Usury

Usury: The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.

Two unrelated stories that caught my eye earlier this evening cry out to be brought together. The first was the news that Credit Unions in Wales are to get a boost of £750,000:

     Credit Unions land £750k funding - BBC, 22 July 2009

The second was this feature from Newsnight:

     

We live in a widely unequal society and, in spite of the stated intention of some of our politicians, the gap between rich and poor is not decreasing. One of the reasons for that is access to affordable money. If you aren't in a job, or don't have enough savings, or have any sort of bad financial history you—especially now that the credit crunch has taken hold—get relegated to what can only be described as an economic underclass.

It then becomes expensive to make the sort of financial transactions that the better off among us take for granted. Normal borrowing on overdrafts and credit cards is about 17%-19%, that virtually doubles for those whom the banks and financial institutions regard as greater risks and, if it becomes impossible to get even that your only way of getting credit is through loan sharks and pawnbrokers that could charge maybe 100% or more.

     

Although the Newsnight piece was presented from a religious point of view (the three monotheistic religions all condemn usury) I would not want to make any point based specifically on faith or belief. However I don't think there can be many people who would not be disgusted about charging the poorest and most vulnerable members of our society exorbitant amounts of interest and fees while the better off get easy access to cheap money. Whether we have any religious beliefs or not, it is still morally repugnant.

Furthermore, it is even worse that financial institutions charge such high rates of interest on borrowing when they themselves can borrow money at only a tiny fraction of the rates they charge. All the more so for banks which are still in business only because they were bailed out at huge expense by the taxpayer.

     

Now, I might well take the point made by Peter McNamara on Newsnight that small, short-term loans need to be arranged, and that the administration costs money. He might have a point about fees ... but certainly not about the rates of interest they charge.

This is where Credit Unions come into their own. Because they operate at a completely different scale, they do not need to make the same sort of charges. And because they operate at a community level, the attitude that people take towards them is likely to be quite different from the attitudes thay have towards a big bank that can splurge millions on bonuses and pensions. They encourage a greater sense of financial responsibility from those that use them.

So we, at a political level, need in our turn to do what we can to encourage the growth of Credit Unions. I was particularly encouraged to see that some CU's had begin to offer card transaction services in collaboration with the Co-operative Bank, which I mentioned here:

     Syniadau Forums, 30 January 2009

Of course £750,000 is a drop in the ocean compared with the bail out that some of the mainstream banks received. It won't change the world, but it will make a significant difference to the thirty or so Credit Unions we have in Wales. Hopefully, they will now be able to offer services to more people, as a way for them to climb out of the financial underclass we as a society have created.

But as for the banks—as well as for the less reputable organizations and individuals that offer "financial services" of course—we urgently need to have laws that limit the amount that can be charged in fees and interest ... probably on a sliding scale, in proportion to the size and term of loan and to the base rate. And we need to have stronger, criminal sanctions available to use against the loan sharks.