The ethical bank that offers salvation?
The Guardian, By Patrick Collinson and Rupert Jones
It has never sold payment protection insurance. It has never had a customer complain to the financial ombudsman. It has never been fined by the regulators – and it was certainly not mixed up in the Libor scandal. Yet it offers customers a full current account service, with debit cards, cash machine access, savings accounts, cash Isas and internet banking. As Co-op Bank’s 4.7 million customers reel in shock at its effective takeover this week by US hedge funds, many are looking at ethical alternatives – and Reliance Bank for the first time in its century-long history is finding itself in the spotlight.
Founded in 1890 as the Salvation Army Bank, today it has assets of more than £200m, much of it from churches and charities as well as private customers. It says its mission is to "stand out as a bank with a Christian and ethical conscience", donating 75% of its profits to the Salvation Army – which still retains control of the bank despite the bank’s name change to Reliance.
Throughout the financial crisis Reliance Bank has remained in profit – which it puts down to its low-risk, ethical business model – and it has the sort of internal capital ratios and financial safety cushions that the major high street banks can only dream of.
It does confess to paying bonuses – which critics say drove other banks into reckless risk taking. But while Barclays handed shares worth £70m to one individual, Rich Ricci, at Reliance the five top managers shared a bonus pool of £2,446 last year (no, we didn’t forget to put an ‘M’ at the end of that) – £489.20 each – although they still felt incentivised enough to run a bank. Reliance says it has an absolute ceiling on bonuses of 10% of salary. Its managing director designate, Paul Underwood, says: "The other banks are being encouraged to go back to basics. We never deviated from that in the first place."
Reliance’s 5,000 customers are covered by the Financial Services Compensation Scheme, and it offers mortgages at rates starting at 2.49%. But it won’t give you a credit card. "Our shareholder [the Salvation Army] thinks credit cards are part of the problem with society," says Underwood.
The Move Your Money campaign group website, compiled by Ethical Consumer, rates Reliance joint top for ethics, and even before the crisis at Co-operative bank, Reliance scored higher than its better-known rival.
This week the Co-operative Group lost control of its bank after a rescue plan to plug a £1.5bn shortfall was rejected by bondholders. The co-operative movement, formed by the Rochdale Pioneers in 1844, will be left with a 30% stake when Co-op Bank is floated on the stock market, rather than the 75% it had originally hoped for. Instead, a group of US hedge funds and other financial institutions are in the driving seat, prompting fears among many customers that it will lose its ethical focus.
An online straw poll on the Guardian website this week asked customers if they were considering quitting Co-op Bank – and two-thirds answered yes. But it has to be emphasised that Co-op Bank is neither about to collapse nor junk its ethical policy overnight. The deal hammered out with bondholders does secure its financial future, while chief executive Euan Sutherland says there is no reason for customers to be concerned. "This bank will remain the Co-operative Bank. We are embedding the co-operative principles in the constitution of the bank to guarantee this," he said.
So should the ethically minded switch to Reliance Bank instead? Unfortunately, it says, it is in no position to accept a large influx of customers fleeing the Co-op, although it was actively involved in the recent switching project, which guarantees to transfer accounts within seven days.
"Although £200m in assets may sound like a lot, it’s just a fraction of what the big boys have," says Underwood. "We are a retail bank, and we have had a few people from the Co-op come over to us. But we only have one branch and just 21 staff. We don’t have the infrastructure to cope with a sudden influx."
The Salvation Army’s evangelical Christianity may also deter potential customers. In the US, it has been plagued by allegations that it discriminates against homosexuals in its hiring practices, and it was reported in 2004 that it would rather pull out of New York city than offer benefits to gay employees’ partners. In the UK, its publication, War Cry, opposed the repeal of Section 28 legislation (which had banned promotion of homosexuality in schools).
A Salvation Army spokesperson said: "The Salvation Army stands against homophobia. A diverse range of views on homosexuality may exist within the Salvation Army – as among the wider Christian (and non-Christian) community. But no matter where individual Salvationists stand on this matter, the Salvation Army does not permit discrimination on the basis of sexual identity in the delivery of its services or in its employment practices."
Reliance Bank is one of a number of financial institutions standing to benefit from the Co-op bank’s woes, as disillusioned customers seek out alternative homes for their cash. One of your first ports of call should be the Move Your Money UK website, which has given all the main banks and building societies a "switch score" based on honesty, customer service, culture, impact on the economy and ethics.
So who gets the top ethics score on current accounts?
A string of institutions, including Reliance Bank, scored 92 out of 100. Others include Britain’s biggest building society, Nationwide; Coventry building society, whose current account pays 1.1% for the first year on balances up to £250,000, provided you pay £1,000 each month; Metro Bank, a relatively new arrival with 21 branches in the London and M25 area; and the Islamic Bank of Britain. Don’t forget Handelsbanken (score: 75), the UK arm of the Swedish bank of the same name, which has 150 branches.
One of the most ethical places of all is a credit union – a co-operative owned and controlled by its members. Backed by everyone from the Archbishop of Canterbury to Ed Miliband, they distribute their profits to members in the form of dividends, which means the money stays in the community rather than going to shareholders. A long list now offer current accounts: go to abcul.org/about/productsservices/cuca.
For those looking for a new home for their savings cash, the choice is wider, as there are several ethical institutions that don’t offer current accounts but accept savings deposits. However, many of these don’t offer particularly high interest rates.
In the savings category, Ecology building society was among those achieving an ethics score of 100%. Based in Keighley, West Yorkshire, the society uses savings accounts deposits to offer sustainable mortgages for properties and projects that respect the environment. But because it has been inundated with people looking to move their money to a more ethical institution, some of its accounts – including its cash Isa – are currently only available to existing members. At the time of writing there was only one account open to non-member individual savers. It is called Foundations Share and pays 1% gross interest.
Bristol-based Triodos Bank (score: 100) finances organisations from organic food and farming businesses and renewable energy enterprises to recycling companies and nature conservation projects. It has quite a few savings accounts including Online Saver Plus, paying 1.35%, which includes a fixed 0.35% bonus for 12 months; a 33-day notice online cash Isa paying 1.60%; and a Junior Isa paying 2%.
Meanwhile, Charity Bank (100) lends only to charities, social enterprises and community organisations. It closed its cash Isa to new customers in April "due to unprecedented levels of new savings", but has several other accounts including Small Steps, aimed at under-16s, which pays 2%