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Credit unions to compete with Payday Loan firms?

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What's Happening?

Short-term lenders and payday loan companies could have competition from new credit unions - backed by the clergy.

It’s recently been reported that the Church of England plans to force loan company Wonga out of business, with the Archbishop of Canterbury warning the online lender that he plans to compete with them directly.

The Most Rev Justin Welby told Wonga’s boss Errol Damelin that the church planned to do this by expanding credit unions as an alternative to payday lenders. The plan is to create "credit unions that are both engaged in their communities.”

Payday loans firms offer short-term arrangements and have been accused of leading people into more debt. But Mr Damelin has welcomed the competition, saying he was “all for better consumer choice.”

The archbishop, talking to Total Politics magazine, explained: "I've met the head of Wonga, and we had a very good conversation.

 "I said to him quite bluntly that 'we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence'."

Credit unions charge their members' low rates of interest to borrow money and earlier this year Archbishop Welby launched a new credit union aimed at assisting clergy and church staff who wished to borrow money.

In April, the government announced an investment of £38m in credit unions, to help them offer an alternative to same day payday loans.

There is some doubt as to how involved the Church of England would be in the actual lending process, with some experts suggesting they would simply help new lenders and allow them to work on its premises.