By Lynn Malone
News that the Archbishop of Canterbury will go to war with online lender Wonga and force it out of business has been met with caution by an SNP politician.
Speaking exclusively to Newsnet Scotland, SNP MEP Alyn Smith described plans by the church to get involved in money lending as “Alice in Wonderland stuff”.
The MEP who has called on the UK Government and the European Commission to investigate payday loans in the past said:
“For me, the idea that any church gets into money lending is just Alice in Wonderland stuff. While I certainly agree with Mr Welby’s sentiment, the cynic in me is curious whether anything will actually come of it. I’m also uneasy about the idea that a church, any church, has enough money to set itself up as a bank in the first place.
“The solution is government looking after its citizens, full stop. The UK has proven it won’t, we need the power here to step up and do it properly.”
Payday loan companies’ offer short-term loans at high interest rates and have been accused of preying on those most vulnerable in society and leading them into a debt trap.
Speaking to Total Politics magazine, Archbishop Welby told Wonga boss Errol Damelin that the Church planned to force Wonga out of business by competing against it.
Archbishop Justin Welby has criticised excessive rates of interest saying the Church could help to expand financial co-operatives by providing them with premises and financial expertise.
And the Church plan to create credit unions to counteract payday loan lenders who target the vulnerable in society.
Archbishop Welby, a former financier who is on the Parliamentary Commission on Banking Standard wants “…credit unions that are both engaged in their communities and are much more professional” and says people must know about them.
He has previously lobbied for a cap on high interest rates charged by loan companies and is ready to take on the Wonga boss.
He said: “I’ve met the head of Wonga and I’ve had a very good conversation and I said to him quite bluntly we’re not in the business of trying to legislate you out of existence, we’re trying to compete you out of existence.”
The Archbishop says the Church is working steadily with the main trade bodies for the credit unions and that BIS plan a major investment of £35m over the next 10 years.
He said “The Government has, in the regulatory structure that came through the Financial Services Act last year, cleared space for credit unions through approaches to regulation. We’ve got to have credit unions that are both engaged in their communities and much more professional, and the third thing is people have got to know about them. It’s a decade long process.”
Archbishop Welby later clarified his comments, and backed away from suggestions that the church itself would be lending any money. He explained that the church, which has premises throughout the country, would be giving permission to companies such as credit unions to use church properties in order to set up local lending businesses in competition to payday loan firms.
Alyn Smith (pictured) said that the SNP has been kicking at payday loans for best part of a year, but pending the power coming to Scotland to regulate them properly there’s little they can do.
He said: “They are, for me, proof positive that the Westminster government is more interested in the profits of finance companies than the misery they cause.
“I would not ban them, because I think there would be a risk of people turning to illegal lending, but we could regulate them to a far greater degree of social responsibility than they will do themselves.
“I am drawn to the US model, companies are regulated differently in different states, in Kentucky you can only have one loan at a time; If you get into trouble the company is obliged to offer you a payment plan, and their interest levels are capped; and a state-wide database polices who is signing up to what.
“Given the power in Scotland, we could introduce just such legislation, the UK has proven it simply is not going to, quite the reverse, the benefits changes will actually encourage people to apply for short term credit while awaiting benefit payments.”
Asked about Archbishop Welby’s comments, Chancellor George Osborne told the BBC: “We are now regulating [the payday] sector. I am all in favour of credit unions and all sorts of other channels to allow families to get credit. I want to see as many options for families as possible.”