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