Christmas Loans and Credit Unions: Should Ethical Lenders Tout Debt-Funded Festive Spending?

"With flexible loan options we can make Christmas affordable," boasts Clockwise, a Leicester-based credit union, on its website.

"Hurry - time is running out for a Christmas loan. We are exceptionally busy helping you fill your Christmas stockings. For new loans, if we have all your paperwork by the 21st December we can have a decision for you before Christmas."

A number of credit unions across the UK - institutions which pride themselves on an ethical standing that separates them from traditional banks - are touting Christmas loans to potential borrowers at a time when incomes are squeezed and charities warn hard-pressed families against using debt to fund festive spending.

British households have been hammered by public sector austerity and a real-terms fall in wages as the cost of living rises more quickly than pay, but research by the government-supported Money Advice Service found that 1.2 million people are still considering borrowing over Christmas.

As retailers intensify their marketing campaigns around Christmas, from the garish flash of children's toy adverts to images of lip-licking culinary temptations beamed out by supermarkets, many families feel the pressure to spend a lot of money on gifts and food, even if they cannot ordinarily afford to do so. A lot of them turn to debt.

Statistics from The Money Charity show average UK household debt (excluding mortgages) at £6,020 in November, a rise of £9 on August's figure. Moreover, average consumer borrowing - including credit cards, motor and retail finance deals, overdrafts and unsecured loans - lifted £4 to £3,183 per person. The Office for National Statistics (ONS) shows regular pay growth of 0.8% against price inflation of 2.2%, slashing wages in real terms.

Credit unions work by bringing together individuals with a common connection - living in the same area or working for the same organisation, for example - who then deposit their money together and lend it out to one another. Interest made on lending goes back into the union, through savers rates on deposits, dividends for members and costs of running the institution.

They are, at their hearts, community organisations designed for people with shared bonds to help one another when they need it - but is it helpful or ethical to offer debt as a solution to Christmas spending problems?

'XMAS LOANS URGENT'

It is not just Clockwise - which describes itself as an "ethical lender" - using Christmas as a marketing tool with which to plug its loans.

Leeds City Credit Union also offers festive loans. It says it is supported by local churches.

"Loans for Christmas are now available and applications are now being received. These are very popular for gifts for the family, helping to pay for the cost of Christmas or even booking a winter break. Therefore, demand will be high so don't miss out," says the website, under the headline "XMAS LOANS URGENT XMAS LOANS URGENT".

London Credit Union used Twitter to plug its "Xmas 'Saver Loan'", claiming it is "very low cost, but crucially it leaves the member with money for next Xmas too". New Central Credit Union in Coventry is advertising Christmas loans of up to £400 at an APR of 26.8%.

Commsave, a credit union exclusively for Royal Mail workers but not an official part of the communications business, used its Facebook page to announce that it was accepting applications for the "ever popular Christmas loan of £1,000". The loan must be paid off within a year and cannot be taken out if the individual already has another loan out with Commsave. The APR is 19.6%.

Commenters underneath the Facebook post talk of not having paid off the previous year's loan, worrying that they would not then be able to borrow again in time for the coming Christmas. One asks if she can pay it off with her savings at Commsave, which she is told is possible.

Another user informs would-be borrowers that they only need to have £1 of savings in Commsave to access the full £1,000 loan.

It is perhaps expected of the payday lending industry, which is drowning in criticism over its sky-high interest rates, loose borrowing requirements and punitive penalties for those who struggle to pay off their debts with organisations dubbed by critics as "legal loan sharks".

But it may come as a surprise to those expecting a higher ethical standard from the likes of credit unions and co-operatives.

Jo Dowson, general manager of Clockwise, defended her credit union. She said they were offering an affordable alternative to other lenders in the Christmas period and do not charge "stupid rates", though admitted the Clockwise rates were commercial.

"I think what makes us different in terms of our ethical approach to lending at Christmas is a lot of the people that we provide loans for, for this particular purpose, they would normally go to loan sharks or to doorstep lenders, or to various other means - beg, steal or borrow - in order to provide a Christmas for their families," Dowson told IBTimes UK.

She said the majority of the credit union's members find it difficult to save, given the current economic climate and cost of living crisis.

"It's a two-pronged attack. We want to be able to prevent our members from using usury sources and we want to encourage them to save for future Christmases," said Dowson.

"That's what makes us different. That's what makes us what we consider 'in with the good guys'. Not people preying and using Christmas as a tool to leverage money out of people who can ill afford it."

When asked about feeding into the culture of debt-funded Christmases by appearing to legitimise it by offering seasonal loans, Dowson said "that's the whole culture we live in, to be honest - a buy now pay later culture."

However, she added that Clockwise was seeing a shift away from borrowing and towards saving.

A Commsave representative was not immediately available on the phone. None of the other lenders mentioned in the article responded to IBTimes UK's request for comment.

'Not great practice to fund Christmas with credit'

"In an ideal world Christmas should not be used to promote credit products," said Paul Crayston, communications manager at the charity Money Advice Trust, which offers information and guidance to those in debt.

"It's generally not great personal financial practice to fund Christmas with credit, so it could be deemed a little irresponsible for organisations that provide credit to peg adverts to the holiday season.

"My guess is that credit unions are working on the understandable (and in many cases correct) assumption that regardless of whether it's a good financial decision or not, a lot of people will be using credit to fund Christmas spending, and it's better that they take out more affordable credit than get caught up in a mess with high cost, short term loans.

"Ultimately credit unions aren't looking to make a profit on these products so they deserve some benefit of the doubt. We would hope that any credit union would take great care in offering loans explicitly for Christmas expenditure, and that loans would only be provided with clear evidence that required repayments are affordable.

"Where credit unions turn people down for these loans, we would strongly urge them to make clear and effective referrals to free debt advice services such as National Debtline."

A spokesman for the consumer organisation Which? said: "We found nearly half of consumers used credit cards, overdrafts, store cards or payday loans to cover Christmas spending last year.

"Credit unions may be a cheaper alternative, especially when we found that bank overdrafts can be just as eye-watering as payday loans. However, we really need to see a clean-up of the whole credit market so that it works competitively and borrowers are treated fairly."