Kirk backs tax grab from loan firms to boost credit unions
Kate Devlin, Herald Scotland
The Kirk announced last year that it planned to join with the Church of England’s plans to challenge payday loans companies such as Wonga.
Archbishop of Canterbury Justin Welby said he wants to "compete" Wonga out of business.
A new report by the Institute for Public Policy Research (IPPR) says ministers should go further than their new planned cap on the total costs of credit.
Published today, the document calls for a £450 million levy on the UK’s £180 billion consumer credit industry.
The tax could create a new generation of not-for-profit affordable lenders across the UK with enough capital to compete with the established payday lenders, it says.
These local not-for-profit organisations and credit unions could be partnered with church parishes or hosted in Post Office branches.
Providing them with £450m of capital could help them support over one and a half million loans of up to £250 at any one time.
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 currently costs more than £30, and the report says the company’s representative APR is 5853%.
The "windfall tax" should not be paid by all firms equally, the report argues.
It recommends a "polluter pays" principle, with firms with the largest turnover, doing the most harm, paying the highest price.
The new network of affordable lenders would also 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.
They should also include as a last resort a reclaim mechanism through the benefits system to cut the risk of defaults.
The report also calls on payday lenders to provide a clear pounds-and-pence cost for any potential loan, make affordability checks mandatory, and enforce a 24-hour cooling-off period between a loan request and cash being paid.
Mat Lawrence, IPPR Research Fellow, said the recent economic good news would do little to cut payday lenders’ grip on the market.
He said: "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 and new ‘match saving’ incentives for people on low incomes to enable people to build up a stronger asset base of their own and reduce their reliance on 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."
The Rev Sally Foster-Fulton, Convener of the Church of Scotland’s Church and Society Council, said: "Anything that challenges the scourge of payday lenders and their outrageously high interest rates should be seriously considered. We would see this as complementary to our own work in supporting … credit unions and we would absolutely support capping the rate of interest."
A spokesman for the Kirk said there would be an announcement on supporting credit unions at its General Assembly next month.