In 2020, support was agreed from Derbyshire County Council's public health budget to promote access to affordable lending through the provision of a dedicated Service Development Officer and funding targeted at promoting affordable lending.
The council has previously supported credit unions and community banks in the county to expand their provision. In 2020, support was agreed from the council’s public health budget to further promote access to affordable lending through the provision of a dedicated Service Development Officer and funding dedicated to promoting affordable lending and removing barriers to access. The project launched in October 2021 and is funded for three years.
A successful promotional campaign was carried out in November 2021 to January 2022 promoting Credit Union loans, the Stop Loan Sharks campaign, money and debt advice and advice strategies for a “low cost, low waste Christmas”. Social media posts reached over 110,000 accounts including 37,000 by targeted advertising in high-deprivation areas leading to almost 4,000 visits to the council’s Community Banks and access to credit webpage, with 746 “click throughs” to lenders webpages.
Community Banks are currently being promoted through the Council’s Cost of Living Campaign both in targeted leaflets and social media activity and a further campaign is planned in November and December 2022.
Market research and consultation with Credit Unions
In April 2022, market research has taken place with applicants to the council’s local welfare assistance scheme (Derbyshire Discretionary Fund or DDF) to understand awareness of local Credit Unions amongst this cohort and understand saving and borrowing patterns to inform delivery of the referral pathway.
The market research showed that there was less reliance on high-cost borrowing than had been anticipated. The most common source of borrowing for the DDF cohort was family and friends and was typically for essential living costs (64 per cent of respondents). Respondents were generally satisfied with this source of lending, but comments were made referencing feeling embarrassed and that this was the only source of credit they were either able or willing to access.
A minority of respondents had used high-cost lenders in the last twelve months and there was awareness that these are not ideal solutions due to high interest and lack of flexibility around repayments, with high-cost lending considered as a “last resort”.
Of the cohort surveyed, 54 per cent of respondents had heard of a credit union but only 40 per cent of those had used one for either borrowing or lending. For those who had used a Credit Union before, satisfaction was high (63 per cent of respondents either satisfied or very satisfied).
Consultation with Credit Unions
All five Credit Unions covering Derbyshire have been consulted on the project and have been asked to share their concerns within the sub-prime lending market. Key issues raised are the difficulty of lending in the current climate due to applicant affordability, an increase in ‘buy now, pay later’ schemes and an increase in online gambling. These concerns mirror issues raised by research carried out by the Illegal Money Lending Team’s Credit Union liaison worker. Specific work has been identified by the credit unions regarding work in particular localities where access to affordable credit is low.
Referral mechanism from Local Welfare Assistance
The Credit Unions have expressed an interest in receiving referrals from the Derbyshire Discretionary Fund and these have started from 01 July 2022. A gradual roll out of referrals is being trialled to test and develop the best referral pathway and referrals are starting with applications for school uniform which is excluded by DDF policy. Applicants will also be given information on alternative options. The credit union model also encourages members to save alongside their loans, which can either be used to pay the loan off early or to save for future needs.
Work will be carried out to determine the next stage of the roll out of the DDF referral pathway for applicants who are either being declined by the DDF or who are applying for additional items outside of the scope of the scheme. The referral pathway will be subject to regular evaluation, including the outcomes of loan applications. Consideration in future will be given to whether underwriting of loans by the project would lead to an increase in loan approvals.
Salary savings schemes
All five Credit Unions covering Derbyshire are hoping to increase the number of members signed up to payroll deductions. Payroll deductions are considered as beneficial to employees as they can form a regular saving habit before wages enter their bank accounts. Payroll deductions can also be used to service a loan (the employer does not know whether an employee has a savings or loan account) which can be accessed as an alternative for staff at risk of taking high-cost credit options.
Derbyshire currently has four Credit Unions signed up as payroll partners, but a very small number of employees making payroll deductions. Initial consultation with Human Resources has shown support for promoting salary savings schemes and this could be an additional benefit for employees struggling with cost-of-living pressures which is low cost to the Council. There is little knowledge or insight into why take up is low and this would be useful to inform future promotional work.
Evaluation of the project
Work has been carried out to inform the baselines against which evaluation will be measures and an evaluation plan has been developed in order to robustly evaluate the project.