Comments: Church of England and payday lenders - update

I see the Indy has contracted its unsigned leaders out to the National Secular Society again.

It's also fascinating to see a paper with a daily circulation of under 100,000 says that Welby shouldn't comment as the leader of a minority faith.

Posted by Doug Chaplin at Sunday, 28 July 2013 at 11:04pm BST

Bishop Nick Baines has responded to the Independent's editorial.

http://nickbaines.wordpress.com/2013/07/29/religion-and-politics/

Posted by Peter Owen at Monday, 29 July 2013 at 10:18am BST

The next day, the Sunday version of the Independent published this article by a former deputy editor, Ian Birrell, which takes a slightly different line
http://www.independent.co.uk/voices/comment/politics-and-religion-do-mix-well-after-all-8734969.html

Posted by Simon Sarmiento at Monday, 29 July 2013 at 11:18am BST

Even with the new higher 43% APR cap on credit union interest rates they will not be able to compete with Wonga et al. in the payday loan market.
Welby, the investment in Wonga embarrassment aside, really needs to do his research before sounding off.

Posted by cjcjc at Monday, 29 July 2013 at 11:55am BST

The alternative to regulated payday lenders is not Christian charity or genteel poverty. The alternative to regulated payday lenders is unregulated loansharks. It is that simple.

Wonga have many failings, but the case against them is not enhanced by implying that they are in the same category as loansharks, or that people would be better off (or, at least, no worse off) borrow in the unregulated market. Better people not borrow money they can't afford, but if they are going to anyway, better Wonga than loansharks.

As cjcjc points out, if Credit Unions are constrained to a 43% APR then they simply cannot service the market Wonga are in. You can turn the figures in various ways, but that they have a bad debt rate of around 7% of loans even _after_ using fairly sophisticated credit-scoring to reject over 60% of applicants shows just how risky that market is [2]. Credit Unions have been failing on a near-monthly basis [1] for precisely this reason, and they can't charge sufficient interest to remain solvent.

Mainstream lenders won't touch risky borrowers: it's not worth their while. They just reject everyone who looks risky, and they do their credit scoring with a fairly broad brush. They can therefore charge low interest rates, operate small recoveries departments and not have to write off too much.

People who are turned down by these mainstream lenders have to go to organisations with much higher costs: more nuanced credit scoring, more recoveries, more writeoff. The cost of that goes to the borrower. The additional interest rate is the implied probability of default plus the extra administrative cost. Such lenders won't get an even mixture of business, because "good" risks won't want to even pay the extra cost of the more nuanced credit scoring; they will _only_ get people who have been turned down by mainstream lenders.

Let's see people entering the Wonga market, charging less, and remaining solvent. I haven't looked at Wonga's balance sheet for a while, and it was a fairly complex beast which I did, but it didn't strike me as a business designed to cause people with capital to race in. They're not a charity, and they're reasonably profitable, but they certainly aren't a magic money making machine.

[1] http://www.guardian.co.uk/money/2012/nov/02/north-yorkshire-credit-union-collapse

[2] http://www.bbc.co.uk/news/business-18019272

Posted by Interested Observer at Monday, 29 July 2013 at 3:21pm BST

As an American Episcopalian I'm impressed that the ++ABC has decided to take on the payday lenders and I wish him every blessing in this effort. I heartily support credit unions, but I question whether a "low" 43% APR cap on credit union loans is the best that can be done for the working "cash poor" of England.

An alternative model, not much known in general society, is the "Gemach" institution within the Jewish community. "Gemach" is an abbreviation for Gemilut Chasidim, the obligation to lend without interest to members of one's community when they are in need. The institution has been around for centuries and they have an excellent history of lending and repayment even during the worst economic downturns. I believe a similar process would be a better response to payday lenders and would also be more in line with Acts 2:24,25...thoughts?


The New York Times had an excellent article on the concept here: http://www.nytimes.com/2011/12/03/us/a-traditional-jewish-loan-program-helps-ease-pain-of-tough-economic-times.html?_r=0

Posted by Marc Kivel at Monday, 29 July 2013 at 5:09pm BST

"An alternative model, not much known in general society, is the "Gemach" institution within the Jewish community. "Gemach" is an abbreviation for Gemilut Chasidim, the obligation to lend without interest to members of one's community when they are in need."

That presumes that a "community" contains a mixture of people who have money and people who don't, that the former see the latter as deserving of help and the latter see the former as deserving of being paid back. All of that is untested and highly unlikely to be, in general, true. There may be circumstances in which it might work, but they are certainly not common.

If the proposal is that people with money should give it to the poor without hope (or, at least, expectation) of getting it back, then that is a worthy thing to argue for. But that isn't lending: it's giving to charity. It's not the same thing.

"I heartily support credit unions, but I question whether a "low" 43% APR cap on credit union loans is the best that can be done for the working "cash poor" of England."

They aren't "cash poor". They are "everything poor". Cash poor is your elderly relative living in a house they own outright but can't afford to live in. The problem here is straightforward poverty. The solution isn't juggling how the poor are lent money, the solution is to stop them from being poor. This is about living wages, better jobs, better taxation systems, more focussed benefits, improved education. Debt is the symptom, not the cure, and improving the terms of the debt doesn't really help.

Posted by Interested Observer at Monday, 29 July 2013 at 6:37pm BST

In 1992, the Episcopal Diocese of Los Angeles established The Episcopal Community Federal Credit Union - http://www.efcula.org/about.htm - as an economic justice ministry to provide small loans to those who could not qualify for loans from banks. A couple of squibs from the home page:

"The Episcopal Community Federal Credit Union is an Economic Justice Ministry within the Diocese of Los Angeles. 'Those who have, helping those who have not.'

"Originally funded by a grant from Episcopal Relief and Development in 1992, the Episcopal Community Federal Credit Union in Los Angeles provides financial services in a professional, personal environment.

"The Episcopal Community Federal Credit Union is a very diverse credit union with 40 percent of its membership being Hispanic, 20 percent African American, 20 percent Caucasian, and 10 percent of other ethnic groups. ...

"Urla Abrigo spends her days 'seeing to it that the poor don’t get shut out of the business of money.'

"As manager and chief executive officer of the Episcopal Community Federal Credit Union (ECFCU), an economic justice ministry of the Diocese of Los Angles, Abrigo's business is money — and teaching community groups 'financial literacy,' creating jobs by extending small business loans, and even helping to extricate those trapped in payday lending schemes.

"'Many of the loans we make are small loans. We don’t make any money on them, that’s why a lot of banks don’t make those kinds of loans,' Abrigo says. 'But we do, because we know how they can change a person’s life.'"

I believe there are a few other TEC dioceses that have set up credit unions as well.

Posted by dr.primrose at Monday, 29 July 2013 at 8:32pm BST

With payday loan companies experiencing a 50% default on repayments, the charges from a Credit Union would have to be quite:high and there would be problems enforcing repayments from people who llve permanently on the breadline. The Archbishop of York's charity "Actx 4 35" seems a much neater solution to me: those with money to spare can make a gift to someone in difficult circumstances and there is the opportunity too to offer ongoing help and support. Much better than having to ask for the money to be repaid later and a generous solution which reflects the good news of the gospel!
Have a look at the website acts435.org.uk/‎ and see what kind of small amount can save people from total despair.

Posted by Jenny Reid at Sunday, 4 August 2013 at 1:46am BST
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