We’ve all heard the twisted logic coming from David Freud’s lips. Baron Freud’s argument is that because the poor have the least to lose they should take the biggest risks. Perhaps we shouldn’t be all that surprised to hear a former banker talking like this or be further surprised that he seems to measure risk purely in terms of quantities of money and has completely failed to see that while the poor do indeed have less to lose, by losing the small amount of money and possessions they own they would be rendered destitute and homeless. Whereas for the rich to lose the very same amount – the sum total of the poor’s assets – would have no impact whatsoever on the quality of their lives. They certainly wouldn’t go hungry. Freud is not an uneducated man. He’s well aware that the facts I’ve just written above are true. His argument is not based on fact but on a deeply held class prejudice because what he is effectively saying very clearly with his banker’s logic is that the money he and his class own is more important than the very lives of the poor. He knows just as well as we do that when you deprive a human being of the most basic means to survive you condemn them to a slow death. This is the man who has been entrusted with the job of welfare reform. And this is the man who, since early 2011, has been talking to some of the biggest and most notoriously criminal banks about our Credit Unions. Why? A Credit Union, as many of you will know, is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at affordable rates as well as a few other financial services to its members. Its a very different beast than a commercial bank, not least because it doesn’t exist to make a profit. When the Credit Union Act 1979 was passed it defined the meaning and ethos of Credit Unions and set out their objectives. The central and most basic principle that underpins such organisations is the notion that there is a ‘common bond’ between members. Members were people who had things in common such as being employed in the same industry, living in the same locality, belonging to the same organisation or group or had any other reason to be associated with each other. By virtue of this basic requirement Credit Unions were necessarily small co-operative societies. The objectives laid down in Statute were,
- the promotion of thrift among the members of the society by the accumulation of their savings;
- the creation of sources of credit for the benefit of the members of the society at a fair and reasonable rate of interest;
- the use and control of the members’ savings for their mutual benefit; and
- the training and education of the members in the wise use of money and in the management of their financial affairs.
Credit Unions were never intended to be banks…. Back in July 2006 the then New Labour government started a Growth Fund as part of their Financial Inclusion Fund and in an attempt to encourage growth in run down local economies they handed out grants to Credit Unions so they could provide more loans to local people to help fund small businesses and other projects. They gave Credit Unions grants worth in total £42 million between 2006 and 2008, then pledged a further £38 million to be used between 2008 and 2011. Its estimated that this money benefited around 160,000 people to the tune of £70 million in affordable loans. This was money given up front by government and they took the trouble to do some research and target the most needy areas with the most money. But in 2010 of course the slash and burn Coalition government took over the budget… In early 2011 DWP Minister Mark Hoban (pictured here with a rather large zit) made a statement about the future of the Financial Inclusion Fund containing a shadowy hint at their plans for Credit Unions,
“The Financial Inclusion Fund will close at the end of March 2011. The Government will work closely with industry and other stakeholders to ensure that tackling financial exclusion remains a high priority. ….. The Financial Inclusion Fund has always been due to close in March 2010(sic). The Government have not yet taken a decision on the future of the projects currently funded from the Financial Inclusion Fund. The Government remain committed to helping poorer households to access appropriate financial services, to improve their financial resilience and to avoid falling into unsustainable levels of debt”
This reference to a commitment to help poorer families access ‘appropriate’ financial services is an ominous one in light of the fate they have in store for Credit Unions. The key is in the use of the word’appropriate’ rather than, say, ‘affordable’ – because you can be sure its their definition of that word that will prevail given that they have not publicised their plans widely enough to open up the consultation debate to the very poor and low waged who traditionally rely on Credit Unions. We were hearing a great deal about Universal Credit back then but there was precious little media reporting on this issue at all despite the many opportunities to bring it up whenever there’s been a horror story in the news regarding pay day loan sharks. Its pretty obvious they have deliberately kept it low profile. Whilst a spotty Hoban was speaking in such vague terms to the press, his wily colleague the Baron Freud was consulting with some of the biggest banking and private equity interests in the world. According to DWP records, almost from day one, of the Coalition he was having meetings with a number of big players regarding Credit Unions.
- In July 2010 he consulted separately with people from Deutsche Bank, UBS and J.P. Morgan for ‘investment expertise.’
- In January and February 2011 he met with PMM Partners LLP, a company describing itself as existing for ‘ the purpose of pursuing private equity opportunities in the real estate sector’ and offering help ‘with all aspects of fund origination, structuring, acquisitions and disposals, due diligence, asset and property management’. One of their customers is Grant Thornton who produced the so-called ‘independent’ report on Furness General Hospital.( http://wp.me/p3mYc5-5J )
- In April 2011 he met with Barclays who had been ‘donating’ small sums of money -around £30K – to Credit Unions since 2010 to encourage them to change their business model towards a more mainstream banking version.
