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Church credit union takes on payday lenders
From the Financial Times of Tue, 16 Dec 2014 19:39:08 GMT
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Justin Welby was 'embarrassed' by church link to Wonga

The Church of England has been given the green light to launch a credit union that it hopes will raise the profile of an alternative option to payday lending.

The Churches’ Mutual Credit Union plans initially to offer savings accounts and loans from February next year, after receiving formal authorisation from regulators on Tuesday.

Canon Antony MacRow-Wood, the union’s president, said one of the aims is to raise awareness so more people will be inclined to use their local credit union rather than turn to more expensive forms of borrowing.

He said it will “help the credit union sector grow” so that in 10 years’ time “there will not be a need for the payday lending sector”.

The union has been initially formed for members of the Church of England, the Methodist Church of Great Britain, the Church of Scotland, the Scottish Episcopal Church and the Church in Wales.

It is estimated that at least 60,000 individuals plus churches and certain charities will be eligible to join.

But once it gains scale and has built an established record, it plans to open access to all churchgoers.

“CMCU will help many, even in its first year of operation and, in due course, it should become a significant financial resource to the church and individuals throughout England, Wales and Scotland,” Canon MacRow-Wood said.

The union will enable a “virtuous recycling of money” within the church community through a combined portfolio of savings and loan products, he said.

Payday lenders under pressure

The launch comes as payday lenders face pressure ahead of rules imposing a cap on the cost of credit from the start of next year.

Wonga, the UK’s largest payday lender, unveiled its new cap-compliant loans on Tuesday in line with the Financial Conduct Authority’s requirements, limiting the amount of interest it can charge to 0.8 per cent a day, down from 1 per cent.

Fees for missed payments are also capped at £15, while the lender said no customer would owe more in fees and interest than the amount originally borrowed.

The Church of England suffered embarrassment last year when the Financial Times revealed that it had invested indirectly in Wonga within one of its underlying funds, despite its criticism of the payday lender.

The church admitted that money held by its venture capital portfolio included an investment in Accel Partners, one of Wonga’s financial backers. Justin Welby, archbishop of Canterbury, said at the time that he was “embarrassed” and “irritated” by the discovery.

The new Churches’ Mutual Credit Union aims to offer a range of loan products — including a car loan scheme — that will help fund the dividend paid on savings products, such as Isas, instant access and regular monthly savings accounts.

As part of its range, the union will provide a loan product with annualised rates of 6-7 per cent. Smaller loans will incur higher fees, with £100 costing about 2.5 per cent a month.

Mr MacRow-Wood said the union will aim to be “competitive” with existing products in the market.

Deposits will be covered by the Financial Services Compensation Scheme, up to the value of £85,000.

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