Payday loan firm under threat
August 13, 2013
The Church of England has ‘declared war’ on payday loan firm Wonga, with plans to support credit unions and compete it ‘out of existence’.
The short term, easy access loans with high interest rates offered by payday lenders have been widely criticised as a way of targeting the most vulnerable debtors who require fast access to funds.
The Church of England plans to support the expansion of credit unions to provide an alternative for borrowers, offering loans at significantly lower rates than payday lenders.
A recent industry summit confirmed that lenders would soon face tighter regulations, including caps on the cost of credit and the number of loans obtained. This development is something previously advocated by Archbishop Welby from the Parliamentary Commission on Banking Standards. The Competition Commission is also currently investigating all types of lenders, following ‘deep rooted problems’ discovered by the Office of Fair Trading. The standard interest rate quoted on Wonga’s website in June stood at 5853% APR, meaning that borrowing £200 from Wonga for a period of 30 days would require a repayment of just less than £270.
In an interview with Total Politics magazine, Archbishop Welby explains: “I met the head of Wonga, and we had a very good conversation. 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. He’s a businessman; he took that well.”
In response to the comments, head of Wonga, Errol Damelin said he was “all for consumer choice” and that there was a “mutual respect, some differing opinions and a meeting of minds on many big issues.”
Though Archbishop Welby remains confident that credit unions can compete with the likes of Wonga simply by increasing their professionalism and engaging more with the community, payday lending has sky rocketed in popularity over the past few years and credit unions will have to work hard to compete with the £2bn a year industry.
If you’re struggling with debt and are considering turning to payday lenders to make ends meet, make sure you speak to a professional before signing up to anything. Our knowledgeable team at Scotland Debt Solutions can advise on your nearest credit union, how to join and the benefits of this choice compared with a payday lender. Alternatively, our advisers will be happy to consider your individual debt situation and find a debt solution which fits your circumstances and will help you to find a debt free future.
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