John Harris

Journalist & Author

How South Wales learnt to bite back at loan sharks | John Harris

The way credit unions operate goes against the orthodoxies of finance. And that’s exactly what we need

On the high street of the south welsh town of Tonyrefail, there sit two very different examples of financial services. No 3 is a branch of Barclays, whose logo sparks thoughts of shareholder revolt, and a chief executive who last year claimed it was time to increase what City types call its “risk profile”. Next door, at number 1, there are the rather less flash local offices of an organisation called Dragon Savers, whose publicity blurb associates it with a handful of rather contrasting ideas – among them, training and education in “the wise use of money” and “the promotion of thrift”.

Dragon Savers is the local credit union, run by a mix of paid staff and volunteers. It has about 4,500 active members, and endless points of contrast with the way that finance usually works. Unlike the banks, it can only lend money that it actually holds: its deposits total about £1.5m, and there’s £1m on its loan book. As against plenty of payday and doorstep lenders, it sets great store by carefully examining any application for credit, and offering annual rates that peak at 26.8% – though, as general manager Christina Stoneman points out, that rate applies only to the reducing balance, meaning that debt can be paid off quickly and cheaply. Its books are full of the kind of small loans in which banks and building societies don’t tend to be interested, leaving people at the mercy of the more exploitative set-ups from which credit unions often have to rescue people.

All this may seem old-fashioned. Certainly, in the context of the Rhondda Valley, it suggests an often romanticised model of community self-help that can be traced to the heyday of the local pits (and back further, to the birth of building societies). But on closer examination Dragon Savers doesn’t represent the revival of something from the past, as much as a very modern bulwark against 21st century insanities. Certainly, its emphasis on discipline and responsibility – the opposite of everything embodied by the dread notion of “sub-prime” – contrasts with the recklessness of any number of financial organisations, from big banks to online lenders. But the mindset it encourages among its members also highlights something that the modern mania for blaming all the ills of the world on big finance rather ignores: that though irresponsible business undoubtedly manipulates millions into debt, plenty of people’s attitude to money still defies belief.

One Dragon Savers customer I meet – who is in work, and by no means on the breadline – marvels that dealing with them has taught him that “I can only spend what I’ve actually got”. That he expresses this in terms of a revelation surely points up a collective failure in which most of us are to some extent complicit (the ancient wisdom of Paul Weller springs to mind: the world’s insane, and we’re all to blame in a way). Just about every conversation I have here points up this dichotomy: between the transgressions of companies and corporations on one hand, and individual frailties and failures on the other – with simple want as a recurrent backdrop.

Among Dragon Savers’ volunteers is 44-year-old Helen Bishop. Some 25 years ago she and her first daughter arrived in Tonyrefail having escaped somewhat difficult circumstances. In her native south London she had had grim experience of loan sharks, some of whom had chased their debts by kicking down her front door. In south Wales she fell into traps laid by more respectable doorstep-lending firms – she mentions two well-known firms, whose “agents” offered her loans to pay for both small pleasures and some of life’s essentials.

She had been borrowing for six years when she found herself drowning. Her loans totalled £3,500 and she owed £2,500 in interest. School trips and new clothes were out: her budget for family food barely scraped £5 a day. She’d been brought up in care and had virtually no idea of what officialspeak calls financial literacy. Now, having put as many of her dealings as possible in the hands of Dragon Savers, she tours local schools on their behalf making the case for thrift and warning of the nightmares of debt.

Two days in the Rhondda is enough to almost turn me into a credit union evangelist, although their recent history is not without controversy. There are sporadic examples of mismanagement. Earlier this year, for instance, the Financial Services Authority censured two Glaswegian credit unions: one of whom had loaned 88% of its holdings to a single community trust; another that had given loans to its management on better terms than anything offered to its membership. There are currently about 450 British credit unions, although around six go bust every year (members are covered for up to £85,000 by the FSA’s financial services compensation scheme). All told, they’re a work in progress, with an admirably solid foundation: in the wake of the loosening of restrictions on membership and new rules whereby they can compete with banks in terms of interest rates, fresh FSA regulations are due to come into force next year, aiming to reduce the number of failures.

What’s most important is that credit unions are growing, and not just in hard-pressed places like this. When we asked for information from Comment is free users – one of whom suggested we pay a visit to Dragon Savers – the examples that came back spanned the country, not just such bywords for difficult living as inner-city Glasgow and Manchester, but Croydon, Kensington and Chelsea – even Henley-on-Thames.

Such is an aspect of this story that suggests one of modern Britain’s most shop-soiled phrases. If credit unions are going to be a convincing beacon not just for responsible lending but for lives newly attuned to the prudence and self-restraint at which modern finance often seems to laugh, one thing is self-evident: they’re nothing without deposits, so we’d better be all in this together. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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