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Credit Union Account for young Glaswegians

Payday photoEvery young Glaswegian will be given an account with a safe community credit union as part of a bid to halt the rise of high-cost payday lenders.

A unique study by Glasgow City Council suggests around 100,000 residents are regularly using non-standard forms of credit - fuelling a city market worth more than £57 million a year.

Now a cross-party sounding board created to investigate the extent and impact of payday loans in the city has proposed a range of actions for all levels of government - including the innovative scheme to prevent young Glaswegians getting caught in a debt trap.

Other steps include the council commiting not to lease any of its commercial property to payday lenders and working with the £13 billion Strathclyde Pension Fund to ensure no direct investments are made in the trade.

Members will also lobby Westminster and Holyrood governments to reform how lenders are allowed to operate - and to give local authorities greater planning powers to prevent high-cost lenders from swamping local high streets and town centres.

Glasgow City Council has already blocked computers on its networks from accessing payday loan websites; and has now been succesful in encouraging some of the city's biggest employers and institutions to do the same.

Payday photoCity Treasurer Cllr Paul Rooney leads the cross-party group that, with the help of expert advisors, has been examining Glasgow's non-standard credit market since late last year.

He said: "There has been some important work done at a national level, but this is the most significant research anyone has done on the extent and the impact of payday lending in one community.
"I think we all suspected that the use of these loans would be relatively high in Glasgow, but the figures are startling.
"Glaswegians borrowed more than £57 million this way in the last year - and around 100,000 adults are using some sort of non standard credit.
"To put that in context, it is enough people to fill Celtic Park and Ibrox at the same time. If you do not have a payday loan; someone you know does."

Over recent months, Cllr Rooney has been joined by fellow members Cllr Gerry Boyle and Bailie Nina Baker to hear evidence from the industry, people who use payday loans and money advice experts.

That process has made it clear that there is a need to reform how the market is regulated, with evidence of borrowers facing desperate problems as a result of questionable practices from some lenders.

Cllr Rooney said: "The new Financial Conduct Authority will, eventually, have the power to limit the prices consumer credit companies can charge - but the high cost of these loans is not the only problem.
"We know from our own research that borrowers can end up taking out multiple loans from various lenders, with no effective credit checks.
"There is also an urgent need to reform and limit the use of Continuous Payment Authorities, which can allow a lender to raid their customers' bank accounts whenever they choose, for as much as they like.
"The Scottish Government, meanwhile, could give local authorities the power, under planning legislation, to stop payday lenders taking over shopping arcades and high streets."

The board's research found borrowers taking loans from as little as £30 to thousands of pounds, spread between various lenders.

This included a man who used loans to finance a gambling spree and managed to borrow from one shopfront lender three times in the one day.

One woman borrowed £1,500 from seven different lenders over a period of a few days. Only one made any attempt to verify her employment status and income.

Another, having taken an initial loan to cover a one-off emergency, was stuck in a cycle of borrowing and paying off new debt equal to her total income every two weeks.

Evidence suggested many of those struggling with payday loans would have been better served by a credit union, but borrowers believed that it would be harder to get money from them - and that it would take longer.

In particular, people cited the need to be a member for a period of time before borrowing as a problem.

Glasgow already has the highest rate of credit union membership in the UK, but the board now believes it can build on that.

From this August, Glasgow City Council will deposit £10 in a community credit union account for every new secondary school student - up to 6,000 young people every year.

Over time, this will ensure that every young person in the city has access to a dependable, responsible option for savings and money advice.

It will also mean that, as adults, they will always have a better alternatve to payday loans if they decide they need to borrow.

Cllr Rooney said: "It was clear throughout the evidence sessions that many customers actually needed longer-term credit, but perceived it to be quicker and easier to get money with payday lenders.
"However, if someone already has a relationship with a credit union, then it can respond quickly and offer affordable, sustainable finance when it is needed. It can also help them to save and manage their money in the long term.
"What we are doing with this project is giving every young Glaswegian that safe and secure relationship with a credit union that is responsible to its members and to its community.
"Straight away, they will start to learn about managing money and will have the opportunity to save.
"And if, years from now, they decide they need to borrow; they will also have access to a lender that knows them well and will help them - rather than simply see them as an opportunity to turn a profit."

The initiative is part of an acknowledgement by the board that, while government action is needed to protect consumers, Glasgow will not wait for others to lead.

Cllr Rooney said: "It would be pointless for us just to stand on the sidelines and demand action from other people.
"This is something that is happening in our city and in our communities - and we all have a responsibility to use whatever powers we have.
"We will not lease property to payday lenders and we will ask Strathclyde Pension Fund, one of the biggest and most influential in the country, not to invest directly in these businesses.
"We have already blocked access to payday loan websites on our networks - and some of the biggest organisations in the city have agreed to join us; from Glasgow Housing Association and SPT to Scottish Enterprise and our partners in the emergency services.
"Payday lenders are not going to go away and this will not be fixed overnight."

Issued by Colin MacKenzie on 13/06/2013 11:14:26