Justin Welby says the Church of England will compete against the payday lender via its credit unions.
The Archbishop of Canterbury, Justin Welby, has pledged to drive payday loan company Wonga out of business.
In an interview with Total Politics magazine, Welby revealed he had had a conversation with the founder and CEO of Wonga, Errol Damelin, where he warned that the Church would increase its provision of credit unions to stop people using payday lenders.
“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’,” the Archbishop said.
The remarks follow the launch of a new credit union for clergy and church staff at the General Synod in York.
With a network of 16,000 branches in 9,000 communities, the Church could be a formidable force, helping to boost the popularity of credit unions by offering its buildings for meetings and encouraging its members to become volunteers.
Payday loans vs credit unions
Payday lenders offer short-term loans that carry very high interest rates. Wonga for example has a 5,853% representative APR.
Firms like Wonga have come under fire for leading people into more debt, aggressive debt collection and for targeting vulnerable people.
Last month the whole payday lending industry, worth £2 billion, was referred to the Competition Commission after the Office of Fair Trading (OFT) found ‘deep-rooted’ problems in the sector.
One of the alternatives to payday loans is borrowing from a credit union.
A credit union is a not-for-profit organisation run by volunteers that lends money to its members. They are usually set up and are open to people with a ‘common bond’ like those who live in the same area or work for the same company. For more read Credit unions explained.
By law a credit union can’t charge you more than an annual interest rate of 26.8% and they also don’t charge any penalties for early repayment.
For more ideas on ways to avoid a payday loan read The best alternatives to payday loans.
Expanding credit unions
In April, the Government announced it would be investing £38 million over ten years in credit unions to help them become a viable alternative to payday lenders.
The Association of British Credit Unions (ABCUL), which has been tasked with the expansion project, is aiming to get one million more members by 2019.
It is estimated the project could save those that fall into the trap of high-cost credit £1 billion in loan interest repayments by March 2019.
Wonga’s response
Errol Damelin said of the conversation he had with Justin Welby: "The Archbishop is clearly an exceptional individual and someone who understands the power of innovation.
"We discussed the future of banking and financial services, as well as our emerging digital society.
"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."
What do you think of credit unions as the alternative to payday loans? Let us know in the Comment box below.