Vince Cable backs Church plans to 'compete' with Wonga

 
Justin Welby The Most Reverend Justin Welby delivered a blunt warning to the boss of Wonga

Related Stories

The Business Secretary Vince Cable has backed a plan by the Archbishop of Canterbury to force the online lender Wonga out of business - by competing against it.

The Most Rev Justin Welby told Wonga boss Errol Damelin the Church would do this by expanding credit unions.

These would act as an alternative to payday lenders.

Mr Cable told Channel 5 News that the Archbishop had "hit the nail on the head".

He added the Archbishop was "right not just to condemn abuse but to offer alternatives which are more ethical."

Mr Cable also said that the government was considering ways of regulating the industry.

"We're looking at whether we can stop advertising drawing people into payday lending who perhaps shouldn't be using it."

Archbishop Welby said the plan is to create "credit unions that are... engaged in their communities."

Mr Damelin said he was "all for better consumer choice".

'Took it well'

Payday firms offer short-term loans, often at high interest rates, and have been accused of leading people into more debt.

Archbishop Welby, a former financier who sits on the Parliamentary Commission on Banking Standards, has previously lobbied for a cap on high interest rates charged by loan companies.

Credit Unions - an alternative?

  • There are about 400 credit unions in England, Scotland and Wales
  • More than a million people use them - with a total of £807m saved and £627m given in loans as of the end of 2012
  • The government is planning to extend the interest rate that can be charged by credit unions from 2% a month to 3% a month (26.8% APR to 42.6% APR)
  • It wants to double the membership of credit unions to challenge payday lenders
  • Payday lenders offer small, temporary loans, but credit unions make a loss on loans of less than £1,000 owing to the administration costs involved, says think tank Civitas

He said the Church could do more to help non-profit lenders to compete with payday firms.

"I've met the head of Wonga, and we had a very good conversation," the archbishop told Total Politics magazine.

"I said to him quite bluntly that 'we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence'."

He said of Mr Damelin's response: "He's a businessman; he took that well."

Mr Damelin later said: "There is mutual respect, some differing opinions and a meeting of minds on many big issues.

"On the competition point, we always welcome fresh approaches that give people a fuller set of alternatives to solve their financial challenges. I'm all for better consumer choice."

New unions

Earlier this month, Archbishop Welby launched a new credit union aimed at clergy and church staff. Credit unions charge their members low rates of interest to borrow money.

BBC religious affairs correspondent Robert Pigott said the archbishop's plan was to go to some of the 500 independent loan companies and say to them, "We will help you by letting you have access to our buildings and expertise".

Errol Damelin Errol Damelin launched Wonga in 2007 and it has become a multi-national company

Our correspondent said the Church would not run the companies but would help them and allow them to work on its premises.

"I think the archbishop would see this as a social good countering a social evil," he said.

He also said it was quite possible that in future people could go to church when they needed to borrow money.

"Churches are already being used as libraries and shops and post offices. It's part of a wider trend for churches to try and become more relevant to people's everyday lives."

Charities such as Christians Against Poverty already use church premises to offer debt counselling to those in difficulty.

'Irresponsible lending'

The Association of British Credit Unions said it was a good idea to harness the skills among church congregations to help credit unions grow.

"We believe it is speed and convenience which attracts people to payday lenders, not the short term nature of the loans. The amount of loans which are rolled over demonstrates how the short-term nature of the product is in itself not in the best interests of consumers - even before the high interest charges are added on," it said.

Analysis

This is fully in line with the Church's efforts to capitalise on its 16,000 buildings - present in every corner of England - and to remain relevant to the lives of people whether or not they go to its services

Churches already serve as shops, cafes, post offices and libraries, as well as meeting places.

Christianity does not have as much of a problem with money lending and interest as Islam.

But the sin of usury - the charging of excessive interest - is condemned in the Bible and Justin Welby himself has warned of the dangers of usurious lending, saying it was bad for society at large.

This is the Church's way of integrating itself into the fabric of life, tackling what it sees as a social wrong, and living out its message at the same time.

"Credit unions have been shown to be best value in the UK market up to about £2,000, and many will match bank rates for higher value loans as well. They lend responsibly and ensure repayment terms are affordable for the borrower."

However, the association accepted that credit unions could do more to compete with payday lenders, by improving online applications and speedy decisions on loans.

In April, the government announced an investment of £36m in credit unions, to help them offer an alternative to payday lenders.

Wonga has said it charges about 1% a day on its consumer loans, which are short-term, and for small amounts.

The lender said there was room for more competition in the market.

"The Archbishop is an exceptional individual, with our discussions ranging from the future of banking and financial services to the emerging digital society," Mr Damelin said.

"On his ideas for competing with us, Wonga welcomes competition from any quarter that gives the consumer greater choice in effectively managing their financial affairs."

Tighter controls

This view was echoed by the Consumer Finance Association (CFA), which represents many other payday lenders.

