Everyone’s heard of Wonga; but how many people know where their nearest credit union is?
“Jumping the Shark”, a new report by the Institute for Public Policy Research (IPPR) says ministers should provide a capital injection to support the credit union sector.
Published today, the document calls for a £450 million levy on the UK’s £180 billion consumer credit industry (“That’s 0.25%: doesn’t sound too draconian” – Ed.) to create a new generation of not-for-profit affordable lenders based on credit unions, with enough capital to compete with the established payday lenders.
Archbishop of Canterbury Justin Welby previously said he wanted to “compete Wonga out of business”, saying that the credit union sector should be expanded to provide an ethical and affordable alternative. And now the Church of Scotland has come out with the same message. According to Kate Devlin writing in the Herald Scotland today, ‘the Kirk’ supports the IPPR’s call for an expansion financed by a windfall levy.
[Credit Unions are much more widespread in Scotland, where 1 in 20 Scots are members of a credit union. Almost all Scots are currently eligible to join a credit union.]
These not-for-profit lenders could be partnered with church parishes, said the Church of Scotland. Alternatively they could be hosted in Post Office branches.
Providing UK credit unions with £450m of capital could help them support over one and a half million loans. The “new generation of lenders” should charge a maximum of 3% interest a month, or 42.6% APR, the IPPR recommends. This would allow customers to pay just £3 to borrow £100 for one month. A similar loan with Wonga, whose APR is 5853%, currently costs more than £30.
The IPPR also says the expanded network of affordable lenders should cap the maximum loan at £250 (the average size of current payday loans), limit customers to one loan at a time and stop lenders “rolling over” loans.
Mat Lawrence, IPPR Research Fellow, said of the recent economic good news: “A return to rising living standards will reduce households’ reliance on debt, but it will not eliminate their need for it. The payday lending industry has grown in large part because of a gap in the credit market that mainstream banks are unwilling to fill.
“Regulation can reduce the harm done by payday lenders but it alone cannot ensure that the public interest is properly served in the provision of affordable credit.
“Britain needs an initial capital injection to expand the provision of affordable credit. We need a strategy for spreading capital, building the assets of communities, and engaging citizens in forms of local democratic finance in which power and control resides with them, rather than with government agencies or unaccountable financial institutions.”
WANT TO KNOW MORE?
To download a copy of “Jumping the Shark” – the report from the Institute for Public Policy Research (IPPR), click HERE:
For the article from The Herald Scotland, click HERE:
To find a credit union near you, click HERE.