- In December 2011 he met with Barclays again, along with Goldman Sachs and PMM Partners LLP.
https://www.gov.uk/government/organisations/department-for-work-pensions So what’s going on here? Lord Freud seems to be conducting a consultation about the future of Credit Unions by speaking to the banks but not involving the Credit Unions themselves in the process. Well, not quite, but we’ll get to that in a minute…. Its important to remember at this point that the grant funding given to Credit Unions by the previous government was coming to an end and the Coalition wasn’t minded to carry it forward. However, Freud and his gang at the DWP knew that they were about to embark on a massive cut in benefits and it can’t have failed to register with them that this was going to leave the poorest people in dire need and thus create a huge market for small loans. There had already been a number of tales of horror about pay day loan sharks getting in on the act with exorbitant interest rates. Credit Unions were the obvious acceptable alternative to this but the tight-fisted, moralising, capitalist Tory attitude baulked at the thought of simply handing over money with no return. The Baron, it seems, was hatching a cunning plan, which with the right kind of propaganda would make it look like the government was still supporting Credit Unions out of a paternalistic concern for those they were about to impoverish further, when in fact they were about to facilitate a kind of hostile takeover by the Banksters. To this end, back in 2010, they made ambitious claims in the press to be planning to ‘invest’ over £70 million in Credit Unions. Freud and Co.then commissioned Experian to do a feasibility study for what they called their ‘Credit Union Expansion Project’. The study found that,
“a market exists amongst people on lower incomes for locally provided banking, savings deposit and loan services from trusted providers such as credit unions:
- 1.4 million have no transactional bank account at present
4 million incur bank charges
up to 7 million use sources of high cost credit”
http://www.dwp.gov.uk/docs/credit-union-feasibility-study-report.pdf So there was definitely a market out there and with the roll out of benefit cuts playing in the background any Tory fool could see this was a growing market. But there were problems. The ethos of the Credit Union laid down in statute which kept such organisations small and that relied on a common bond between members didn’t sit well within a market context. The very nature of Credit Unions is to be co-operative not competitive and has a distinctly socialist flavour to it. Experian saw this as a major drawback and gave the following advice which Lord snooty Freud and his pals have placed at the heart of their expansion programme,
“A major programme of cultural and behavioural change would be required to achieve the modernisation and expansion needed.By achieving the publicly funded change we propose it can speak to the Big Society Bank and other funding organisations as one ‘organisation’ large enough and financially stable enough for investors to be interested in. However, until real change has been achieved there is no realistic opportunity for it to achieve commercial or social investment because it lacks the capacity to repay.”
Now where have I heard that phrase ‘cultural and behavioural change‘ before? It seems the sheer arrogance of this government knows no bounds. Just like IDS the Baron is acting like a feudal lord towards the Credit Unions and by extension to all of us who use them. As members we have shares in them, we OWN them yet here he is treating them as if he has the right to consult with banks behind their backs and make decisions about their future in order to make them a more attractive prospect for the sharks to invest in then impose those decisions on them as a condition for government money which they’ll have to pay back. There’s much more of this draconian approach in the feasibility study that should raise the alarm.
- Government investment being made in stages on a payment by results basis, with the next stage not approved for commencement until the objectives of the previous stage have been achieved
- Strict criteria will be applied to ensure that only suitable credit unions, which have already demonstrated sufficient progress are involved.
- Change programme will need to demonstrate at an early stage a greater capability and willingness to change if Credit Unions want to be selected to participate in a program of behavioural, process and systems change.
- Legislation to be changed to allow them to charge up to 3.0% pcm ( approx 43% APR) on loans from April 2014.
