News has hit the headlines that Wonga made the equivalent of £1m-per-week in profit last year. In our latest issue of Which? Money we looked at whether payday loan providers can be competed out of business.
There’s plenty of evidence that the payday loans industry does not serve people in need of cash well. So it’s commendable that the Church of England is throwing its weight behind credit unions – a type of community bank – as a possible alternative.
Now daytime television, the internet and even football teams are awash with payday loan adverts – whereas most people would probably struggle to tell you what a credit union is, let alone identify one near to them. More fundamentally, though, the services they both offer are totally different.
Payday lenders versus credit unions
Payday lenders are appealing because of how easy and convenient they are – a click of a button and you can have instant cash. The process to borrow through a credit union is much slower – many are very small operations with only one or two offices, irregular opening hours and volunteer staff.
This is not to be critical; it would be great if more people used credit unions. What they often do really well is serve a person’s wider circumstances, rather than just handing them a loan and sending them on their way.
The reality is, however, that many people want or need access to cash as quickly as possible – no matter what the interest rate. And while payday lenders are only too happy to oblige, it seems unlikely consumers will go elsewhere. Perhaps opening up the Church’s doors to those in need of cash and a sympathetic ear to their struggles will shift people’s attitudes to borrowing. But it will take a long time before the payday loan problem washes out of the UK.