"Everyone needs access to banking and credit facilities in the modern world and so we welcome any support for the credit unions, which we see as complementary to short-term lenders," said Russell Hamblin-Boone, chief executive of the CFA.

Religious views on usury

Several passages in the Old Testament condemn usury. This meant that lending money at interest was forbidden within the Jewish community and to the poor, but was permitted to outsiders.

As for Christianity, there is a passage in the Gospels (Luke 6: 34-35) where Jesus says that if you lend, you should not expect anything in return. This was taken by the medieval Roman Catholic Church to mean that usury should be forbidden among Christians.

But in the 16th century, with the Protestant Reformation, John Calvin of Geneva proposed reinterpreting the Gospel's passage to mean that money lending should be allowed, as long as the rate of interest was not excessive.

Islam holds a firm line against usury, as it forbids charging interest to anybody. This means that Islam favours equity (or shared) financing over debt.

"High standards and responsible lending are our watch words and I have written to the Archbishop seeking a meeting to talk about the role of alternative finance."

An investigation into the payday loan industry by its regulator found widespread irresponsible lending earlier this year.

The industry, worth £2bn, was later referred to the Competition Commission by the Office of Fair Trading.

At an industry summit in Whitehall last month lenders were told they could face tighter controls, including limits on the number of loans that can be taken out and a cap on the total cost of credit.

The measures will be considered by the Financial Conduct Authority, which formally takes over regulation of the industry from next April.

Asked about Archbishop Welby's comments, Chancellor George Osborne said: "We are now regulating [the payday] sector. I am all in favour of credit unions and all sorts of other channels to allow families to get credit. I want to see as many options for families as possible."

Wonga hit the headlines this month when Newcastle United footballer Papiss Cisse refused to wear the team's Wonga-branded strip.

He pulled out of the club's pre-season trip to Portugal, saying he was not prepared to promote the payday loan company, citing his religion, and instead offered to wear an unbranded strip.

He has now reached an agreement with the club and will wear the logo on his shirt.

 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 1022.

    The problem is, these debts are very high risk. I do not condone the payday loan firms, nor do I believe that the church should get involved with lending. The reason why people need these loans is the question.

    The government need to address the root of the problem, the cost of living is way above the income of 10's of millions of people, house and fuel prices are a major part of the problem.

  • rate this
    +26

    Comment number 722.

    It's simple

    Ban all payday loan lenders

    Introduce caps on what interest lenders can charge

    Have government low-interest loans for the poor

  • rate this
    +45

    Comment number 571.

    I am delighted to hear of this move, how amazing not only will it benefit people with financial problems it is a catalyst for broader thinking and actions in communities - this is a big shift in thinking, thank you Archbishop.

  • rate this
    +60

    Comment number 457.

    The Archbishop is a practical man and of real use to real people and problems. We need someone like this in welfare reforms.

  • rate this
    +93

    Comment number 446.

    From a secular point of view, this is one of the first really positive things I've seen reported regarding the C of E in quite some time. They really should be applauded for this. It shows, if nothing else, that when we have a government that is unwilling to act on important issues there are others willing to step up. I wish them every success.

 

Comments 5 of 12

 

More Business stories

RSS

BBC Business Live

  1.  
    AMAZON JOBS Via Twitter Ben Thompson Business correspondent, BBC News Channel

    tweets: "Amazon to create 13,000 seasonal jobs in run up to Christmas. On busiest day last year, customers ordered 4.1m items - 47 every second."

     
  2.  
    09:07: SAP DOWNGRADE

    German software developer SAP has fallen 3.9% this morning in Frankfurt after letting on that 2014 profit will be lower than previously forecast. Services in the cloud are putting pressure on profits.

     
  3.  
    08:50: FORD INVESTMENT Radio 5 live

    Ford is investing about £200m at its Dagenham plant creating about 300 jobs to make diesel engines. Mark Ovenden of Ford is on 5 live. Engines are Britain's strength in vehicle manufacture, he says.

     
  4.  
    08:39: MARKET REPORT

    The FTSE 100 is behaving a bit oddly in early trading. It opened up 8 points this morning then promptly remembered the erurozone is teetering on the edge of a third crisis and there's less global economic growth out there and fell again. Now its up 3 points again at 6313.64 . The situation is a bit worse for Germany's Dax - down 52 points to 8797.85 - and France's Cac-40 - down 23 points to 4010.12.

     
  5.  
    08:28: TAX MARK

    SSE is touting its award of the new Fair Tax Mark, which has been set up to show companies are being open about what tax they pay. Other recipients include Go-Ahead Group , Midcounties Co-operative, Phone Co-op and Unity Trust Bank. Margaret Hodge, chair of parliament's Public Accounts Committee, said she hoped other companies would follow SSE's example.

     
  6.  
    08:16: PONTOON CYCLING
    Computer generated image of the floating cycle route

    Is the floating bike path a sustainable solution or an expensive distraction? We think you probably just need to look at the picture (above) for the answer to that question. But if you really feel the need to read about one of the more outlandish proposals being considered by Mayor of London Boris Johnson then by all means take a look. Some have baulked at the £600m price tag. But no doubt the team behind the 'Thames Deckway' thought "Boris. Keen Cycler, loves things that float (think airports), it's bound to be a winner."

