The Church of England has now pulled out of its planned rescue of the collapsed payday lender, Wonga. But Archbishop of Canterbury Justin Welby is still calling for an ‘ethical lender.’ Does the industry need one? Or are the current lenders already meeting customers’ needs?
By Mark Richards.
At the beginning of last week, we published an article about the demise of Wonga, following a surge in compensation claims. ‘Administrators have now been appointed,’ we wrote, ‘Who will wind down the business.’ But over that weekend there was a story that the Church of England was interested in a potential rescue.
The Church apparently saw bailing out Wonga as a social good – now, though, it appears that God will not be coming to the rescue of Mammon.
The Church pulls out
The Church wanted to do this to protect what it saw as vulnerable borrowers. There are about 200,000 borrowers with outstanding loans, and the worry is that they will be forced to pay back their loans at higher rates of interest, or that more forceful methods of collecting the outstanding money might be employed by whoever ultimately buys the loan book.
The media reported that Justin Welby, the Archbishop of Canterbury, had been ‘engaged all week in a round of meetings’ with investors and charitable foundations as he tried to put together what was described as an ethical payday lender. It now appears that the Church will not participate in any rescue, but that other investors will come forward to buy the outstanding loans.
The Church of England and Wonga
Justin Welby – the former Bishop of Durham – became Archbishop of Canterbury in March 2013. He began his working life as an executive in the oil industry and has had a rapid rise through the Church ranks. He has never been afraid to speak out on finance issues and clashed with Wonga – then charging interest rates of up to 5,853% per annum – almost as soon as he became Archbishop, famously telling Wonga’s then chief executive that he “wanted to put it out of business.” He wanted to do this not by legislation, but “competing it out of business” by supporting ethical, community-based lending schemes.
Speaking at this year’s TUC Conference, Welby said,
“I said to the chief executive of Wonga that I wanted credit unions to compete him out of business. Well, now he’s gone!”
Gone Wonga may be, but it now appears that the Church of England will not play a part in the rescue bid, with the Church commissioners conceding that they do not have the expertise to either value or administer the loan book. They also worried about the ethical decisions that would have been involved in writing off some loans but – presumably – enforcing the repayment of others.
Thanking the Church Commissioners for the time they had spent on the issue, Justin Welby said,
“my chief concern has been to ensure that the poor and vulnerable are as well protected as possible following the collapse of Wonga’s UK business.”
Clearly, his interventions in the short term loans industry will not stop there: he added, “I will be continuing to examine ways to make affordable credit, debt advice and support more widely available.”
The Church of England and its money
In 2014 the Church of England was embarrassed to find that it held £75,000 of shares in Wonga and immediately sold them. But that £75,000 is just a tiny fraction of the Church investment fund, generally reckoned to be worth around £8.3bn (to put that figure into perspective, it is roughly twice the value put on Marks and Spencer’s by the stock market).
The Church is supposed to invest its money in an ethical way. Its advisory group ‘recommends against investment’ in companies which make more than 3% of their income from pornography, 10% from military products and services or 25% from other industries such as gambling, alcohol and what it describes as ‘high-interest rate lenders.’
As Welby himself has pointed out, there are inevitably grey areas: what do you do about a clothing company that makes socks for the military or a hotel chain that has a late night channel especially for stressed business executives unable to sleep?
What seems clear though, is that under the current Archbishop the Church of England will continue to focus on the short term loans industry. The question is, does it really need to?
The money lenders in the temple
We all remember the story of the moneylenders in the temple from RE lessons at school. People needed short term loans 2,000 years ago and they need them today. Human nature does not change and – as we have written many times – you can regulate supply but your cannot regulated demand or basic human nature.
The problem the industry now has is that excessive regulation is threatening to drive out those lenders who are in the industry and meeting the needs of their clients. Yes, the interest rate on a short term loan may look high, but if it saves a client defaulting on a credit card payment, paying the excessive charges for an unauthorised overdraft or allows them to repair the car and get to work, it may still make financial sense.
Too much regulation?
Earlier this week there was a story that more than £500m has been stolen from UK bank customers in the first half of the year. That is an astonishing figure – around £20m per week – and highlights the need for financial education at all levels of our society. It is education, not regulation, that is the key to helping people better manage their money and make sure that they do not fall victim to scams. A simple reliance on ever-more stringent regulation in the short term/payday loans industry will ultimately drive the already-ethical companies out of the industry. They are likely to be replaced not by local credit unions, but by local, wholly unregulated, moneylenders. The Archbishop of Canterbury may unwittingly invite the moneylenders back into the temple…
Photo Credits: Archbishop By U.S. Department of State from United States [Public domain], via Wikimedia Commons