Church volunteers offering loan applications from behind a trestle table are an unlikely rival to the UK’s controversial payday lenders, but plans are already under way to bring credit unions to every parish in a direct challenge to the fast-growing industry.
The Archbishop of Canterbury lifted the lid on the
Church of England’s intention to compete directly with Wonga in an
interview with Total Politics magazine.
Justin Welby reportedly told
Wonga chief executive Errol Damelin that the church intended to work on an alternative to short term, high interest lenders.
“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, exposing what Wonga believed to be a private meeting.
The Association of British Credit Unions confirmed on Thursday that it had already met with the Church several times to hammer out the details of a collaboration.
Nevertheless, Wonga and the Church of England do not match up as obvious lending rivals.
Wonga, through its easily navigable website, quirky advertising and sponsorship of Newcastle United football club, is targeting a young, tech-savvy borrower who wants access to small sums of money in a matter of minutes.
This is somewhat at odds with the image of local parishioner who may seek a loan through their church.
The Church of England admits it would not be able to offer instant credit in the way Wonga does. Instead its idea is to help fuel the availability of affordable short-term loans by making credit unions – non-profit organisations owned by their members – more accessible.
However, the startling difference is loan interest rates, which are capped at 26 per cent for credit unions, but can commonly exceed 5,000 per cent in the payday sector.
Malcolm Brown, director of the mission and public affairs division, says the Church wants to overturn the perception that credit unions are “the poor man’s banks”.
“The best way to help is to get them to the middle classes,” he says.
The Church’s idea is to allow existing credit unions to piggyback its extensive bricks-and-mortar network – it has about 15,000 premises including churches and church halls and schools around the country – and can help staff these with its army of keen volunteers, though Mr Brown cautions that the plans are “very embryonic”.
The precedent for Church and credit union collaboration has been set in Ireland, where the support of the Catholic Church is credited as the reason that nearly half of the population are members of a credit union.
The movement started in 19th century Germany as a way to tackle serious debt among the poor, and has since spread across Europe and the US.
So far take-up in the UK has been comparatively
low, with less than 1m members across the whole country.
Earlier this
year, the government pledged to spend £38m to support the sector over the next three years in order to increase membership.
Credit unions are also moving into new products including current accounts and mortgages in order to attract new members.
One provider, London Mutual credit union, recently began to offer its own online payday loans to members, allowing them to borrow up to £1,000 over a period of weeks.
The Church has already encountered obstacles in setting up its own credit union for clergy – including raising sufficient capital and ensuring it has appropriate governance.
Wonga was quick to defend its business model in the aftermath of the Archbishop’s comments on Thursday.
“Credit unions are a welcome option but have not yet achieved the meaningful scale to be considered the only approach,” it said in a statement on its website.
“They are also a different, longer-term solution to the fully-online, 24/7, short-term and flexible service that we offer.”