Thursday, July 25, 2013

Church of England seeks to put an end to payday lenders

LONDON (Reuters) - The Church of England will seek to drive Britain's controversial payday lenders out of business by launching its own credit unions, Archbishop of Canterbury Justin Welby said in an interview published late on Wednesday.

Welby, who has led the church since March, is among leading critics of firms like short-term lender Wonga and Provident Financial, which typically provide hard-up families with loans of up to 1000 pounds to be repaid when they receive weekly or monthly wages.

The archbishop said he had met with the chief executive of short-term lender Wonga, Errol Damelin, and told him "we're not in the business of trying to legislate you out of existence, we're trying to compete you out of existence", according to an interview with Total Politics magazine's August issue.

The market for the loans has grown rapidly in Britain and other countries like the U.S. as benefit cuts squeeze poor households' budgets and traditional bank credit lines wither in the aftermath of the 2008 financial crisis.

Public criticism of the firms in Britain has grown too, with politicians and poverty-focussed charities concerned that the high interest rates the firms charge only dig poor households into more trouble.

Britain's consumer watchdog the Office of Fair Trading (OFT) and regulator, the Financial Conduct Authority (FCA), which will take over regulation of the lenders next April, last month vowed to crackdown on the 2 billion pound a year industry and said it was investigating measures like an advertising ban.

Welby, a former oil executive educated at Eton and Cambridge, said the church was "putting our money where our mouth is" in the plan to launch a not-for-profit financial cooperative that offers deposit accounts and low interest loans.

He said the union would be engaged in its community and more professional than lenders like Wonga and other competitors, including QuidQuid and Lending Stream, but conceded that it would be a decade before it flourished, giving few details.

Short-term lenders are also coming under more scrutiny globally. The U.S. consumer watchdog said in April that new regulation could be introduced to stop the loans trapping borrowers in a cycle of debt.

Wonga, one the biggest payday lenders in Britain, more than trebled its earnings last year. This month it lifted the annual interest rate on its loans to 5,853 percent.

In a statement, Wonga's Damelin called the Archbishop an "exceptional individual" and took up Welby's challenge.

"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."

(Reporting by Clare Hutchison; editing by Patrick Graham)


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