It is not enough to make me change my views on religion (any religion), but Justin Welby, the Archbishop of Canterbury, continues to surprise and impress.
First were his outspoken and incisive criticisms of the HBOS management during the hearings of the Parliamentary Commission on Banking Standards, then his call for RBS or Lloyds to be broken up into regional banks. Now he has told the boss of Wonga, the payday lender, that he plans to compete him out of business.
There was a little loss of face when it was revealed by the Financial Times that the Church of England is an investor in Accel Partners, the US venture capital firm that led Wonga’s 2009 fundraising, but that embarrassment aside, Welby’s intention is good.
He plans to use the buildings, staff and volunteers of the Church of England to encourage and support credit unions – community based financial institutions which make small loans to members. Credit unions are regulated by law and are currently restricted to a maximum interest rate of 2% a month, although the Government plans to legislate in the autumn to let them increase this to 3% a month. This equates to a current APR of 26.8%, which would increase to 42.6%.
Wonga, the online payday lender, by contrast, is unregulated and charges 1% a day. On a loan of £150 for 18 days, the total charge for credit would be £27.99, plus a £5.50 fee – equal to an APR of 5853%.
Wonga’s business model is highly preferable to the loan sharks who resort to baseball bats as a collection method and it stresses that it only makes short-term loans, so the APR is irrelevant. But the fear is that some of its poorest customers find themselves unable to repay the capital at the end of the loan period and simply roll it over by taking a larger loan.
If the church were to lend directly, that would not be new. As I mention in Hubris, in the 17th century the elders of Alyth Church, Strathmore, Perthshire, a prosperous village at the meeting point of several drovers’ roads, charged 4–6 per cent on their loans and members of the congregation who were late in meeting their repayments could expect to be denounced from the pulpit.
The core problem, of course, is not access to credit, but poverty. People are driven to payday lenders because they do not have enough money to live and mainstream banks will not look at them. Austerity has made some sections of society poorer and increased their isolation. According to St Matthew (26:11) Jesus said: “For ye have the poor always with you.” Let’s hope Welby doesn’t take the same view.