     
  7.  
    08:00: SHIRE FINANCE CHIEF EXIT

    Drugs firm Shire has announced that interim chief financial officer James Bowling has resigned after ten years with the firm. He is joining Severn Trent as CFO and will leave Shire at the end of March 2015. Shire saw more than 30% of its share value wiped out last week after the collapse of a £32bn takeover from US rival AbbVie. Shire will start the search for a new CFO immediately.

     
  8.  
    07:45: SPIRIT PUB OFFER
    The badge of Greene King brewers on a pub wall

    Spirit pub company, which runs about 750 pubs, says Greene King has made a better offer to take the company over. They would get 0.1322 Greene King shares per Spirit share and a cash payment of 8 pence, worth a total of about 109.5 pence. Spirit's board says it may recommend the offer once a few details have been ironed out.

     
  9.  
    07:33: BUDGET GIVEAWAY?
    Chancellor of the Exchequer George Osborne

    Don't expect any traditional tax giveaways ahead of the general election. In a move akin to "good luck, there's no money left", Cabinet ministers have been warned by the Treasury that it is likely they will have to rein in their spending in the run-up to the election because of a shortfall in tax revenues and concerns about the global economy, the Financial Times has reported today. Treasury secretary Danny Alexander has told the Cabinet tax revenues are not recovering as quickly as the economy so he might have to impose new spending controls in the Autumn Statement. Yikes.

     
  10.  
    07:21: BANK OF JAPAN

    Japan's central bank has maintained its economic assessment for eight of the country's nine regions in its quarterly report, saying they continue to recover. The north-eastern Tohoku region cut its assessment from July, to say that the recovery trend is slowing.

     
  11.  
    07:07: IBM NEWS
    chip

    IBM says it will make a "major business announcement" today. Various newspapers including the Wall Street Journal think it will sell off its loss-making microchip-making business. IBM will pay Globalfoundries $1.5bn (£931m) to take the chip operations off its hands, says the WSJ.

     
  12.  
    06:50: UK GROWTH BBC Radio 4

    Peter Spencer, economic adviser to the EY Item Club, tells the Today programme housing investment along with business investment has been responsible for "about half of the economic growth" we have see in the UK since the start of the recovery. But people are beginning to worry about global growth and the UK's economic outlook. Concerns about economic developments at home and abroad has meant there are already signs of "a return to caution by both borrowers and lenders in the mortgage market".

     
  13.  
    06:35: STOCK MARKET TURMOIL BBC Radio 4

    Last week's stock market sell off is on the business agenda today. "Everyone was feeling nervous. We just need a very small straw to break the camel's back I think it was the Ebola virus," James Bevan chief investment officer at CCLA Investment Management tells the Today programme. "We had a lot of other things going on but I think Ebola was the thing that made investors say to themselves 'let's sit this one out'. There has been no real change in the hard economic data." He is worried about bond yields spiking "as they did in 1987" though.

     
  14.  
    06:24: EUROZONE ECONOMY Radio 5 live
    Jose Manual Barroso

    Jose Manual Barroso, outgoing President of the European Commission, has told the BBC he doesn't think another recession in the eurozone is likely. Official statistics suggest a "weaker recovery than anticipated. Elmar Brok, a German member of the European Parliament is on Radio 5 live and says Britain should be "more positive towards the eurozone"

     
  15.  
    06:13: INTERN PAY Radio 5 live

    Christian May from the Institute of Directors is on 5 live talking about employment reform, including reforms to how interns are paid, or otherwise. "It's worth considering it's unlikely to be a silver bullet," he says. There's a chance restrictions could be gamed to allow employers not to pay interns. While 25% of businesses have interns they don't pay, "in this day and age its getting difficult to justify having someone work for them and not paying them."

     
  16.  
    06:03: ETHICAL INVESTMENTS Radio 5 live

    Justin Urquhart Stewart of 7 Investment Management is on 5 live talking about ethical investment. "It's very badly marketed so people don't understand it ," He says. But because such investments strip out companies such as tobacco, alcohol, arms and oil, returns can also be slim.

     
  17.  
    06:01: Howard Mustoe Business reporter

    Good morning. Get in touch via email bizlivepage@bbc.co.uk and twitter @BBCBusiness.

     
  18.  
    06:00: Matthew West Business reporter

    Morning folks. It's a gloomy start to the day with the EY Item Club downgrading its 2015 UK economic growth forecast quite sharply this morning as a result of the global slowdown and uncertainty over interest rates. There's more housing market data out later and the Prime Minister is going to be pushing for more apprenticeships today too. We'll bring you more as it happens.

     

Features

From BBC Capital

Programmes

  • FishThe Travel Show Watch

    Meet the Helsinki market trader who sells fish to the President of Finland

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.