Thursday 20th June 2013
On 20th June 2013, The Archbishop of Canterbury, Justin Welby, delivered the following speech in the House of Lords on the subject of payday lending. His comments gave voice to a growing belief within the Church and wider society that there is an urgent need for better regulation of payday lenders, greater personal responsibility on the part of borrowers, and the availability of affordable credit.
My Lords, I, too, am grateful to the noble Lord, Lord Kennedy, for instigating this debate on alternatives to payday lending. It is something that he has studied for many years, and he is an acknowledged expert in the field.
The payday lending industry has grown at a vast speed, as we all know, and alternative sources of credit are few and far between, particularly for those who have had their applications for credit turned down by a high-street bank. It is very easy to see, as we have heard already—the noble Baroness, Lady Wilcox, spoke to this very clearly and powerfully, as ever—that it is going to take a long time to provide alternatives. However, the fact that we cannot do something now does not mean that we should not start doing it now or that it should never be done. The noble Baroness, Lady Kramer, spoke very powerfully on that.
Payday lenders lead to people being assured, through impressively slick marketing campaigns and targeted advertisements, that the process of taking out a loan is quick, simple and safe. However, once the loan has been taken out, it is difficult to get out of the cycle. With the rates offered, simply paying off the interest becomes a struggle.
The noble Lord, Lord Kennedy, spoke already of the problem of rollovers. I do not want to repeat that. I will, however, pick up the comment about interest rate caps. I very rarely dare to disagree with the noble Baroness, Lady Wilcox, but on this occasion I will take my life in my hands. A cap does not mean 25% or 30%. It is not any figure. The Financial Services Act provides for a study of the consequences of a cap to be looked at and then for the cap to be brought in at an appropriate level. Caps are needed at a sensible level that does not choke off supply and send people into the hands of loan sharks. I have seen the effect of that when working in Toxteth. Caps are there to prevent usurious lending. The noble Baroness said that caps should not be introduced at any price. The trouble is that the interest rates are at any price, typically more than 2,500% on an annual basis. We need to look at reasonable limits that cut out legal usury from our high streets.
This is not a problem faced only by the very poor. Some 5 million people in this country use payday loans and, apparently, one in four Londoners. The situation is becoming too big to ignore. I hope that the Minister will let us know whether the Government will consider seriously the exercise of its powers in this area under the Financial Services Act.
However, simply dealing with that does not deal with the long-term question. It is quite clear when I look at what is happening on the high street and in our local communities, particularly in the most deprived areas, that—as the noble Lord, Lord Kennedy, explained—alternatives are very few and far between. My own group, the church, can play a part in the development of credit unions up and down the country. There is a role to be played by local institutions. We have, so to speak, branches in every community—16,000 branches in 9,000 communities, even more than the banks. If we wish to see the development of alternatives to payday lenders in all communities, we must use all the institutions in all communities—churches, post offices, and even, if I dare say so in the presence of the Government, the Co-op. The Post Office is an institution that is playing an increasingly important role. That is clearly something warmly to be encouraged.
The church is in a unique position up and down the country. For the credit union movement to be successful and sustainable, and other forms of local finance to develop, we need a bottom-up movement of local organisations working to change the sources of supply. It will take many years—10 to 15 years—but it must start now. The new institutions must develop flexibility in order to demonstrate their ability to meet the new needs. As the noble Baroness, Lady Wilcox, pointed out very clearly, they are not the needs that were present when credit unions first began. People want quick access to money. They want to be able to get it now.
We can use local institutions that have places of work and skills that can be brought in through volunteers. Church members—not just those in the Church of England—give more than 23 million hours of volunteer time every month outside the regular work of the church. Volunteering comes naturally to us. Unlike some other things, it is something that we are very good at. Many who sit on the pews each Sunday have expert knowledge in finance, human resources, communications, marketing, debt counselling and all sorts of areas. We need a regulatory environment that makes it possible to have flexibility of provision.
If we are to have good regulation—huge improvement was made through the Financial Services Act, and we were grateful to the Government for the many amendments they introduced—equip alternative sources of finance with outlets that can be used in areas that need them and give them the capacity to exercise their location effectively, we also need to communicate the sources of alternative finance widely in the United Kingdom. Two-thirds of the population of Ireland are members of a credit union, but take-up and use of credit unions in the UK is still woefully low.
A mixed economy of geographically based credit unions and professional ones, and other forms of finance such as CDFIs, as the noble Baroness, Lady Kramer, said, will give the best chance of developing good, alternative sources of finance that will take away the need for caps because essentially they will compete the high-rate lenders out of existence. There is a very long way to go.
Recently in my diocese, I came across a painter-decorator who was made unemployed two years ago. For two years he sought a loan to start his own business. He was looking for £200. At the end of two years, through a third-sector organisation in the area, he was able to borrow £200. When I last heard, his book of orders was full for nine months and he paid off the loan in about three weeks. A finance system that in an area of poverty cannot provide £200 is dysfunctional and we need to pay attention to that. We need good, viable alternatives.
I warmly welcome the call by the noble Lord, Lord Kennedy, for a summit to deal with some of these areas. Will the Minister review the recommendations on basic bank accounts, which are also hidden in the depths of the Parliamentary Commission on Banking Standards—they are well hidden—in order to influence the banks, which indirectly he largely owns, to make better provision in the mean time before alternative forms of finance develop?
I am very grateful that we have had the opportunity to think creatively about alternatives. My hope is that a thriving alternative credit movement will one day mean that payday lenders simply are not necessary.