17/10/2013 12:04 BST | Updated 23/01/2014 18:58 GMT

We Can Win the War on Wonga

This week's announcement that a future Labour Government would not only cap the total cost of credit but also introduce a new levy on payday loan companies in order to provide greater support to credit unions is great news and a testament to the hard campaigning of Co-operative Party representatives - like Stella Creasy MP and Kezia Dugdale MSP - and activists up and down the country. Credit unions are a great example of the difference that co-operative solutions can make.

Turning back the tide of payday loan and high interest credit companies on the high street will not be easy. The money lenders don't set up shop everywhere - they make a deliberate choice to target communities feeling the greatest squeeze. These are often the very communities where people will take the longest to pay back loans and therefore deliver the best return. Many of the people who seek payday loans do so in the face an immediate crisis such as the loss of their job or illness. Money shops are highly visible and accessible forms of ready cash, visible on the high street or just a few clicks away via a computer or phone. One of the big attractions is the speed that money is provided and the light touch approach on affordability.

Key to winning this battle will be giving people in need of short term credit a real alternative. Those of us who champion credit unions have always believed that they can provide a much more affordable and responsible alternative, motivated by the interests of the communities they serve. However, to fill this gap credit unions do need to take a big step forward and that is why the resources that could come from a levy on payday loans are so important.

Additional resources will help the sector take some really tangible steps forward in improving the range of products they offer, professionalising back office functions to support easier and faster access, particularly online. This is really important. But we also need a big step change in consumer awareness.

Evidence from at home and around the world suggests that one key way of improving reach is by working with employers. Employers can play a key role in promoting and marketing membership but also in providing payroll deductions for both saving and loan repayments - making it easy to save and routine to pay back debt.

The Police Credit Union in England and Wales has 21,000 members and has recently launched a payday loan alternative called the Helper Loan, at an interest rate of around 25% - thousands of percent lower than high street rivals.

The Navy Federal credit union in the United States has 4 million members and assets worth more than $55billion; making it the world's biggest. Large employers also offer the potential for a membership across a wide financial spectrum, which is key to sustainability. After all credit unions need people to save with them as well as borrow from them.

Employer based credit unions also offer the opportunity to reach out to groups of people who might particularly benefit. That is one of the reasons why the Co-operative Party has been championing the need for a new credit union for the armed forces, like the US Navy Federal. Serving personnel get an allowance on active duty, but during home leave or periods in UK, their incomes fall making it hard for some to get by.

The CABs close to military bases say they are dealing with an increasing number of cases where military personnel and their families have run into financial problems after taking out high-cost payday loans. The military covenant is based on the principle that service personnel should not be disadvantaged by serving their country. Ensuring access to fair finance must be a part of that.

On this, the 65th International Credit Union Day, we should recognise that credit unions face both huge challenges and massive opportunities. People now see credit unions as part of the solution to many problems and new support from a future Labour government would support much needed developments.

But there is a long way to go and progress will need to be significant if we are to capitalise on the opportunity and embed credit unions in to the heart of our savings and borrowing culture.