The Church of England is supporting the strong stance taken by the Office of Fair Trading in giving the leading 50 payday lenders 12 weeks to change their business practices or risk losing their licenses.
Responding to the OFT report, Malcolm Brown, Director of the Church’s Mission and Public Affairs Team, said: “This report clearly shows that there are deep-seated problems with the way the whole payday loan market is operating at the moment. Many borrowers are already in a financially precarious position, and all too often payday loans are making their situation worse.”
Too many people are being granted loans that they cannot afford to repay, according to the OFT, and too much of the industry’s revenue – around a half – is reliant on customers who fail to repay their loans on time. Companies are also criticised for using aggressive debt collection practices and not making enough allowances for struggling borrowers. These problems are widespread across the industry, the OFT said.
The Archbishop of Canterbury, the Most Reverend Justin Welby, a strong supporter of Credit Unions, said: “I warmly welcome the action taken by the OFT which will contribute to improved access to affordable finance across England. In the longer term, in order to ensure that all members of society have access to affordable credit and other financial services, the development of Credit Unions and other forms of local finance is essential.”
Abbie Shelton from the Association of British Credit Unions Limited (ABCUL) argues that: “It is very unlikely that very short-term loans of a few weeks will be the right solution for most people, because this only stores up problems for later. If a loan is needed, spreading repayments over a few months will usually make more sense. Credit unions can also help people to look at their finances and get into a savings habit so that they do not have to rely on a short-term loan next time they are short of money.”
Payday loan companies and other high-interest lenders are excluded from the Church of England’s investment portfolios because of concerns about the exploitation of vulnerable and low income customers. In announcing this policy, the Church’s Ethical Investment Advisory Group (EIAG) urged companies involved in the provision of short-term unsecured lending to do all they possibly could to ensure their business models kept interest rates as low as possible and that their loans were appropriate for customers' circumstances.2
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Notes to Editors
1. Speech made the Lord Bishop of Durham in the House of Lords on 28 November 2012 in a debate on Lord Mitchell’s amendment to the Financial Services Bill.