: »

Anything which helps people to escape the clutches of pay-day lenders and the obscene bank charges on tiny overdrafts has, surely, to be encouraged.

I know its so last century, but learning to save and having a meaningful emergency fund are better solutions than any form of borrowing.

jamesd

spikyone wrote: »

whilst offering low interest rates

Low like 26.8% a year, the current cap on credit union interest charges that there's a consultation on raising? That's not exactly what I'd call a low rate, even if it is cheaper than doorstep and payday lenders.

spikyone wrote: »

at the same time offering a worthwhile dividend to savers, would have been nice.

Pretty rubbish rates around here, with no clue what you'll get until some committee makes an apparently arbitrary decision to pay a wonderfully uncompetitive 0.25%. I'm not unwilling to provide money at break even levels to a worthy cause but it'd be nice to have a clue whether I will without having to wait a year to find out what I'll get, if anything.

Doesn't help that at least one of them presents itself as a secular organisation but then has its committee make a declaration that they will promote the beliefs of one Christian faith at the start of their meetings, duly entered into the meeting minutes. I'm not at all keen on discrimination on religious grounds. I'd rather see the one practicing religious discrimination go out of business than get any tax money.

dtsazza

spikyone wrote: »

Some explanation of how it will help these small organisations to be sustainable whilst offering low interest rates to - seemingly - higher-risk borrowers, and at the same time offering a worthwhile dividend to savers, would have been nice.

Absolutely - this is the sort of financial alchemy that seems to defy logic (and often does, in that there's no logical basis to support the scheme, and they're all smoke and mirrors).

If someone isn't deemed creditworthy at a particular rate, how can such a scheme work other than by (one way or another) having the government underwrite some element of the debt; i.e. putting them on the line for some portion of the losses?

I don't believe there's a way to simply decrease interest rates with no cost to the borrower, lender or government. All too often these schemes turn out to be ways of shifting the burden of private debt/risk to the government - which is both morally dubious, and financially not what we need right now.

jamesd

Lowering rates without government credit risk can be done by paying for the infrastructure costs, like equipment and service charges from accountants and office providers. Once the accounts no longer have to pay those costs, the overhead that has to be included in the interest rate charged can be reduced.

It happens that the credit unions local to me don't differentiate on rates depending on the risk level of the borrower, except in lending amount caps for initial and subsequent loans. Effectively they assume that all have the highest risk level.

DCFC79

dealer_wins wrote: »

I know its so last century, but learning to save and having a meaningful emergency fund are better solutions than any form of borrowing.

Here here, the £38m shouldn't mean people can just ditch the "saving philopshy" and rely on the credit unions, imo by saving money you learn more than what you would do by running to the credit unions everytime your in a rut.

Consumerist

dealer_wins wrote: »

I know its so last century, but learning to save and having a meaningful emergency fund are better solutions than any form of borrowing.

And when the emergency fund runs out?

What would we do without our preachers on this site?

opinions4u

£38m is naff all.