In Focus Risk


Giving credit where credit is due


Are lenders missing an opportunity to develop new customers and to play a positive role in society?


Barry Epstein Co-trustee, ICULD&E barry@ creditunionconsultancy.co.uk


In September last year, I wrote an article for CCRMagazine entitled ‘Character (of a borrower) must be the key’ and went on to talk about the “ecstasy of crowds”, meaning “everyone else is (lending and) borrowing so it must be alright”.


Why lend? This can be extended to all lenders ‘if we do not make loans, we do not earn money for ourselves and our investors’. In turn, the large investors need a return


to be able to pay annuities to the purchasers of their investment products or shareholders.


Is there a moral imperative? If ever there was an argument in favour of encouraging the re-gearing of the economy to embrace the co-operative economic model, it is this: this model balances the needs of investment return with worthy social outcomes. A key object of a credit union, stated in the core act of 1979 is “to educate members in the wise use of money so that they can manager better their financial affairs”. Obviously, the return on investment is necessary, otherwise a social return cannot be delivered. The reverse, however, cannot be true; this is the root cause of failure of most governments to deliver measured long-term meaningful outcomes from their social programmes. Exactly the same views can be taken


towards the consumer-credit industry, that does appear to subvert any long-term social responsibility completely in favour of short- term gain. Recently, a bank manager stated to me “the bank’s job is to look after your money


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If ever there was an argument in favour of encouraging the re-gearing of the economy to embrace the co-operative economic model, it is this: this model balances the needs of investment return with worthy social outcomes


securitised mortgages and wasting assets that lose value at every turn of their wheels – the overheated car loan or leasing market. A car is a vehicle used to travel with ease


and on demand from A to B, it is not a ‘must have’ item as advertised on the media – is the car leasing and consumer-credit market the next financial bubble waiting to burst?


and not you!” After 31 years with this bank, which started out as a mutual, my immediate reaction was to move my business to a mutual, where I had equal ownership rights with larger and lesser depositors.


Debt delusions Most developed economies have a situation where consumer debt is stimulated by lenders flush with cash stimulating the market for loans. This is not a new phenomenon. Think of


the investments in tulips in Holland in 1637, the South Sea Bubble in the UK in 1720, Wall Street in 1929, and the global banking sector in 2007-2008. When will our industry ever learn?


Using low-cost credit to purchase spurious investments, unexamined bundles of


www.CCRMagazine.co.uk


Delusions destroyed There are several recent quotations that support this view: l Moodys (the credit-rating agency) “warning over UK debt binge” Jasper Jolly, City A.M. 1/8/2017. l “Banks in spotlight as FCA sets sights on overdrafts” Lucy White & William Turvill, City A.M. 1/8/2017. l “Carney’s blitz on credit – banks given five weeks to reveal riskiest loans after warning over debt bubble” Aimee Donnellan, Sunday Times 30/7/2017. I am self-employed and was in receipt of


a regular income stream from the financial- services industry assisting individuals whose finances had become impaired for social and commercial break-ups. That work was arrested by the market


crash in 2007, without the availability of responsible credit from a credit union and a bank that had a corporate social responsibility policy, my commercial revival would have been severely impaired.


Bad dreams Just as the events of 2007-2008 caused uncertainty to both lenders and borrowers, this trepidation was caused by two things; the first being a state of mind taking precedence over a state of pocket, the


September 2017


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