Working with Credit Unions to Develop Financial Capability Using Web-based Tools.

Over-indebtedness is an increasing problem for Credit Unions in Northern Ireland due to the economic downturn with arrears now standing at 19% of total loans. This situation is likely to be exacerbated as the Welfare Reform programme begins to impact on low-income households in Northern Ireland from summer 2014 onwards. Some Credit Union members are currently coping with excessive debt by resorting to expensive debt management companies or high-cost short-term borrowing (from payday lenders for example).

For Credit Unions the current approach to dealing with over-indebted members is a mix of consultation, rescheduling, write-off or legal action depending on the circumstances of the member and their degree of compliance. Our primary objective in this proposal is to work with five Credit Unions in Northern Ireland to develop two web-based tools which will enhance the financial capability of over-indebted members. The project partners serve both the Protestant and Catholic communities and are a mix of large and small, urban and rural Credit Unions with varying degrees of financial sophistication. This project seeks to find a more effective way of dealing with over-indebtedness than is current practice with the objective of assisting all Credit Union members. The outcome of this project for Credit Unions is improved financial solvency and for their members it is enhanced financial capability.

Based on discussions beginning in 2012 with project teams at the five Credit Unions we have identified an approach which may prove useful in debt management. Working with Credit Unions and a software developer, we will use funds from this grant application to develop two web-based tools:

1. The first online software tool allows the user to see how much they can afford to pay off each week and where expenditure needs to be cut back in order to make their debts more manageable. This will be completed Spring 2015.

2. The second tool will allocate funds available for repayment across the different creditors according to the chosen debt reduction strategy. Common strategies are (i) repay debts with higher interest rates first or(ii) pay off smaller loans first to reduce the total number of outstanding loans. The overall cost in interest paid as well as the likely time until becoming debt-free will be clearly explained in each case. The user can then see the effect of choosing a particular strategy on their financial position. A range of typical loan providers and their respective borrowing costs will be stored for the user's convenience as often users may not have the borrowing costs to hand. This will also be completed Spring 2015.

The two tools will be integrated. Users will be able to see immediately the effect of their spending on debt reduction as the amount available to pay off loans from the first tool determines the total available for debt reduction in the second tool. Also the timing of loan repayments will be coordinated with their expenses in order to eliminate late fees, bank charges and stressful phone calls from creditors. These planning tools will be different to existing applications in their ease-of-use, the clarity of outputs, their level of integration and the timing facility. These tools will form a package with an existing tool which compares borrowing costs across different providers.

When the two tools proposed here are fully developed, we will randomly allocate participants to three arms of an RCT. The first arm will receive the current Credit Union approach, the second will receive tailored financial advice through a discussion forum and the third will enhance financial capability through the web-based tools. The technology used in any approach identified as being effective will be made available free-of-charge to the Credit Union movement.

More generally, lessons from this study can inform current debates in the UK over the role of credit unions as an alternative to payday lenders.

The direct beneficiaries from the activities will be the five participating Credit Unions and their members. Indirect beneficiaries will be the Credit Union movement, policy-makers, the software developers and research students allied to the academic team.

1. Credit Unions

The Credit Unions will be actively involved in the development of the financial decision-making web tools. Their input will identify the needs of their members who are in financial difficulty and develop appropriate applications to meet those needs. This research will then assess how effective this intervention has been against alternatives. If proven effective the applications will be made available to the Credit Unions free-of-charge for use by their members. This will have the benefit of reducing Credit Union arrears and improving their solvency.

2. Credit Union members

A core Credit Union principle is the financial education of their members. These tools will enable over-indebted members to make better-informed choices in relation to getting out of debt. They will plan their household expenditure better, prioritise their debts better and avoid unnecessary fee charges.

By benchmarking the web-based tools against the alternative approaches (discussion forum and current Credit Union practice), we will identify the most effective way for Credit Union members to deal with over-indebtedness.

3. The Credit Union movement

The Credit Union movement will also benefit indirectly from the activities proposed. The primary objective of this research is the identification of an intervention which is best practice for dealing with over- indebtedness to ensure the solvency of the Credit Union movement going forward. Therefore it is important that all Credit Unions have access to the results of this investigation. This will be achieved through the two trade associations to which Credit Unions in Northern Ireland are affiliated. The trade associations are strongly supportive of this proposal and have agreed to be involved in the dissemination of our work through a series of regional workshops and articles in their in-house trade magazines.

The two main trade bodies in GB are the Scottish League of Credit Unions and the Association of British Credit Unions Ltd. To facilitate the dissemination of our findings to the Credit Union movement in GB, we will also invite these groups to our dissemination events.

4. Policy makers

Results will be disseminated more broadly to policy makers and practitioners in the area of social deprivation and public health. Results from this study will have general applicability elsewhere in the UK. For example, we believe lessons from this study can inform current debates in the UK over the role of Credit Unions as an alternative to payday lenders.

5. Software developers

To date we have worked with EventMap in developing the existing borrowing costs tool. EventMAP is a newly established Queen's University IT spin-off company who provide consultancy and software for resource planning. They see their involvement in this project as an opportunity to expand into a new line of work and broaden their portfolio of activities.

6. Research students

Two PhD students are currently working on this research programme. Findings from this study will form the basis of their dissertations and will be presented at academic conferences.