The Archbishop of Canterbury has warned the online lender Wonga that the Church of England plans to force it out of business – by competing against it.
The Most Rev Justin Welby told Wonga boss Errol Damelin the Church planned to do this by expanding credit unions as an alternative to payday lenders.
The plan is to create “credit unions that are both engaged in their communities”, he said.
Mr Damelin said he was “all for better consumer choice”.
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.”