The Archbishop of Canterbury has told Wonga the Church of England wants to "compete" it out of existence as part of plans to expand credit unions as an alternative to payday lenders.

Justin Welby said he had delivered the message to Errol Damelin, chief executive of Wonga, one of Britain's best-known payday lenders (see our see our Debt Problems guide to help get out of the mire and our Payday Loans guide for the alternatives).

Welby told Total Politics magazine: "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."

The Archbishop's remarks come after he launched a new credit union for clergy and church staff earlier this month.

Welby, who has served on the parliamentary Banking Standards Commission, has said he plans to expand the reach of credit unions as part of a long-term campaign to boost competition in the banking sector.

There are also plans to encourage church members with relevant skills to volunteer at credit unions. Small, local lenders could also be invited to use church buildings and other community locations with the help of church members.

The Government announced an investment of £38 million in credit unions in April to help them offer an alternative to payday lenders.

'Deep-rooted' problems

The entire payday lending industry, worth £2 billion, was referred for a full-blown investigation by the Competition Commission last month after the trading watchdog uncovered ''deep-rooted'' problems with the industry (see the Payday loans referred to Competition Commission MSE News story).

The Office of Fair Trading said it decided to make the referral because it continues to suspect that features of the market ''prevent, restrict or distort competition''.

In March, Wonga said it welcomed any attempt to encourage responsible lending and that it has been ''instrumental'' in helping to raise industry standards.

Wonga founder Damelin says: "On the competition point, we always welcome fresh approaches that give people a fuller set of alternatives to solve their financial challenges. I'm all for better consumer choice."