Personal debt and payday loans companies have once again filled the pages of the papers this week. These are rapidly becoming two of the defining issues of this time of austerity that our country is going through. The latest report from the Centre for Social Justice think tank released last week entitled Maxed Out finds that poor people are bearing the brunt of a storm that has seen unsecured consumer debt almost triple in the last 20 years, reaching nearly £160 billion today. Average household debt is now £54,000 – nearly twice the level of a decade ago. Households in the poorest 10 per cent of the country have average debts more than four times their annual income. Average debt repayments within this group amount to nearly half their gross monthly income. More than 26,000 UK households have been accepted by councils as homeless in the last five years because of rent and mortgage arrears, with 5,036 becoming homeless last year.
As mainstream banks have reduced access to credit following the financial crash, the market for short-term high-cost credit (payday lenders, pawnbrokers, rent-to-buy and doorstop lenders) has grown dramatically and is now worth £4.8 billion a year.
Payday lenders have increased business from £900 million in 2008/09 to just over £2 billion (or around 8 million loans) in 2011/12. Around half of payday loan customers reported taking out the money because it was the only form of credit they could get. The number of people going to loan sharks is also
said to have increased – the most recent estimate puts it at 310,000 people.
The growing crisis of families and individuals struggling to make ends meet and the exploitative practices of payday lenders is a toxic combination that is ruining the lives of many. Debt is a great cancer of our time that has a hold over much of the population. From government debt that leads to increased taxes and cuts in state support to personal debt that spirals out of control, the detrimental consequences affect us all. Debt, if managed appropriately is not in itself a bad thing, but too rarely has our society’s reliance on it been questioned. One of the most galling aspects of personal debt is the way that the poorest are hit by proportionally much higher interest and charges and are unable to access the better rates that the more well off can enjoy. The almost universal support for the Archbishop of Canterbury’s criticism of payday lenders and their practices reveals an underlying public acknowledgement of this injustice.
There has been a similar reaction to George Osborne’s surprise announcement on Monday that a cap on the overall cost of credit, rather than just interest rates, will be introduced within the Banking Reform Bill currently making its way through parliament. In true political fashion there is some disagreement over what has caused this change in the government’s stance. Tuesday’s front page of the Independent declared that a potential rebellion in the House of Lords backed by the Archbishop of Canterbury had swayed the Chancellor of the Exchequer. Even if this is just rumour, the fact that the Church through the person of Justin Welby is seen to be influencing government policy in this area is something that would have been unimaginable just a couple of years ago.
What has become distinctly noticeable in recent times is that churches and Christian organisations are very much at the forefront of the debate when it comes to offering a different vision of how our economy and society should be structured. On Tuesday, the day after George Osborne’s announcement ,the Contextual Theology Centre published a book entitled ‘God and the Moneylanders: Faith and the battle against exploitative lending’. The book, which is free to read online, focuses on the impact of payday lenders on the lives of those who use them calling for a cap to the interest rates that payday lenders can charge. It also considers what a Biblical approach to lending and borrowing should look like, along with thoughts about how Christians could begin to offer a better alternative to the exploitative lending that is a blight on some communities.
The Contextual Theology Centre, which is based in London’s east end works to see more churches bringing hope and social transformation to our most challenging neighbourhoods. Since 2011 they have been working with churches, encouraging them to facilitate conversations within their local communities to understand the impact and experiences of payday lending on people’s lives. The feedback received does not put payday lenders in a good light. The rapid turnaround time which the lenders offer goes along with a disturbing lack of checks prior to the loan’s approval. One respondent gave this story:
‘I contacted [a short-term loan company], that’s the one I saw on TV and I phoned them up and they told me to do it over the internet. And within 10 minutes they gave me £1,100… Not much really, I lied! I said, they wanted to know my occupation, I said I was a property surveyor, they wanted to know how much I earned in a month, I said that I earned £3,300 a month. I told them completely the opposite of my situation, I said I had no dependents and they just accepted it.
‘Because it was quick and easy, they said on the thing you can get an instant decision, so I thought well I don’t have to go into a store and speak to somebody and perhaps if I go into the store they’ll scrutinise my information and realise actually I don’t have the money to pay it back. So I thought if I can try and get through the credit scoring system that way without going in, then I’m going to try it.’
Another fundamental flaw in the payday industry is the selling of multiple loans by different companies. This problem was well illustrated by the story of a young man in Nottingham which came to the attention of a church there. He grew up in care before getting his own place which quickly needed repairs. When he took out a £100 payday loan to pay for these he found he couldn’t meet the repayments, and so he simply took out another loan to pay off the first. In the end he found himself with nearly 30 loans and £7000 in debt.
