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

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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.

 

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  • 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.

 

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