Peter Black and South Wales West Liberal Democrats

Assembly Member demands Labour re-think on credit union charge

The Welsh Liberal Democrat Assembly Member for South Wales West, Peter Black has called on the Labour Government to order the Financial Services Authority to withdraw an £8.5m charge that they are imposing on all credit unions to help pay for the cost of bailing out the banks.

Mr. Black, who is a member of LASA Credit Union attended the launch of a partnership initiative designed to help homeless people in Swansea between The Wallich, the Swansea Bond Bank, and Swansea's LASA Credit Union last week. He is shocked that organizations such as Credit Unions, who have been set up to tackle financial exclusion are being targeted in this way to help pay off the cost to the taxpayer of rescuing insolvent banks.

Mr. Black said:-

"This is unjust and unfair. When £19.7 billion of our money was paid out to rescue the greedy bankers from the consequences of their own folly, last year, my understanding was that the banks that got the money would pay the taxpayer back. Instead the FSA is levying a charge on all the organisations it controls, including each and every UK credit union so as to meet the debt.

"Credit unions are not the same as banks and other High Street lenders. They are owned by their members, many of whom help to run their credit union as unpaid volunteers, offer loans at low interest, and encourage saving. Many of their members are on fixed and low incomes.

"The scheme launched to help homeless people is an example of the good work credit unions do. Can anybody imagine a High Street bank helping homeless people get a roof over their heads?

"This charge is particularly hard to swallow when we remember that part of the problem was caused by inadequate regulation of the banks by the FSA. It is the responsibility of the banks who borrowed our money to repay it.

"This cynical action makes it quite clear that the FSA cannot be trusted to regulate credit unions fairly. The Minister should act now to take the regulation of credit unions away from the FSA, and return it to the Registrar of Friendly Societies where it was before."

END

Note: Below is a copy of a letter from Johnston Credit Union to Treasury Minister, Douglas Alexander… who happens to be their MP…that sets out in detail concerns felt by Credit Unions:

Dear Douglas,

Five years ago you congratulated our credit union when we received The Queen's Golden Jubilee Award for service to the community in Johnstone. On that occasion you reminded us that we could rely on your assistance if we had a problem. We are sorry to say that we do have a serious problem and as a cabinet minister, you are ideally placed to intervene on our behalf.

In 2008 the government paid £19.7billion of taxpayer's money to the Financial Services Compensation Scheme (FSCS) to secure the savings of the depositors of five failed UK banks. The FSA have advised us that, as a deposit taking institution, we must pay an exceptional levy to the FSCS so that taxpayers can be repaid. The portion attributed to the credit union movement is £8.5million of which our share is approximately £75,000 including interest and administration expenses. This sum represents 1.5% of the credit union's gross assets and more than twice our annual write-offs for bad debts..

The root of our problem was sown when the government decided, when framing the Financial Services and Markets Act 2000, to make no distinction between multi-national banks and small voluntary mutual organisations such as credit unions. Under the act, credit unions are designated as deposit-taking institutions, regulated by the FSA, and as such are treated in exactly the same way as large building societies and banks with many billions of pounds in assets. The Credit Union Movement's request that we continue to be regulated by the Registry of Friendly societies was dismissed. It is now clear that an unintended consequence of this legislation is that credit union volunteers are now expected to do unpaid work to replenish government funds. Any reasonable person will immediately appreciate that this is unjust and totally unacceptable in a civilized society. Under the legislation the FSA have no authority to exempt credit unions from this charge, only the government, of which you are a member, has the power to rectify this injustice.

As our elected representative, I am sure will appreciate our outrage that we have been placed in this position. While the greed of highly paid bankers and inadequate supervision by the regulatory authorities have brought about the worst recession in living memory, our credit union has consistently operated to the highest ethical and prudential standards. Neither the volunteers nor our members have any responsibility for the current financial predicament affecting the country. Our members are already paying a high price through the loss of jobs, homes and local services and we are not prepared to burden them further by plundering their credit union earnings. The board of directors consider that the demand for any exceptional levy is immoral and unreasonable and we are therefore not prepared to authorise any payment in this respect.

As law-abiding citizens, we have no wish to enter a period of confrontation with the FSA, by refusing to sanction a legitimate request for payment. On the other hand we have a duty as directors to protect the savings of our members against unreasonable demands. The government has placed us in an untenable position. None of the members of our board is prepared to work for nothing to undo the damage done by the misdeeds of the banking sector and any attempt by the FSA to enforce payment could result in the resignation of the entire board.

We would therefore ask that you meet with us at our office in Johnstone at your earliest convenience. The FSA are threatening penalties if the first instalment of interest is not paid on or before 1st September. We are seeking an urgent solution to our dilemma and we trust that you will be as concerned as we are that this unfortunate situation can be resolved quickly with a minimum of inconvenience to our 4000 members.

Yours faithfully,

The Board of Directors

Johnstone Credit Union Ltd

26 Church Street

Johnstone

Renfrewshire

PA5 8DU