Non-beardy says “I’ve met the head of Wonga and I’ve had a very good conversation and 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” (see-also the Gruan). When I first heard this while driving into work I mis-heard it (or slightly more accurately, at that point the news was new, and exactly what he meant by this wasn’t clear): I thought the CofE were intending to actually loan out money, on a commercial-but-nicer basis. Thankfully they aren’t going to do that: it would most certainly have been a total disaster (remember the Church Commissioners financial ineptitude). In principle I applaud his stated intent of out-competing rather than out-legislating them; that would be, in principle, the way to demonstrate that your system is better. But I think that while he might actually do some good, overall he is doomed.
[N.b.: while everyone in the current version of this argument is using Wonga in the generic sense that “Hoover” means vaccuum cleaner, AFAIK they are just one of several such “pay-day lenders”.]
It fairly soon emerged that the CofE actually hold a stake in Wonga, albeit indirectly. That doesn’t directly affect the argument; but it would be a hint to the wise that modern finance is more complex that back in the good old days of clearing the moneylenders out of the temple.
I visited the CofE website to see if they’d laid out their plans carefully there, but they hadn’t. So I decided to use the FT to work out what they are proposing. First of all, there is some rhetoric, or perhaps scene-setting if you’re more generous:
Justin Welby, a former finance executive in the oil industry, has described lenders such as Wonga as “morally wrong” and has compared the industry to Old Testament usurers.
This, too, is a hint to the wise that they’re on the wrong path: traditionally the fight against usury has been a fight against reality. Even now the stricter bits of the Muslim world have absurd bits of financial engineering that dress up interest in order to pretend that it isn’t. But on to the plans:
Dr Welby has… laid out plans to help 500 financial co-operatives, which already provide small loans, to expand their reach by using the Church’s 16,000 premises. He said he was embarking on a “decade-long process” to make credit unions both more engaged in their communities and “much more professional”. He has already launched a new credit union for clergy and church staff at the General Synod in York earlier this month.
This might do some modest good. I have no personal experience of this stuff, but I can easily believe that there are a number of financially-pressed folk who could do with useful advice, and possibly some actual help.
However, I strongly suspect that there is also a block of people who have a reasonable understanding of what is going on, and simply need a loan, and no-one else is going to give it to them, which is why they go to the likes of Wonga. And if you’re making smallish loans to financially pressed people with little or no collateral, then you’re going to have high expenses and you need to make money to cover the inevitable default rate (see-also Timmy). I haven’t checked, but I rather doubt that Wonga is making ginormous profits. If it was, it wouldn’t be for long, as others would pile into the sector and margins would fall. If it isn’t making enormous profits, then its margins aren’t excessive. QED.
But I have to admit, Dr Welby is a model of sanity compared to idiot politicians such as:
Stella Creasy, a Labour MP who has campaigned for a cap on credit costs and a wider crackdown on payday lenders, welcomed Dr Welby’s intervention, but said: “It should not take divine intervention to deal with this problem. It is very easy to fix.”
You have to be a complete moron, or a complete liar, to assert that this problem is “very easy to fix”.
[Update: I’m pleased to say that the Tories, fed up with falling behind in the talking-utter-drivel stakes, have made a late – and, it looks to me, winning – entry in the “Oh good grief I really can’t believe that even a politician would be dumb enough to say that” competition:
Church should consider pulling money out of Google, government adviser says… Claire Perry, a Tory MP and David Cameron’s adviser on childhood, went a step further by urging the Church and other investors in Google to “put their money where their mouth is”.]
[Yes, I know. Another ill-advised foray into economics and politics. But at least you know what I think.]