Church wants to force Wonga out of business
The Archbishop of Canterbury has attacked Wonga, claiming the Church of England will provide assistance to credit unions to try to force the payday loans firm out of business.
The Most Rev Justin Welby told Wonga chief executive Errol Damelin he wants the church to help expand credit unions so that the sector offers serious competition to Wonga.
There are around 500 credit unions operating in the UK. The predominantly local organisations are owned by their own members and offer low-cost loans and other financial services to vulnerable people who struggle to open a traditional bank account.
In an interview with Total Politics magazine, the Archbishop said: "I've met the head of Wonga and we had a very good conversation and 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."
He added: "We've got to have credit unions that are both engaged in their communities and much more professional, and the third thing is people have got to know about them. It's a decade-long process.
"We're putting our money where our mouth is, we're starting a Church of England staff credit union. You've got to have a corporate interest body to identify who's members of the credit union. We're starting one of those so we're actually getting involved ourselves. We're working steadily with the main trade bodies for the credit unions."
At the end of June 2013, The Office of Fair Trading referred the UK payday loans market to the Competition Commission. After a public consultation, the OFT said it, "continues to suspect that features of the payday lending market prevent, restrict or distort competition" and believes existing laws don't go far enough to tackle the root causes.
This comes after the OFT wrote to 50 payday lenders in March 2013, giving them 12 weeks to prove they were complying with existing rules or risk losing their licence to trade. While the lenders still have until the end of July to shape up, so far five lenders have exited the market.
Meanwhile, the number of borrowers getting into difficulty with payday loans is growing, according to a leading debt charity. In the first half of 2013, StepChange Debt Charity said it helped 30,762 people with payday loan debts, nearly the same amount as during the whole of 2012, when the charity helped 36,413 people.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.