CentreForum Liberal Hero of the Week #43: Justin Welby, Archbishop of Canterbury. (Our Villain is David Cameron.)
by Stephen Tall on July 26, 2013
Archbishop of Canterbury
Reason: for wanting to inject more competition into the short-term lender market
Short-term lenders, often known as payday loans companies — and exemplified by Wonga — have [understatement] a bad reputation [/understatement]. It’s not surprising. Their business is built on making money by offering a service to those on low-incomes who represent too high a risk for credit card companies and banks. Put bluntly, they profit from the poor. “Can’t believe no one ever wrote a folk song about that,” as The West Wing’s Josh Lyman might’ve said.
But here’s the thing. They fulfil a clear demand for consumers to be able to access immediate money. If they did not exist many more folk on the breadline would end up in the hands of entirely unregulated loan-sharks. Moreover, Wonga does so in a way which is smart and transparent — here’s the BBC’s Robert Peston explaining their model:
Wonga has written algorithms, computer programs, which determine whether you deserve to be given a loan in seconds, from looking at details about you and your behaviour, such as what email service provider you use and whether you have bothered to look at the company’s terms and conditions.
The proof of the robustness of this automated credit assessment is that it rejects 60% of applicants and has a default rate on its wholly unsecured personal loans of just 7.5% – which seems remarkably low, since Wonga is by definition lending to those who have exhausted their ability to get money from conventional sources.
Nor is it possible to say that what it charges for its per-day is hard to understand.
The interest rate is 1% a day, with a £5.50 transmission charge, for loans of up to £1000. Its typical loan is £200 for 15 days.
And if you go to its home page or mobile app (and in a way I would hope you haven’t found the need to do that), it is staggeringly easy to see within seconds how much it will cost you to borrow what you want for the time period that suits you.
If only bank charges were so transparent.
There is another criticism, also mis-placed: that its APR of 5853% is immoral. Yes, it probably would be. But as Sam Bowman of the Adam Smith Institute points out here that’s a bogus figure because you cannot take out a Wonga loan for a year. The maximum possible loan period with Wonga is 106 days, and the typical loan is £200 for 15 days.
No Wonga borrower can end up with a 5853% interest rate – the existence of this number is just an quirk of our financial regulations which require all lenders to express their rates in annualized terms. Journalists and politicians who report this 5853% APR figure as the ‘standard’ Wonga rate are mistaken and are misleading the public.
You can wish away the fact that some of the poorest people in society will sometimes want and need some cash to tide them over if you like. More practically you can recognise the demand exists and work out what to do about it.
And that’s exactly what the Archbishop of Canterbury, Justin Welby, has done:
The Most Rev Justin Welby has told Errol Damelin, the founder and chief executive of Wonga, about his ambition to make the controversial lenders redundant – by helping the 500 financial co-operatives, which already provide small loans to their members, play a much bigger role in helping people with money problems. … The Archbishop, a former oil industry executive and a member of the Parliamentary Commission on Banking Standards, has pointed out that the Church has 16,000 branches in 9,000 communities – more than the banks. In an interview with Total Politics magazine, he said: “I’ve met the head of Wonga and we had a very good conversation and I said to him quite bluntly ‘we’re not in the business of trying to legislate you out of existence, we’re trying to compete you out of existence.’ He’s a businessman, he took that well.”
Competition works. The problem if you don’t have much money is that not so many companies want you as a customer. The Archbishop’s pitch to introduce greater competition into the short-term lending market is, therefore, a welcome move, one which will hopefully offer more choice to individuals who currently don’t have many options.
Reason: for proposing automatic filters to restrict access to internet porn
I’m sure David Cameron means well. I’m sure he believes it’s possible for a magic technological gadget to intuit which websites should be judged (‘scuse the technical term) a bit porny. I’m sure he believes it’s right that everyone’s access to all websites deemed (by someone) to be a bit porny should be automatically turned off until they phone up their internet company to tell them otherwise. I’m sure he believes it’s possible for Google and Bing to second guess which abusive search-terms are being typed in by paedophiles looking for kicks and which by their victims looking for help. I’m sure he believes there’s nothing insidious with giving the state the power to decide which websites and search-terms should be censored unless and until the citizen says otherwise. I’m sure he believes all these things: and that’s exactly why the Prime Minister is this month’s Liberal Villain.
* The ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention. If they confound liberalism they may be named Villains. You can view our complete list of heroes and villains here. Nominations are welcome via email or Twitter.