IT IS ten years since the Archbishop of Canterbury took on Wonga; and he eventually won. By 2018, speaking at the Trades Union Congress, he could say: “I said to the chief executive of Wonga that I wanted credit unions to compete him out of business. Well, he’s gone!” (News, 14 September 2018).
But did credit unions compete Wonga out of business? Credit unions have increased in size: statistics published by the Bank of England show that, between 2013 and 2022, credit unions’ membership rose from 1.6 million to 2.1 million people (27-per-cent growth), their assets rose from £2.4 billion to £4.2 billion (79 per cent), and their loans rose from £1.1 billion to £1.7 billion (46 per cent). But this is against total unsecured consumer debt in excess of £300 billion. Credit-union loans are about 0.5 per cent of this.
And this £300 billion does not include one of the biggest growth areas of debt which replaced payday lenders, including Wonga: informal lending between families and friends. This vast and unregulated debt market is dangerous. Churches need to be aware of it, and the Church should respond.
INFORMAL lending between families and friends can be a lifeline. Anyone can find themselves one step away from a debt trap. Borrowing from friends and family can be the easiest — often the only — way to keep afloat.
Great wealth is held in equity and pensions, predominantly by older people, while many others, often young, exist on a precarious platform of insecure work, revolving credit, and (if they are able) heavy mortgages. Informal lending can be an effective way of tiding people over month-ends, helping with big purchases, or providing an emergency bailout. These are just the situations that payday lenders used to rely on.
But the scope for abuse and damage to relationships from informal lending is huge. It is very easy for people to find themselves in debt to someone who is less scrupulous than expected. It is very damaging when a friend or family member “takes you for a ride” and is unable to pay you what they owe. The shame of owning up to unmanageable debt is a significant barrier to seeking help. It is even harder when that debt is not to an anonymous institution, but to someone whom you know or love.
The Consumer Credit Trade Association calls informal lending a time bomb in the making. It points out that the benefits of increased regulation need to be balanced against the consequence of greater exclusion, and that informal arrangements that are fine to begin with have “potentially disastrous consequences . . . not just for the individual concerned, but also their families, their communities, and the economy as a whole”.
Research carried out by the Money and Mental Health Policy Institute suggests that people who are experiencing mental-health problems are one-and-a-half times more likely to borrow informally than people who are not experiencing poor mental health. And it is the vulnerable who are most at risk from abuse: landlords extracting favours in lieu of rent . . . that new friend who seemed so kind . . . the abusive family member using debt to control. The pressure can feel inescapable.
ROWAN WILLIAMS has described the New Testament’s economic model as “gifts that are freely given, to be given again”. Informal lending brings us up against the sharp edge of the gift economy. Giving freely should also mean giving responsibly, with the freedom that comes from knowledge: knowing what the risks are and protecting everyone involved from them.
The individuals whom Jesus healed were restored to a good life in their community on their own terms. Informal lending can do this, too. That means, in our day, clear expectations, straightforward agreements, and knowing what will happen if things go wrong. Access to, and understanding of, the online resources that can support good practice is crucial.
Churches must be as aware of financial abuse as they are of other forms of abuse. Good pastoral care includes talking about financial abuse. Informal lending is taking place in every community, for good or ill. Churches can break the barrier of silence. They can offer support and signpost resources.
Credit unions do not replace payday lenders, but they are a responsible way in which to borrow and save. Innovative products allow borrowing against benefits, and better technology has increased accessibility. Credit unions support good financial habits. Churches are a great place to promote them. Ethical credit brokerage, popularised by the Netflix hero Dave Fishwick’s “Bank of Dave”, is another alternative to unregulated credit. It needs to be developed.
Archbishop Welby has spoken forcefully, in response to the new Financial Services and Markets Bill (News, 13 January), about our banking culture; but informal lending is an unregulated danger, hidden from legislative control. It needs to be talked about. Perhaps, as a start, the Church Commissioners could commit £100 million in ethical-credit lines to helping to pull people out of risky informal borrowing. Who knows? It might even make them a profit.
The Revd Deiniol Heywood is Rector of Prestwood and Great Hampden, in the diocese of Oxford.
Resources on managing debt:
capuk.org;
citizensadvice.org.uk;
mentalhealthandmoneyadvice.org;
blog.moneysavingexpert.com
