Skip to main contentSkip to navigationSkip to navigation

Archbishop of Canterbury wants to 'compete' Wonga out of existence

This article is more than 10 years old
Justin Welby lays down challenge to payday lender after launching new credit union earlier this month

The archbishop of Canterbury has told Wonga that the Church of England wants to "compete" it out of existence as part of its plans to expand credit unions as an alternative to payday lenders.

The Most Rev Justin Welby said he had delivered the message to Errol Damelin, the chief executive of Britain's best-known payday lender, during a "very good conversation".

"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 told Total Politics magazine.

The payday lending industry has been one of the fastest growing sectors during the recession, as stretched consumers have turned to short-term loans to get them through to the next wage packet.

However, critics of the £2bn a year industry have accused lenders of targeting vulnerable borrowers with small loans which quickly spiral into big debts as a result of high interest rates and fees.

Lenders are currently the subject of a full-blown investigation by the Competition Commission after the Office of Fair Trading uncovered "deep-rooted" problems.

The regulator said it decided to make the referral because it continues to suspect that features of the market "prevent, restrict or distort competition".

In June, Wonga raised the standard interest rate it quotes on its website to 5,853% APR, leading to renewed calls from poverty campaigners for a cap on the cost of short-term credit.

Someone borrowing £200 for a month from Wonga will typically pay back £270.

Welby, who has served on the parliamentary Banking Standards Commission, said he wanted to create "credit unions that are both engaged in their communities and are much more professional – and people have got to know about them."

He acknowledged that this would be a "decade-long process", but he has already launched a new credit union for clergy and church staff earlier this month at the General Synod in York.

There are also plans to encourage church members with relevant skills to volunteer at credit unions. Small, local lenders could also be invited to use church buildings and other community locations with the help of church members.

However, credit unions, which have an old-fashioned image and something of a chequered financial past, will have their work cut out if they are to seriously challenge Wonga. The lender spent £16m advertising in 2011, and has invested heavily in its website. Slick back office systems mean borrowers can get their money in less than 15 minutes.

In contrast, membership of credit unions is restricted to interest groups, and several gone bust in recent months with many citing bad debts as a factor.

Wonga said in March that it welcomed any attempt to encourage responsible lending and that it has been "instrumental" in helping to raise industry standards.

Damelin said: "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."

The government announced an investment of £38m in credit unions in April to help them offer an alternative option to payday lenders.

More on this story

More on this story

  • Archbishop of Canterbury embarrassed about church's financial link to Wonga

  • Church of England appoints former City regulator to lead credit union campaign

  • Credit unions thriving even before Archbishop Welby's attack on Wonga

  • Church of England fears £9m loss from sale of Wonga stake

  • Justin Welby: Wonga investment should not have happened - video

  • Church of England admits selling Wonga stake will take a 'little while'

  • Credit unions ready to give Wonga a run for its money

  • Church of England still owns £80,000 Wonga stake, Justin Welby admits

  • Unite launches credit union scheme to take on 'rip-off' payday lenders

  • Credit unions aim to beat payday lenders at their own game

Comments (…)

Sign in or create your Guardian account to join the discussion

Most viewed

Most viewed