Julian Knight: Payday loans need regulation, not just divine intervention
As the Archbishop of Canterbury says, credit unions aren't yet ready to step into the breach
Saturday 27 July 2013
I woke up the other morning to what I thought was news that the Church of England had finally decided to grow a pair. Justin Welby, the new Archbishop of Canterbury and a former finance man, was, said Sky News, stating that he planned to put the payday lenders out of existence.
However, the reality of the comments was not quite in line with the reporting. What the Archbishop said was that the Church was looking to "compete" with the payday lenders, not literally – or else my Sunday morning Eucharist would take on an entirely different character – but figuratively. The Church would like to encourage credit unions and see its messages combating the culture of payday.
The Archbishop was expressing something I have heard from people of faith in the inner cities in recent months. Put simply, they see payday lenders as highly destructive to their communities. Funded often by big international companies (and embarrassingly the CoE pension fun), they have plonked themselves on the high street – often near bookmakers and pubs – and spread their tentacles into the community from there.
One vicar I know has told his parishioners that payday lending is simply "evil", preying on the poor, mentally unwell and drunk. He has more than a point.
Dig beneath the headlines about the Archbishop's comment and a very interesting point emerges – one that I think exposes the difficulties faced by opponents of payday loans. The Archbishop said: "We've got to have credit unions that are both engaged in their communities and much more professional, and the final thing is people have got to know ... it is a decade-long process."
That's very true. We do need strong credit unions, but many of these mutuals went to the wall in the aftermath of the financial crisis and this highlighted the problem that many are amateurishly run. It's a sector that I don't think is capable of combating payday lenders, even within the 10-year timeframe set out by the Archbishop.
In some ways, saying we need stronger credit unions is a bit of a cop-out. If we really want to tackle payday then what we need is stricter regulation of the sector itself – an end to rollover loans and a cap on interest rates, for starters – and banks being compelled to offer fair, transparent financial services to low-income groups rather than leaving them out in the cold. The truth is that payday lenders are there for a reason: the service that they offer, short-term lending, is needed – just not in the way it is being delivered at present.
So good on the Archbishop for raising this and putting across the idea that there is a moral dimension at play here – a social issue requiring urgent measures.
We can't wait a decade for the credit unions to get their act together.
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