LONDON (Reuters) - The head of the Church of England said on Friday he was embarrassed to find out that his organisation had invested indirectly in a short-term loan company which he had vowed only days earlier to drive out of business.
The discovery of the relatively small investment was a major setback for Archbishop of Canterbury Justin Welby, after he launched a scathing attack on “payday” lenders who charge high interest rates on short-term loans that are typically repaid when borrowers receive their wages.
But the former oil executive and a member of Britain’s Banking Standards Commission said he would push ahead with his campaign to compete with, and eventually render obsolete, a business he labels “morally wrong”.
Welby’s attack on companies like Wonga, which this month lifted the annual interest rate on its loans to 5,853 percent, has gained widespread support among Britons who say the lenders are preying on poorer families already mired in debt.
“It shouldn’t happen, it’s very embarrassing, but these things do happen and we have to find out why, and make sure it doesn’t happen again,” Welby, leader of the world’s 80 million Anglicans, told BBC radio when asked about the investment.
His comments came after the Financial Times reported that the Church’s pension fund, worth five billion pounds, invested in a firm that led Wonga’s 2009 fundraising.
The Church has since said that the amount it invested indirectly in Wonga was 75,000 pounds.
Welby nonetheless defended his stance on an industry that has flourished during a time of austerity in Britain, when government spending cuts and falling real-term wages have squeezed families’ ability to make ends meet.
“I’ve seen it, I’ve lived in these areas and worked in them. I’ve had staff who’ve got caught up in it and had to be helped, and had their lives destroyed by it. This is something that really matters to me,” he said.
The Office of Fair Trading estimates there were up to 8.2 million new payday loans issued in 2011/12, with the average amount around 270 pounds for a 30 day period.
At Friday’s rates, Wonga would require the borrower to pay back 358.15 pounds after 30 days on a 270 pounds loan, or nearly 33 percent interest, according to its website.
The London Mutual Credit Union, the kind of lender Welby says he wants to support, would charge 286.40 pounds on the same loan over a month, according to its website, although it is only open to people living in specified areas of the city.
The row over Wonga and its competitors has gone beyond the Church of England. In June, English soccer club Bolton dropped plans for a shirt sponsorship deal with short-term loan company QuickQuid after fierce protests from fans and politicians.
Charities have joined the chorus of criticism against the sector, which has more than doubled in size to over two billion pounds over the last five years. There are around 240 payday loan firms in the United Kingdom.
Britain’s business minister, Vince Cable, told Channel 5 News that the Archbishop had “hit the nail on the head”, with his opposition to the sector.
Katherine Trebeck, policy and advocacy manager for Oxfam’s UK poverty programme, said people who used payday loans were in danger of falling into a “downhill spiral” of debt.
“Welby will speak to audiences that others can’t, and people will listen to him who may not otherwise have thought about the problem of payday loans,” she said. “And he’s offering a fairly practical solution.”
The leader of the Anglican Church taking a moral stance on loan companies and their impact on the poor echoes Pope Francis’s attack on the rich and social inequality during a visit to the slums of Brazil this week.
Wonga, which recruited a senior adviser to Prime Minister David Cameron to lead its government affairs team last October, hit back on Friday, taking out a large advertisement in the Daily Telegraph newspaper entitled “Wonga’s Ten Commitments”.
They include showing customers the cost of a loan before they apply and running a credit check for every loan.
Editing by Mike Collett-White