27 Jul 2013

Church wants to drive short-term lenders out of business

9:59 am on 27 July 2013

The Church of England intends to take on short-term lenders at their own game, by expanding credit unions, and forcing payday firms out of business.

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

The BBC reports 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.

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'."

Of Wonga boss Errol Damelin's response, he said: "He's a businessman; he took that well."

"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," Mr Damelin later said.

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

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

However, the BBC reports 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 £36 million 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.