When people find themselves in situations similar to this, as both Maxed Out and God and the Moneylenders report, the effects on their lives can be devastating triggering or exacerbating stress-related illnesses that can lead to depression, family breakdown and suicide.
God and the Money lenders goes to great lengths to consider what a suitable Christian response should be:
Christians cannot consider the issue of exploitative lending in isolation. A Christian response to exploitative lending must be integrated into a wider analysis of social injustice – the structural sin which deprives individuals of their dignity, their capacity to develop as God intends them to, and their ability to discern and promote a truly common good.
The growing gap many households face between income and outgoings and the reasons for it must also be addressed. ‘Money management’ and ‘ethical banking’ must complement – and not displace energy from – a wider discussion of how wealth is generated and shared in our society. Only then can our earthly cities reflect the true communion which lies at the heart of God. This is why consideration of a possible cap on the total cost of credit must go hand in hand with action to support the Living Wage and to ensure that the social security system gives individuals and families dignity and the means to grow and develop to their God-given potential.
To be a lender and borrower are good things. To be a lender and a borrower is to be situated within economic relations of inter-dependence, cooperation and mutual responsibility that reflect the God-given pattern of life set out in Scripture. To lend and borrow is to be drawn into real relationships that demand we have to negotiate a common life in which my flourishing is dependent on the flourishing of others. They are real relationships because, in a sinful world, they make explicit issues of power, risk and conflicts of interest that have to be addressed if we are to be real neighbours rather than a crowd of competitive individuals with no real connection or common life. Of course, and herein lies the irony we discovered in the recent economic crisis, the idea that we can be a crowd of competitive individuals is a utopian fantasy that does not connect with the reality of financial transactions where relations of interdependence and mutual responsibility are inherent in the action of borrowing and lending. If one part of the body suffers, or if only the interests of the few are attended to, eventually all suffer as the system collapses. Maintaining economic relations so they reflect the reality of inter-dependence and mutual responsibility requires limits to ensure that the vulnerabilities involved in being a lender or a borrower do not become occasions for exploitation, oppression and abuse. But it seems many of our politicians and business leaders are still keen on putting their faith in a fantasy rather than reality. The proposals for a cap on the cost of credit are an attempt to deal with the world as it is rather than a utopian one.
The questions confronting the church, past and present, is how to prevent unjust and extortionate interest rates, encourage responsible lending, and as Christians, point to a deeper reality and truer foundation for human life, one based on loving kindness and generosity not maximisation of profit and the private pursuit of selfish interests. It is to these questions that the proposals of Archbishop Justin Welby and his critique of Wonga address themselves. Whether one agrees with them or not the questions they are addressing are ones central to the very fabric of what Christians confess and how we are called on in Scripture to live out that confession.
The writers of God and the Moneylenders are well aware that identifying the problems and criticising them are not enough; solutions and responses are just as important. Some of the answers they offer are community organising and new social enterprise, which are defined and explained in the book. The expansion of credit unions is also strongly supported:
The task of supporting credit unions raises a strategic challenge about how to match the varied resources and capacities of local churches with
the multiple different needs of credit unions across the country in a way that doesn’t duplicate or waste energy and resources. The Contextual
Theology Centre has been inspired by the vision of the Archbishop of Canterbury [and others] to think about
how best to meet this challenge. Our proposal is to create a Church Credit Champions Network which will help churches to engage on the
issue of debt in their community and then train and support them to improve access to affordable credit in the most effective way in their context. This could involve churches working together to set up pop-up branches of their local credit union, providing skilled volunteers for board positions or persuading local businesses to set up payroll deduction savings schemes for their employees.
Our initial aim is to establish the Network in London in 2014, where it will focus on supporting a small number of key affordable credit providers with a track record of success and a shared vision of eradicating exploitative credit in their community. The plans for the Network go well beyond London, however, as it is designed to be a pilot project to inform the national Church’s response to payday lending. If the first year of the Network is successful there are plans for it to be extended for another year in London and to another city in order to fully test whether this type of project could be replicated nationally. We are working with the Church Urban Fund, who have a national network of Joint Ventures with Church of England Dioceses, to explore how such the Network could be rolled out more widely in a sustainable fashion.
The winds of change are starting to blow through our banking system and the days of exorbitant interest rates for payday loans would appear to be numbered. This is very much a good thing, but it only begins to address the disastrously high levels of personal debt that so many have to deal with on a daily basis. We can’t expect the Government to fix this singlehandedly. Instead, to tackle it in any meaningful way will require the type of politics we have not seen for a long time where groups such as the churches have an increasingly valuable and effective role to play. If our politicians have any sense, they would do well to embrace it with open arms.