A Story of ”the Church Militant here on earth” and the Usurers? There’s more to it than that!

23^rd August 2013

Matthew Groves writes on ways the Church can strengthen and grow Credit Unions

The Church of England’s contribution to the controversial debate over payday loan companies has received a good deal of media coverage. This is of course an issue that has troubled politicians and even professional football players (in the case of Papiss Cisse and his Newcastle shirt!). During these difficult economic times, the thought of ruthless lenders preying on those falling into debt is a worrying and emotive subject.

It is therefore important to emphasise that the Archbishop of Canterbury has not simply leapt into this debate reactively. There has been a long process of his concern about this area of high-interest lending developing. I understand that the Archbishop has spoken out on this matter because of his own financial expertise, developed in a business career and demonstrated in his knowledgeable contributions to the Parliamentary Commission on Banking Standards, on the one hand and his experience of his work as a Dean in Liverpool and as a Bishop in Durham on the other. In areas like these around the country, high streets are falling into decline with the shops and local businesses often being replaced by payday loan companies and betting shops. In areas where poverty is prevalent these are the very last businesses it is good to see moving in where the shops have left.

Meanwhile, not only are politicians concerned about the trap many debtors fall into with payday loan companies, but the Government has its own strategy for supporting the growth of credit unions, those organisations that provide genuine support with low interest rates. This is set out in its publication: Social Justice: transforming lives, where a goal of doubling credit union membership by 2019 to 2 million members is stated. This goal is also set out in the DWP’s Credit Union Expansion Project.

A credit union can be defined as a member-owned financial cooperative. Clearly being owned by the members is significant as that is in whose interests it is to work. It provides financial services to its members, including loans at a low interest rate and is community orientated. It aims to encourage thrift rather than profit from debt.

Payday loan companies on the other hand exist to provide immediate loans to people in need of credit urgently. This short-term loan is usually required to be repaid on the borrower’s next payday. The loan is unsecured, which means that the borrower does not have to provide an asset as security for the loan. Part of the arrangement for this risky lending, where default rates are high, is a very high interest rate. This interest rate can increase if the loan is not repaid or other fees can be incurred. This means that the borrower’s assets are often severely depleted and the borrower becomes trapped being unable to pay off their debt. Therefore very vulnerable people often find themselves being exploited through having to pay higher and higher interest on a loan that they are unable to repay. Students in particular seem to be relying more on this form of loan.

Both the Government and the Church can see great advantage socially in growing the credit union sector and seeing it replace, in the long term the role fulfilled so unsatisfactorily by payday loan companies. Therefore this is not the Church of England unilaterally declaring war on payday loan companies. It is actually the Church being part of a long-term overall strategy, along with the Government and ABCUL (the credit-union trade association), to strengthen and grow credit unions. Credit unions can be supported to adapt to a greater need for credit, especially in the context of changes to housing benefit. Support is needed to make credit unions less parochial, more professional and to use better IT systems. While the church is setting up a credit union for clergy (which helps to dispel the impression that a credit union is a poor man’s bank), primarily this strategy is about providing support to the existing credit union movement.

The Church is so well placed to provide this support to credit unions for many of the reasons recently outlined in Phillip Blond’s report “Holistic Mission: Social Action and the Church of England” and the related blog on this site, where he points to the Church being a major force in civil society. The Church has a presence in nearly every community in the nation. Often, when other community facilities such as post offices, the village shop and the public house have shut down, the parish church is all that is left.

Furthermore, the Church has an army of volunteers who are from different backgrounds. It is this social capital that the church can call on, when looking for volunteers with expertise to support local credit unions. For example, congregation members with financial training are ideal to provide support. The Church can therefore help build up the skills base in credit unions.

Then there is the Church’s physical presence with its buildings in the nation’s parishes. These can be used to provide premises for credit unions to provide a service to the community. This project to help grow the credit-union sector is therefore a concrete example of how the Church can carry out its holistic mission through social action to achieve the common good for the nation.

The Book of Common Prayer refers to the “Church Militant here on earth”. Perhaps some thought the Archbishop was adopting a stridently militant approach when he apparently declared war on Wonga. In fact, what is actually happening is that the Church is acting as a catalyst through its position in the nation by working with other agencies including the Government and ABCUL. Through a gradualist approach it aims to grow credit unions and thereby address the social ill of the most financially vulnerable falling into a trap of spiralling debt.