The Most Rev Justin Welby, the Archbishop of Canterbury, has revealed that the Church of England is planning to force online lender Wonga out of business.
In a talk with Wonga boss Errol Damelin, the Church revealed that it will compete against the lender by expanding credit unions to offer alternative lending to consumers. The church is now helping not-for-profit lenders to compete with payday firms, which in the past have been accused of plummeting households into further debt with their high interest rates.
The Church of England plans to expand its involvement in credit unions to try and position them as a better alternative to expensive short term loans.
Earlier this month, Archbishop Welby announced a new credit union that would be aimed at church staff and the clergy, allowing consumers to borrow money at low interest rates. According to the BBC, the archbishop is planning to go to 500 independent loan companies and offer them access to the Church's buildings and expertise.
Talking to Total Politics magazine, the archbishop said: "I've met the head of Wonga, and we had a very good conversation. I said to him quite bluntly that 'we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence'. He's a businessman; he took that well."
Mr Damelin later responded to the announcement. He said: "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."
Mr Damelin added: "Credit unions have been shown to be best value in the UK market up to about £2,000, and many will match bank rates for higher value loans as well. They lend responsibly and ensure repayment terms are affordable for the borrower.
"The Archbishop is an exceptional individual, with our discussions ranging from the future of banking and financial services to the emerging digital society.
"On his ideas for competing with us, Wonga welcomes competition from any quarter that gives the consumer greater choice in effectively managing their financial affairs."
The government is planning to invest in credit unions and will allow them to increase the amount they charge from two per cent to three per cent a month, equivalent to 26.8 and 42.6 per cent respectively.
The Association of British Credit Unions said it thinks it is a good idea for the Church to use its skills to help credit unions grow.
In a statement it said: "We believe it is speed and convenience which attracts people to payday lenders, not the short term nature of the loans. The amount of loans which are rolled over demonstrates how the short-term nature of the product is in itself not in the best interests of consumers – even before the high interest charges are added on."
Archbishop Welby, who used to be a financier, now sits on the Parliamentary Commission on Banking Standards. He has previously lobbied for a cap on the high interest rates charged by payday loan companies.
This year has already seen the payday loans industry being referred to the Competition Commission by the Office of Fair Trading, while the UK government announced in April that £38 million would be invested in credit unions.
All the measures will be considered by the Financial Conduct Authority, which will regulate the industry from April 2014.
Meanwhile, the Consumer Finance Association (CFA), which represents many other payday lenders supported the intervention from the Church.
Russell Hamblin-Boone, chief executive of the CFA said: "Everyone needs access to banking and credit facilities in the modern world and so we welcome any support for the credit unions, which we see as complementary to short-term lenders.
"High standards and responsible lending are our watch words and I have written to the Archbishop seeking a meeting to talk about the role of alternative finance."
Chancellor George Osborne said: "We are now regulating the sector. I am all in favour of credit unions and all sorts of other channels to allow families to get credit. I want to see as many options for families as possible."
Earlier this month Plymouth City Council banned Wonga and other payday loan firms from advertising in Plymouth.
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