It gets worse. There are over 400 Credit Unions in the UK, some smaller than others. The one I belong to is one of those smaller concerns. Experian didn’t think that government should fully subsidise the gap between income and expenditure for the credit unions in the financial model they produced. This is, in part, because they thought they should be asked to find ways of bridging some of the gap themselves.They point out that this would pose risks for the smaller Credit Unions and as evidence for this they mention that 55 Credit Unions have already had grant funding withdrawn, 25 of which have been forced to cease trading. They also mention that during the course of their study around 80 of the bigger Credit Unions had agreed to sign up for the program BUT they advise this is too big a number, and advise that government “ will want to select the credit unions you work with in future very carefully.” Following this report the Baron has revised down the figure for investment into this so-called ‘expansion’ of Credit Unions from the £70+ million originally announced to a mere £38 million to be delivered in phases over 5 years on a payment by results basis. This will effectively be a loan not a grant. So if less than 80 Credit Unions are to be signed up for this what will happen to the remaining 300 plus Credit Unions whose funding will disappear altogether? I said above that it wasn’t quite true that the Baron had only been consulting with big banks over this cunning plan. In fact both he and IDS had just one meeting back in February 2011 with the Association of British Credit Unions Ltd. (ABCUL) who say they represent 70% of Credit Unions and ‘provide a full range of advice, training and development services to help our member credit unions grow and become sustainable financial co-operatives.’ Except for organising a get together of several of the larger Credit Unions in May 2012 where the plans were announced and this year making a patronising token gesture of opening an account for himself at one of the London Credit Unions this is the only serious meeting the Baron has had with anyone who has a grass roots stake in Credit Unions. http://www.abcul.org/media-and-research/news/view/342 On 22nd April this year the Baron announced that ABCUL were ‘the winning bidder in the recent DWP Credit Union Expansion Project (CUEP) procurement exercise.’ The wording of this suggests that there were several bidders for this contract – you can only win something if there’s competition – yet there’s no information on the DWP website at all about this procurement exercise, despite others being available for public scrutiny and despite the government’s trumpeting of itself as aiming to be ‘the most transparent government ever’.(FOI applied for yesterday). And given the lack of evidence of any wider consultation with the shareholders of Credit Unions you have to wonder if ABCUL were given the nod back in early 2011 that the contract was theirs. They have form for this with ATOS. The question now remains over what part the banks consulted by the Baron are hoping to play in all this. And why he was involving a company like PMM Partners LLB, a private equity firm specialising in real estate. Maybe we can get a taste for what their intentions are by looking across the Atlantic to the United States where the model proposed by the Baron has been playing out for many years, long before the 2008 meltdown. Here are three reasons why Credit Unions should give the big banks a very wide berth indeed
The NCUA – the American equivalent of ABCUL – accused London- based Barclays Capital of breaching state and federal law when it allegedly made misrepresentations in the course of selling securities valued at more than $555 million to the U.S. Federal Credit Union and to the Western Corporate Federal Credit Union between February 2006 and June 2007.Both credit unions were placed under the agency’s conservatorship in March 2009, then into liquidation in 2010. When the NCUA sued Barclays contested it on the grounds that NCUA had left it too late. Both these Credit Unions were part of a corporate consortium of the kind proposed by the Baron for the UK.
The National Credit Union Administration Board on Thursday hit a UBS AG unit with claims that the banking giant misrepresented the risk of more than $1.1 billion in residential mortgage-backed securities it sold to two now-defunct credit unions. Again these credit unions were part of the consortium. UBS are another bank to have consulted over here by the Baron …and of course he used to work for them.
A federal watchdog for the credit union industry slapped Goldman Sachs with a lawsuit in 2011 alleging violations of federal and state laws tied to the sale of mortgage-backed securities
. The NCUA filed suit in California district court against the financial firm for damages in excess of $491 million. Specifically, the NCUA claims that Goldman’s misrepresentations caused the credit unions to believe certain investments carried minimal risk, while that was not the case.
http://money.cnn.com/2011/08/09/news/companies/goldman_ncua_lawsuit/index.htm The government have already changed the law concerning Credit Unions. Enacted in last year it means the following changes have already happened with few of the people it will really affect noticing, let alone being consulted about it.
- Credit unions no longer have to prove that everyone who can join a credit union has something in common. This means they are able to provide services to different groups of people within one credit union.
- Credit unions are able to open up membership to new groups, such as tenants of a housing association or employees of a national company, even if some tenants/employees live outside the geographical area that the credit union serves.
- Credit unions are no longer limited to providing services to just individuals.
- Credit unions are able to choose to offer membership to unincorporated associations and corporate bodies such as companies, partnerships and social enterprises.
- Non-individuals can only make up a maximum of 10% of a credit union’s total membership hold a maximum of 25% of shares in the credit union and be granted a maximum of 10% of loans
- Credit unions can choose whether to offer ordinary shares – ownership of which will bring all the benefits of credit union membership, or deferred shares, which will only be repayable in restricted circumstances and which will count towards the capital of a credit union.
The government eventually plan to deliver the new Credit Union services through local Post Offices where most people draw their benefits. Perhaps we can now see why they called their shiny new system Universal Credit. As benefit are slashed further and further Baron the Bountiful is providing the masses he so despises with access to credit, possibly from the same account their benefits are paid into. With the planned increase in interest rates that Credit Unions can charge to around 43% APR these loans won’t necessarily be all that cheap. A quick browse on the internet revealed a number of companies offering far lower rates. Tesco have a loan at 5.1% APR and some companies even offer bad credit risk customers under 20% APR. For Banksters like the Baron it seems the future is bright…..