Differences to banks and payroll savings companies Banks have to ‘maximise’ whilst credit unions focus on service. Banks have to maximise the revenue they generate from each customer and maximise the efficiency of their organisation in order to maximise bonuses, maximise their stock market value and maximise the return to the external shareholders. Credit unions have members not customers; people are there to be served not financially exploited. Credit unions focus on service and generating a reasonable return for members. ...everyone is eligible to join at least one credit union... Over the last few years several fintech start-ups have branded themselves as ‘payroll savings’ organisations and been marketing themselves to payroll professionals. Just like banks, these organisations are profit driven, but unlike banks (and credit unions) they are not licensed deposit takers and therefore (despite some marketing which implies otherwise) deposits are not protected by the FSCS. Why offer payroll deduction services? We are all financially fragile – just think how long you could maintain your current lifestyle if you were off sick for an extended period or had to reduce your hours permanently in order to care for a member of your family. Credit unions encourage people to build up savings and provide them with access to affordable loans should they need or want to borrow, which means they help people build up a savings buffer and hence their financial stability. One in five people will, during their working life, take time off sick due to financial stress, so employers facilitating that financially stability, is not only the right thing to do, but will also have a positive impact on the bottom line. Which can/should I join? There are over 500 credit unions in the United Kingdom and they come in all shapes and sizes, with the smallest having just a few hundred members through to
services and products will be unique to the individual credit union. In respect of savings, services may include instant access savings accounts; term or notice savings accounts; Christmas savings accounts; and budgeting facilities. Some credit unions also offer full current account facilities and prepaid debit cards. In terms of loans, services may include unsecured lending, secured lending, mortgages and business loans. The lending limits and criteria are set individually by each credit union; however, each view an individual as a ‘member’ not a customer and therefore lending is non-exploitative and is not ‘sales driven’. Credit unions are ethical lenders and do not lend where it is not in the best interests of the member. Why are credit unions ethical? Credit unions only serve their members which means decisions are made based on the well-being of the members both individually and collectively. Lending decisions are based upon affordability as it is not in the interest of a credit union to see any of its members get into financial difficulty. Credit unions operate ‘what you see is what you get’ lending with standard rates and no hidden charges. Credit unions not only co-operate internally (i.e. among the members) but they also co-operate with other credit unions and stakeholders to promote a fairer society. All this means that the profits used to generate dividends for depositors are ethically sourced. Are credit unions regulated? Credit unions are extensively regulated. They have their own specific legislation and just like banks and building societies they are regulated by both the Prudential Regulation Authority (i.e. the Bank of England) and the Financial Conduct Authority. Are deposits safe? As evidenced by the banking crash of 2008, no financial institution can ever be considered 100% safe. Just like banks and building societies, credit unions are licensed deposit takers and, as such, its depositors are protected by the Financial Services Compensation Scheme (FSCS). Therefore, deposits in credit unions are protected in the same way as those in banks and building societies.
the largest that have over 40,000 members and £130 million of deposits. No matter where they live, everyone is eligible to join at least one credit union, so which one you join depends on which ones you qualify for and, more importantly, which services you are looking for. The best way to find a credit union which you can join or your employer can partner is by using www. findyourcreditunion.co.uk. As with everything in life, shop around and don’t forget you can join more than one credit union! ❏ Some credit union myths ● “A credit union is a poor man’s bank” – as credit unions are inclusive and are working for a fairer society people often think that they are only for the financially excluded but this is not true: credit unions are for everybody. They are particularly relevant for those who care about the ethics of their ‘bank’; however, they are also relevant for those who just want a good return on their deposits or access to attractive lending rates. ● “Credit unions will always lend me money” – credit unions are responsible lenders who look after their members and sometimes that means saying ‘no’ to loan requests. That said, because they care for their members, credit unions will usually try to work out alternative arrangements (e.g. smaller loan, longer repayment period) to help the member achieve their goals. ● “Credit unions don’t offer competitive returns on savings” – As owners of the business, members’ dividends are retrospective allocations of profits and therefore credit unions can’t advertise rate of returns on deposits, which is why this myth exists. In many cases dividends often outstrip interest from high-street banks. ● “Payroll deduction is complicated and expensive to operate” – From a payroll professional perspective, operating payroll deduction with a credit union is straightforward and non-complex. The employer is simply a conduit between the member and the credit union, which does all the work. 70% of my credit union’s 30,000 members save through payroll deduction with one of our 100 employer partners, so we know the value of keeping it simple. In respect of costs, credit unions offer this as a free service to their members.
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Issue 32 | July/August 2017
| Professional in Payroll, Pensions and Reward |
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