Ethics & Morality

As Wonga falls, Welby's church credit unions arise


Wonga may still be hanging on as the big boy of the much-despised payday loans industry, but how much longer before it comes crashing down in a blaze of self-inflicted destruction?

Where do we begin? Yesterday it was chastised (not for the first time) by His Grace’s old adversary the Advertising Standards Authority (ASA), who banned a Wonga TV advert for forgetting to mention that the APR on the loan featured was 5,853%.

Last week, with a large amount of arm twisting from the Government’s new Financial Conduct Authority (FCA), it decided to write off £220m of debts for 330,000 customers after putting in place new affordability checks. A further 45,000 customers in arrears will not have to pay interest on loans, and there is bound to be plenty more ex-customers who will be keen to make claims of unfair treatment in the hope of seeing sizable amounts of compensation, too.

Letters from fake solicitors threatening legal action were sent out to 45,000 customers between 2008 and 2010. In June, the FCA (who must be rapidly losing patience) demanded they pay back £2.6m million. The Chief Executive of the Law Society, Desmond Hudson, said Wonga’s “dishonest activity” could amount to blackmail and deception.

Their disastrous run of ignominy appears to have even rubbed off on Newcastle United. The club whose kit bears Wonga’s name is languishing at the bottom of the Premier League with numerous calls for their manger to be sacked.

Wonga was founded in 2007 and within a week of the launch the first loan default occurred. They haven’t looked back since. Their callous disregard for their customers, most of whom are far from being in positions of financial stability, has deservedly attracted vehement criticism from a whole host of sources.

Stella Creasy, Labour’s MP for Walthamstow, who also happens to be a Christian, has been working tirelessly with some success to make sure that the abusive practices of payday lenders and loan sharks have not gone unnoticed by politicians. She has received abuse along the way for this stand, including Twitter trolling from a (surprise, surprise) Wonga employee.

At ‘God and Politics’ I’ve been banging the drum for over two years highlighting all sorts of detrimental effects that Wonga and other payday lenders have had. The debt advice charity, Christians Against Poverty, carried out research last year and found that 78% of those taking out a payday loan were doing so in order to buy food. These are people who least can afford to be exploited by the predatory tactics of payday loans companies, and yet borrowing £200 for a month to pay for these essentials will incur interest charges of £67.15 from Wonga.

This is not just an issue of morality; it is also one of theology. In another post, I’ve explored this referring to the Children’s Society’s recent report entitled: Who Bears the Burden? Christian theology and the impact of debt on children. Without mincing his words, the author Luke Bretherton writes:

(A)t the heart of the story of salvation we find the power of money and liberation from debt. The admonition that we cannot serve both God and Mammon (Matthew Common6.19-24) is not a trivial matter; the central drama of salvation history is an act of liberation from debt slavery. To put the pursuit of money before the welfare of people, and use money to re-enslave and exploit people, especially the poor and vulnerable, is to turn your back on God’s salvation and deny in practice the revelation given in Scripture of who God is. Whereas to use money to serve the common good, and in particular to relieve the poor, is a mark of salvation.

And let us not forget the biggest protagonist in all of this – the Archbishop of Canterbury Justin Welby, whose threat to compete Wonga out of business during a conversation with its then chief executive, captured the media’s imagination.

Although no one can say for certain what effect Justin Welby’s comments had on the company’s credibility and appeal, five months after he spoke these words Wonga’s profits had fallen by 53% to £39.7m. There can be no doubt that the two are linked.

The predictions over the last few days that Wonga’s business model is now unsustainable present a dilemma. Much as many would like to say ‘good riddance’ to Wonga, such a demise will not help those who are in need of these small short-term loans. They will either turn to other lenders who are no better than Wonga, or, even worse, local loan sharks for whom extortion and threats of violence are a way of life. Wonga may be bad, but the last thing anyone needs is for increasing numbers of people to fall into the hands of these parasitic vipers because they have nowhere else to go.

Justin Welby’s dream, which is beginning to come alive, is of a network of credit unions run by churches around the country. The venture, which has been named the Church Credit Champions Network (CCCN), is only four months old, although the recruitment of former FSA chief executive, Sir Hector Sants as Chairman of the Archbishop’s Task Group on Responsible Credit and Savings, has been a major coup.

Initially the CCCN is piloting projects in the dioceses of London, Southwark and Liverpool. Holy Trinity Brompton (HTB), home of the Alpha Course, has become a frontrunner working with the London Plus Credit Union. It has also launched a new Charity Bond Account where HTB church members can join London Plus and put their savings into this bond.

Given its financial resources, reputation and networks through Alpha, this is a welcome development. HTB has the opportunity to become a major player and driver as the CCCN is rolled out to more churches.

David Barclay, Senior Network Co-ordinator of the CCCN has says:

We’re at the start of a long term process, and it is about trying to embed this in the life of local churches. That does not happen straight away – but we are really excited by the progress that has been made. There is no big bang change that will suddenly alter the landscape of financial services in the UK. The way that we overcome that is by building deep and real relationships between the churches and the credit unions, by investing the time and the energy that it takes to get to know each other as institutions and to think about how they can work really productively together.

One of the messages that credit unions are really keen to get across is that they’re not just a bank for poor people, but they’re for everyone – one that we work with has a ‘homeowners loan’ product where they beat the rate of any high street bank, for example. The hope is that credit unions will come to be seen by more middle class people as a kind of ‘fair trade finance’ where people are happy to both save and borrow because they like the ethics and they know their money will be partly used to serve people excluded by mainstream finance.

Sometimes you have to be careful what you wish for. The chastisement of Wonga is welcome, but it looks as though Justin Welby’s hopes are being fulfilled rather too quickly. In the short term, a Wonga that is beginning to clean up its act is actually a good thing, but in the long term our society needs something that offers a better deal to those for whom money is tight.

As it stands, only the churches in their desire to serve the people around them are offering a genuine and workable solution that can potentially function on a large scale. It is early days for the CCCN, but the pace needs to be increased. It is time for God’s people to take on this challenge and begin to deliver results. There are hundreds of thousands of people around our country who need what Justin Welby has instigated – not in several years time, but right now.

They can’t afford to wait.