Five years ago Justin Welby met with the leader of Wonga and later promised to put payday lenders out of business by encouraging alternative credit facilities. Perhaps it’s no coincidence that Wonga no longer offers payday loans. Learn more about the Archbishop of Canterbury’s vow against payday lenders with Payday Loans Net.
In this article you’ll read:
- What the payday loan industry was like 5 years ago
- What the Archbishop of Canterbury’s vow against payday lenders entailed
- How far Archbishop Welby’s plan was successful
- Conclusion – the church evaluates its role
The Payday Loan Industry When the Archbishop Took a Stand
In 2013, the face of the payday loan industry in the UK was very different. The industry was worth an estimated £3.7 billion and was guilty of a number of abuses. Payday lenders performed inadequate credit checks, allowed unlimited rolling-over of short term loans for bad credit and charged interest rates exceeding 5,000% APR. These terms meant borrowers quickly found themselves with spiralling debts. At the time, companies like Wonga did blanket advertising (with a budget of £16 million in 2011 alone). They had streamlined their online application procedure so that loans were put into borrowers’ accounts in less than 15 minutes.
What was the Archbishop of Canterbury’s vow against payday lenders?
Justin Welby attacked on the morality and business practices of payday lenders. He promised to compete payday lenders out of business – rather than using regulation as a weapon. He advocated the use of credit unions as an alternative to loans since they were more engaged in local communities. In an attempt to boost the use of credit unions, he encouraged Christian churchgoers with financial expertise to volunteer at these non-profit organisations. He also said that he’d recommend that church property such as village halls would open their doors to credit unions.
At the time, people applauded his attack. However, they also met his ambitious plan with some scepticism. Heated discussion erupted about the relevance of the Church of England in the 21st century, especially considering falling church attendance. His suggestion was also controversial in that some critics pointed out the Old Testament’s condemnation of usury and whether it was the church’s role to encourage money-lending.
How Far was Archbishop Welby’s Plan Successful?
As a result of his promise, Archbishop Welby set up a credit union. It was put in place for the use of clergy (both active and retired) and for church staff. The launch took place at the General Synod in York in June 2013 and became operational from October 2014. Now called the Churches’ Mutual Credit Union (CMCU), it has since opened up its membership to people of other Christian denominations.
There is no doubt that credit unions have become more popular over the past decade. There are now over 360 credit unions in the UK with a combined membership of 1.5 million. Nevertheless, how far that was a result of Archbishop Welby’s ‘war’ on payday lenders is open to doubt. Are there other factors to explain the increased use of credit unions and the corresponding drop in payday loans?
The Role of Regulation in Curbing Payday Lending Abuse
At the time of the Archbishop of Canterbury’s vow against payday lenders, he was dismissive of the role that regulation could play in correcting abuses in the industry. With the benefit of hindsight, we can see that he was totally wrong. But at the time, many people shared this attitude towards regulation. In 2012/13 the high-cost short-term credit industry was regulated by the Office for Fair Trading, and they were woefully ill-prepared to deal with the scope and size of the payday lending industry.
It is only in retrospect that we can see how far the role of the FCA has been instrumental in putting a stop to payday loan abuses. The limitations on the number of times a loan could be refinanced; the restrictions on the repeated use of CPA (Continuous Payment Authority); the price cap on loan charges; the emphasis on loan affordability and the compulsory inclusion of payday lenders on price comparison sites are measures that have transformed the payday lending industry over the past 5 years.
Conclusion – the Church Evaluates its Role
In July 2018, a meeting was held in St Paul’s Church in Hammersmith which was attended by church lenders, business owners and representatives of debt counselling organisations. Its aim was to evaluate how well the Church of England had done in changing the UK banking system in the 5 years since Archbishop Welby’s attack on payday lenders.
Apart from reiterating the benefits of credit unions, the feeling was that more needs to be done. Particularly in the area of increasing financial equality. Tim Thorlby, the founder of the ethical cleaning firm ‘Clean for Good’ advocated that the adoption of a London living wage was the best way to achieve this goal and would be the most significant achievement since the establishment of the welfare state.
It’s impossible to judge how far the Archbishop of Canterbury’s vow against payday lenders made a difference in the transformation of the payday lending industry. Perhaps his attack was more of a symptom of general disapproval of payday lenders than a catalyst for change. It’s undeniable that without regulation, these improvements would never have occurred.
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