Scottish Credit Unions dress up as Payday

The Scottish League of Credit Unions has its nose slightly bent out of shape because it seems that they feel they are being mistaken for payday lenders there to lend people a quick loan over Christmas. Dermot O’Neill, chief executive of the League was not impressed with Credit Unions being expected to offer cheap loans to the public over the festive season. Credit Unions are generally charging around 2 pounds for every 100 pounds borrowed over a three month period. O’Neill maintains that this is not the image that the Credit Unions should be putting forward when in fact they should be working at attracting stable membership from people who have a decent amount of money to save and who take out long term loans that keep the banking side of the Credit Unions going.

The Scottish League fears that it is being compared, if not used, as a cheap alternative to a payday loan.

Anywhere but payday!

However, it looks like the wires are crossed because the Church of Scotland is encouraging people to take advantage of what the Credit Unions have to offer in the form of borrowing money on a short term loan. The church feels that as long as its members are taking out loans from anywhere except the payday industry that justice is served. This esteemed religious institution encourages its members to take full advantage of the Credit Union’s Christmas offers.

Why the Credit Unions would be compared to the payday lenders in the first place is the logical question to be asked. Well, they are offering some pretty amazing deals this year. Scotwest, which is one of the biggest Credit Unions in Scotland is offering 500 pound loans for existing members with same day approval. On top of that any and all comers can take out an unsecured loan for the same amount at a flabberghasting APR of 26.8%.

Scotwest is not alone Capital Credit Union offers a ‘Swift loan” with insurance and much like Scotwest both financial institutions insist that their products have no hidden costs or charges and are ‘ethical loans’ which give the borrower time to repay without someone breathing down their neck the whole time. Credit Unions have avoided hiking up their APR’s to the legal 42.6% that is set by the government as the maximum rate solely because they don’t want to be seen as an emergency Christmas short term credit or quick cash loan.

According to Mr. O’Neill, Credit Unions across Scotland need to be wary of their reputation. It does not bode well for the Credit Union industry to begin to resemble the payday industry because the two institutions exist for very different reasons. Credit Unions need to work at attracting clients who are interested in long term loans to pay for long term projects like mortgages and extending their homes.

O’Neill remarks on how fragile the reputation of the Credit Unions is and how it need to be solidified as a player in the financial game.

“They [credit unions] have positioned themselves as alternatives to payday lenders, but our members have opposed that because it fundamentally fails to look at the factors that drive short term borrowing. It also reinforces the idea that credit unions are just a poor man’s bank. The danger is that many people feel a credit union is irrelevant for their financial needs and they move further away from them.”

However, to step back and take a look at the grand scheme of things, it might be worthwhile for at least one financial institution to position itself as an alternative to the payday industry, that way payday can be used for what it was intended to be used for and credit unions could offer cheap loans to those who can’t get them elsewhere, instead of taking out payday loans they cannot afford.