Bishop of Durham says interest rate of 4,000%, as charged by Wonga, has been considered ‘usurious’ since the time of Moses
The bishop of Durham says payday loan repayments are a huge amount for people on benefits.
The bishop of Durham has described the interest rates charged by payday lenders as sinful and usurious, but says they are the only resort for many families desperate for money.
Citing the 4,214% APR charged by the UK’s highest profile short-term lender Wonga, the Rt Rev Justin Welby said his worry was people would get used to this “deeply shocking” level of interest and begin to think it was normal. “An interest rate of over 4,000% has been considered usurious since the time of Moses. It’s no different now,” he said.
The bishop said he was not describing the lenders as immoral or saying they were acting improperly, “but they have become the only resort for people in many parts of the country where traditional banks and credit unions are just not available”.
He said the surge in use of payday lenders – Wonga alone has extended 4m loans worth £1bn in little more than four years – reflected the increasing numbers of people being forced to collect food from church foodbanks each month. The bishop, who recently visited a food bank in Chester-le-Street, said: “I find it bizarre and horrifying in this day and age to see this happening. It shocked me that so many people were coming there for help after running out of money before the end of their financial month.”
The Church of England has long expressed concern about the activities of short-term, high-cost lenders: in December 2011 the Church Commissioners extended the Church’s ban on investing in doorstep lending to include the online payday loans industry, meaning none of its £8bn investment portfolio can be directed at such lenders and pawnbrokers.
James Featherby, chair of the Church’s Ethical Investment Advisory Group, said the revision of the policy acknowledged “the importance of access to credit for all members of society. But it is not prepared to sanction investment by the Church’s investing bodies in companies charging triple-digit interest rates to some of the most vulnerable customers of the financial services industry”.
Wonga refused to comment on the bishop’s statement, but in a recent interview with the Guardian the company’s co-founder Errol Damelin said critics were wrong to focus on cost. “We do, as a society, want access to credit delivered in a responsible way … There’s real demand from people – and businesses – for help in spreading the costs that they incur. Without that ability, then you might not have the opportunity for anybody who isn’t very wealthy to get access to things like education, fixing a car that breaks down, or entertainment.”
The Consumer Finance Association (CFA), a trade association which represents payday lenders, has requested a meeting with Welby to discuss the matter in person.
John Lamidey, chief executive of the CFA, said: “Only the bishop is in a position to say whether the interest rates on payday loans are immoral or sinful. However, we do understand his concerns because payday loans are misunderstood by many people, particularly those who do not use them.
“The interest rates that the bishop refers to are APRs – annualised percentage rates – which completely misrepresent the true cost of a payday loan. It’s similar to suggesting that the typical annual cost of a rental car might be close to £15,000, rather than a daily rate of £40.
“Telling customers the total cost of credit in real terms to ensure they understand how much their loan will cost, rather than quoting confusing APRs, is clearly beneficial for the customer.”
Lamidey added that research shows the vast majority of customers use payday loans to smooth out peaks and troughs of their finances, rather than relying on them month to month.
However, the bishop of Durham pointed out that as the former group treasurer of a major oil company, he was well accustomed to how the financial services industry and financial products functioned. “I am not buying the argument that it’s only costing £40. We know that they are lending to people on benefits and that’s a huge amount to pay for someone in those circumstances,” he said.