Canterbury vs Wonga - Credit where it's due
When Justin Welby signalled to Wonga he was going to "compete" them out of business, he could have little inkling that the Church of England, albeit in a roundabout way, was an investor in the same company. The media and others have quickly joined the chorus of disapproval of pay day lenders and supported the Archbishops credit union as the answer.26 July 2013
The issue illustrates the trend in addressing complex problems with the offer of a quick and easy solution accompanied by a media salvo designed to drum up support. But the Cleric's challenge seems to have come a bit unstuck. At least it has put the issue in the public eye.
Why people need pay day loans in the first place hasn't been addressed. If you can't manage month to month or more likely week to week, the underlying reasons should be the real cause for concern.
Not making ends meet or falling on hard times will for some be real issues and the cause of considerable distress, help is clearly needed. But other causes will be in play too, financial illiteracy is widespread, a lot of folks just haven't been educated in finance and don't know how to budget effectively, others just give in to the 'I want it now' impulse and get in over their heads through overspending and bingeing on credit.
Are credit unions a viable alternative to short term borrowing needs? To answer the question you need to understand the nature of the activity and the behaviour of borrowers.
Credit unions are more about savings and affordable term loan borrowing for those who might not otherwise qualify. By and large they don't have the funding and manpower to do lots of high volume tide me over pay day loans. Many are facing a constant struggle to stay viable with 25 going to the wall in the last few years. A recent DWP report questions the ongoing viability of the credit union model without a great deal of government support.
The average pay day loan is only £270; with interest for a week at say 5% the return to the loan company is only .26p, and of course no one can afford to carry the staff costs and handling overheads to do that.
In fact Wonga charge a whopping £24.75 or just a bit less than 10% of the value for a week. Outrageous you might think, but if this prevents a whole load of stopped cheques at £30 a go, some might see it as a pragmatic short term solution.
I am not defending pay day lenders, and I think it is much more important to focus on help to prevent folks needing them in the first place. But simply to pillory through demonising soundbites isn't the answer either.
According to Archbishop Welby's Parliamentary Commission on Banking standards, the banking industry got into trouble because it didn't stick to its knitting and became too big and complex.
His Grace would do well to take his own advice and get the Church of England to stick to its knitting, harvesting souls and preaching the good news, and leave Wonga 2 on the drawing board.
I am off on my two week break now so normal service will resume on the 12th August.
Can I thank all readers of this blog for your support and wish you a great summer break.
Twitter – @cook_geoff