The Church Credit Union Network shows the way against predatory lending

Former chief City regulator Hector Sants has introduced a national network of churches, communities and credit unions as an alternative to payday lenders.

Former chief City regulator Hector Sants has introduced a national network of churches, communities and credit unions as an alternative to payday lenders

There is no such thing as inclusive capitalism. There is only capitalism, and the means by which government and civil society chooses to mitigate against is excesses. And even this is played safe. Rising inequality? All we need is more social mobility and a keynote speech by Prince Charles. Great.

Nowhere are the excesses of capitalism more apparent than in the dirty game of moneylending. Despite living in one of the richest countries in the world, an increasing number of working people find there is too much month at the end of their money. Banks won’t touch them because that wouldn’t please the shareholders, but luckily there are legalised loan sharks waiting to take their call.

Because the government spent too long trying to work out whether their one-in-one-out approach to regulation was appropriate within a system run amok – such is the case of finance, for example – it took the Church to throw down the gauntlet and take on the moneylenders (to be fair there is a historical precedent here).

Making that formal today, Hector Sants, who has been busying himself meeting with financial experts from within the church, has introduced a national network of churches, communities and credit unions that aims to take on payday lenders.

In its initial stages Sants announced that the partnership of credit unions and churches will be piloted in three dioceses: Southwark, Liverpool and London.

The long-term aim, however, is far more ambitious: speaking at the launch of the network, Sants said: “A major high street bank has at most 3000 branches, but Church of England has 16,000.”

Credit unions in principle do pose a challenge to the often predatory practices of payday lending. They are cooperative institutions where those who have a membership actually own a stake in that credit union. They offer loans at very competitive rates of interest, usually offer other services such as debt advice, and differ from other lenders in that their sole aim is to get people saving money with them. 

But there are still too few of them to be a real danger to the stronghold payday lenders have. According to the World Council of Credit Unions’ annual statistical report in 2012, members of a credit union in Ireland is around 73 per cent of the population. In that same year there were 2 per cent of the UK population who belonged to one. 

Efforts in recent years to increase the membership of credit unions have failed to gain traction, particularly during the economic downturn. For example the DWP Growth Fund, spanning July 2006 until the end of September 2010, had the objective in place to raise levels of access to affordable credit by building the capacity of third sector lenders to serve financially excluded households.

While the evaluation shows that relatively inexpensive loans made by non-profit organisations had increased, it had happened at the same time as payday loans ballooned. From around 2006 through to 2010, the total value of the payday lending industry grew from a mere £100m to £900m (it now stands at around £2.2bn, though the last time this was measured was in 2012).

Another effort was made by researchers at the Joseph Rowntree Foundation to assess whether there could be a credit product suitable for low income consumers that could have home delivery – undercutting the home credit product by extortionately priced lenders such as Provident whose loans per £100 can cost up to £65 in interest and fees. 

But in order to break even on a home delivered loan, the interest rate would have to be around 129 per cent for an average 56 week loan of £288. For the rate of a loan to be under 100 per cent the initial investment would have to be in the region of about £90m – a long way over the current investment by the DWP of £38m for the 2012-2015 Credit Union Expansion Project.

There is cause for optimism, though. Since the Archbishop of Canterbury told Wonga last year that he would compete them out of business, credit unions have received a lot more attention and, anecdotally, many have recorded rising memberships. According to ABCUL, the credit union trade body, in the six months between September 2012 and March 2013 memberships rose from 33,000 to 1,072,292.

Allowing the moneychangers back into the church has been a good thing for credit unions. Admittedly it comes from a low base, but the need for them in the presence of Wonga and The Money Shop, who benefit from the continuation of a very uninclusive capitalism, is all too clear.

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