Ethical alternative to payday loans
Rebirtha Hart-Bowman says her life was turned upside down when she suffered a stroke, accompanied by acute bronchitis.
And when the retired teacher applied for a loan to make her cold house more energy efficient, her bank turned her down flat.
"The cold wind whistled through the house, my energy bills shot through the roof, I needed to get the windows and walls done," she says.
"My bank could do nothing to help be because the computer said no."
The collapse of controversial payday loan company Wonga, which became notorious for its eye-watering interest rates which once reached 5,853 per cent, has thrown the spotlight on where people go for loans when they have been turned away by the mainstream banks. While lenders are now restricted to a maximum interest rate of 1,500 per cent per annum, this is still seen by many as an extortionate sum. And while few will mourn the passing of Wonga, there are some who are genuinely worried that the decline of payday lenders will drive the vulnerable towards the even more dubious world of illicit loan sharks.
This doesn't need to be the case, though, as Mrs Hart-Bowman explains. After being rejected by the mainstream commercial lenders, she turned to the Castle & Crystal, credit union, one of 292 not-for-profit "community banks" across the UK.
Like the building societies of the Victorian era, credit unions are owned solely by their members, and do not pay dividends to external shareholders. They offer both savings accounts and loans, although often they will be subject to geographical restrictions: Castle & Crystal, for example, is open to anyone living or working in Dudley borough Worcestershire; Walsave offers a similar service in Walsall, there is Six Towns in Sandwell, and City of Wolverhampton Credit Union for Wulfrunians, and Fusion serving Cannock and Lichfield.
What the credit unions can't offer is the big-budget advertising campaign featuring cute puppets of elderly folk.
John Harrower, who runs the Fairshare credit union, says it is always a battle for credit unions to compete with the multi-million pound commercial lenders when it comes to making people aware of what they do.
"We can't compete with their marketing budget because we can't charge the high interest rates that they do to pay for it," he says.
Mr Harrower says when people find themselves in trouble with payday lenders, it has usually started as a small problem which has snowballed as the borrower has struggled to meet the repayment terms.
"You generally find it is multiple loans," says the general manager of Fairshare credit union. "When people are having problems, it tends not to be one or two, they have got three, four or five.
"It generally starts when something happens, like their car's broken down or household goods are needed.
"They will go to the first source of cash they can find, then something else comes up, so they then take out another loan, using one payday lender to pay off another.
"We see ourselves as an alternative to a payday lender, but our interest rates are capped at 36 per cent per annum," he says.
Dharminder Dhaliwal, general manager at Castle & Crystal has taken a leaf out of the payday lenders' book by embracing new technology to offer rapid decisions. Its new website features Wonga-style sliders which allow people to see in an instant what their monthly payments will be, and general manager Dharminder Dhaliwal says a decision can be made in just one minute.
"These days we can verify someone's details electronically, we do not need you to bring your passport or bank statements in like you might have done 15 years ago," says Mr Dhaliwal.
"These days people lead busy lives, and convenience is an important factor."
What the credit unions will not do, though, is offer no-questions asked loans. While credit unions will lend money to people who have been turned away by the high-street banks, each applicant will be thoroughly assessed to ensure they can repay the loan.
"If we know they can't afford the loan, we help them to get back on their feet," says Mr Dhaliwal. "We encourage them to save a bit each month, and to then reapply in three months' time." Castle & Crystal has also launched a money-saving blog, offering monthly tips to its members.
"We're using technology, but with an ethical dimension," says Mr Dhaliwal.
"The new tool on our website makes it easy to access our services but it’s still a human being that has final say-so on loan decisions, as the tool is only a factor in our decision making process.
"The way the new loan tool is configured is so that many will get straightforward accept on line for a loan, but many will also see a referral, meaning it comes to us for review and we will help nurse them back to financial health if we cannot give them a loan."
Unlike payday lenders, credit unions are not generally in the business of 30- or 60-day loans.
"Our shortest loans are for three months," says Mr Harrower, pointing out that the interest on this is a fraction of the cost of a 30-day loan from a payday lender.
"The payday loan companies want people to keep coming back to them and borrowing multiple times," he says.
"We're also more flexible about the amount of time you need to repay the loan.
"We make sure you can repay it at an affordable rate, and if you are struggling, we're flexible about how you could restructure it ."
At the moment there are two million credit-union members in the UK, who are estimated to have saved a total of £3 billion. They are still comparatively small players in the financial services market, but have been boosted in recent years after being endorsed by Archbishop of Canterbury Most Rev Justin Welby and former prime minister David Cameron.
Mr Dhaliwal says this is good news not only for members, but also for the communities in which they live.
"For every £1 million we hand out, our members save £750,000 in interest," he says.
"That £750,000 stays in the area, it increases disposable income, that's more money being spent in the shops and supporting local areas."
*For more information about Castle & Crystal credit union, see the website castleandcrystal.co.uk or telephone 01384 817619.
For general information about credit unions or to find one in your area see abcul.org