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Welby has ground to cover if he will compete with Wonga

02 August 2013


Change: the Newcastle striker Papiss Cissé, a Muslim, abandoned his refusal to wear the Wonga logo after talks with his management, and after being seen leaving a casino

Change: the Newcastle striker Papiss Cissé, a Muslim, abandoned his refusal to wear the Wonga logo after talks with his management, and after being ...

THE Archbishop of Canterbury's vow to force Wonga, the payday lender, out of business, has won plaudits from across the political spectrum, from the Royal College of Psychiatrists, and even from a Guardian columnist, who confessed to having a "bit of a crush" on the Primate.

Even the revelation that the Church Commissioners had invested in Accel Partners, a private equity group that helped to launch Wonga, failed to quieten the ovation.

Questions have been asked, however, about how feasible it is that the credit-union movement will be able to compete with a company that can transfer a loan within five minutes of approval.

The Archbishop was interviewed by Total Politics magazine while at last month's General Synod. He told it that he had had a "very good conversation" with Wonga's chief executive, Errol Damelin: "I said to him quite bluntly: we're not in the business of trying to legislate you out of existence, we're trying to compete you out of existence. He's a businessman; he took that well."

Last week, the Revd Dr Malcolm Brown, director of Mission and Public Affairs at Church House, told Radio 4's Today programme that the Church was "not trying to set up a rival set of companies or credit unions". But it could support the community-finance sector to become "much more robust" by providing expertise, and offering its 15,000 buildings to address a dearth of outlets.

On Friday, two days after his original interview was published, the Archbishop told the same programme that £75,000 of the Church Commissioners' fund of £5.5 billion had been invested in Wonga "through an indirect holding". He was "embarrassed" and "irritated" by the news - uncovered by the Financial Times - but had "no illusions" about the complexity of investment.

Lambeth Palace said that they had been unaware of the investment. "We will be asking the assets committee of the Church Commissioners to investigate how this has occurred, and to review the holding."

The Church of England Ethical Investment Advisory Group (EIAG) advises against investment in any company that derives more than 25 per cent of its revenues from "high-interest-rate lending".

The Archbishop said that, in his view, this was "probably too high a level. . . I think we have to review these levels and make sure that we are consistent between what we're saying and what we're doing."

But, referring to the "complexity" of the markets, he argued: "If you exclude any contact with anything that directly or indirectly at any point gets you anywhere bad, you can't do anything at all."

Asked about Archbishop Welby's comments, the Chancellor, George Osborne, told the BBC: "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."

The Labour/Co-operative MP for Walthamstow, Stella Creasy, said: "The Archbishop has been an ardent campaigner and friend of the Sharkstoppers campaign, in showing that there is no excuse for the Government not to act to bring an end to legal loansharking in Britain."

In a letter to The Independent on Saturday, the president of the Royal College of Psychiatrists, Professor Sue Bailey, praised the Archbishop's intervention. She warned: "On our toxic high streets, debt and vulnerability can often walk hand in hand."

On Thursday of last week, Mr Damelin, of Wonga, spoke of his meeting with the Archbishop. "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."

The company, which has more than one million customers, also issued a statement arguing that credit unions "have not yet achieved the meaningful scale to be considered the only approach. They are also a different, longer-term solution to the fully-online, 24/7, short-term, and flexible service that we offer."

The chief executive of Citizens Advice, Gillian Guy, said that credit unions could be a "great option for some people", but "can't meet all the demand for short-term credit. We need a responsible short-term credit market that treats its customers fairly, and we want to see banks stepping up and offering short-term micro-loans to their customers to fill this gap in the market."

Wonga said that it was "only interested in lending to people who, we believe, can afford to repay us without undue financial stress".

It rejects 60 per cent of applicants, the default rate on its unsecured personal loans is 7.5 per cent, and nine per cent of loans are extended, at the customer's request. None can be extended more than three times. It charges interest of one per cent a day. If the repayment date is missed, interest will continue to accrue for up to 60 days, at which point the balance is frozen.

The company argues that the annual-percentage-rate (APR) scale was not designed with short-term loans in mind, and was based on the assumption that a loan would be extended several times during a year and never paid off. Wonga's APR is currently 5853 per cent.

A review of the payday-lending sector conducted by the Office of Fair Trading (OFT) earlier this year found that about one third of loans in the sector were repaid late or not at all. In June, the OFT referred the market to the Competition Commission, after expressing concern about "deep-rooted problems with the way competition works".

Statistics from the Bank of England show that the number of credit unions in Britain fell from 565 in 2004 to 390 in 2012, mainly owing to mergers. Nine have collapsed this year, taking the total in the past two years to 21.

Membership has risen from 563,999 to 1.04 million, and total assets have more than doubled, from £432 million to £957 million.

The provision for "doubtful debts", however, rose from 2.7 per cent of outstanding loans in 2004 to 4.8 per cent in 2012.

In April, the Government announced that it would invest £3 million to "modernise and grow" the sector.

Outdated view. The Revd Tim Presswood, Minister at Openshaw Tabernacle Baptist Church, has been involved in Manchester Credit Union (MCU) since 1996. He now chairs the organisation, which he has seen grow from a membership of 85 with £14,000 of assets, to 13,000 members and assets of about £6 million.

On Tuesday, he welcomed the Archbishop's support for the movement, but suggested that his view of it was "somewhat outdated".

"It feels as though the churches are telling credit unions what they need. I wish that, rather than coming in with offers of premises that we don't need as an organisation, that it had asked us what kind of support would be most helpful."

Ten years ago, the MCU had operated from a vestry in Beswick - "in the kind of way Archbishop Welby envisages". It was now based in offices, a "very professional organisation run by a team of professional staff. We would not want to move back into church halls, because that is sending out completely the wrong message about who we are."

More welcome, he suggested, would be the Church's "enormous riches in terms of personnel and, particularly, the high-level governance of running complex organisations" to be found in the laity. The Church was also home to a potential customer-base of "affluent ethically-minded folk".

The concept of branch banking mentioned by the Archbishop was "very old fashioned", Mr Presswood said. Credit unions needed to be able to compete with Wonga's "slick IT- based solution". Mr Presswood invited the Archbishop to visit MCU.

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