Even in a recession some businesses do very well. A few days ago the doorstep lender Provident Financial reported a 5.3% increase in customer numbers and a 3.5% rise in profits to £53.1m.
But what is profitable for the company — which operates across Northern Ireland, the Republic and Britain — may not be the cheapest option for its borrowers. According to Provident Financial, its typical annual percentage rate on its loans is 189.2%.
Provident Financial’s APR rises to 545% on some shorter-term loans. But even at 189.2%, borrowing is very expensive.
It means that £100 repaid in just over a year, at £3 a week, costs £71. It is, though, certainly cheaper than loan sharks, who may charge 1,000% or more.
But with unemployment now rising sharply and concerns about the high rate of home repossessions for those on the lowest incomes it is important that people entering tough times know how to get hold of much cheaper money.
Try the credit union
This is where credit unions come in. If the £100 was borrowed from a credit union the APR would be a mere 12.58%. Repaid at £3 a week the loan would be cleared in slightly over six months and cost a mere £5.82 in interest — a saving of over £65 compared to the doorstep lender.
Credit unions were established for exactly these situations — they are not-for-profit financial co-operatives that are owned by the people who borrow from them and make deposits in them.
They exist to provide cheap loans, while paying reasonable rates of interest to savers.
Ireland — North and South — has one of the highest rates of membership in credit unions anywhere in the world. Half of all adults in Northern Ireland belong to a credit union.
Yet despite the size and significance of credit unions here, they offer fewer services than those in Britain and the United States.
Newry – the second largest credit union in Northern Ireland – has just become the first to offer current accounts and cash machine withdrawals to its members.
It has done so as a result of a tie-up with The Co-operative Bank – which says that it has no immediate plans to extend the scheme to other Northern Ireland credit unions.
In Britain, credit unions can also offer child trust funds, tax-free individual savings accounts (ISAs) and insurance policies. They are also eligible for government grants. None of this is possible in Northern Ireland.
Credit unions and their members have another obstacle here, which is they must rely on their own depositor protection schemes, unlike in Britain where they are subject to the Financial Services Compensation Scheme.
Regulation in Northern Ireland is a responsibility within the Department of Enterprise, Trade and Investment (DETI), while in Britain it is undertaken by the Financial Services Authority.
Time for change
A report earlier this year from a committee of the Northern Ireland Assembly recommended changes in the law to bring the regulation and powers of credit unions here into line with those of Britain, while keeping the registration of credit unions within DETI. Last month the UK’s Treasury endorsed these recommendations.
For these proposals to be implemented requires action by both the Treasury and the Northern Ireland Assembly. There may be concerns at the loss of regulatory responsibility away from Northern Ireland — but given the failings in regulation of the Presbyterian Mutual Society, that is likely to lead to improved control.
Both the Irish League of Credit Unions (ILCU) and the Ulster Federation of Credit Unions (UFCU) now want to see change happen quickly.
ILCU has 103 affiliated credit unions in Northern Ireland, which have 358,000 members. UFCU has 49 affiliated credit unions, with 23,000 members. There are another 26 credit unions here that are not part of either the League or the Federation, with another 35,000 members.
People with serious financial problems should take advice from an expert.
Sources of advice in Northern Ireland include local citizens’ advice bureaux (go to www.citizensadvice.org.uk for your local bureau), the Consumer Credit Counselling Service (0800 138 1111) and Advice NI (to find your local advice centres phone 028 9064 5919.