What you can do to stop loan sharks
A member of the England Illegal Money Lending Team joined us at our Bristol spring event in April to talk to us about loan sharks and what Big Local areas can do to stop them.
Residents of Big Local areas can often be the target of predatory lending. This is the loaning of money at very high interest rates to people who cannot afford to pay it back on time. When this happens, extra charges are added to the loan, making it even more expensive and causing people to quickly fall more deeply into debt.
Lenders must be approved and regulated by the Financial Conduct Authority, known as the FCA. A loan shark lends money without being approved and regulated in this way, so a loan shark is someone who lends money without being licensed - they are totally unregulated.
It is important to know the difference between illegal loan sharks and the legal lenders, not least because the ways of dealing with them are different.
The reality is that various rules and regulations around lending are making it harder for certain groups of people to get loans from legal lenders. This can be for a number of reasons, for example a poor credit rating or not passing a credit organisation’s affordability check. New rules were introduced in January 2015 where legal lenders must look into a customer’s circumstances. Because of this, administration and setting up loans has become more complex. As a result of this, some legal lenders, particularly payday loan companies, have decided to leave the loans market. As a consequence of this, loan sharks may come to fill the gap.
Loan sharks tend to prey upon and exploit vulnerable people. People become vulnerable to illegal lending when they have a history of failed credit agreements - for example catalogue debts - especially when they then avoid talking with the people they owe money to. Residents who spend all of their income with nothing left over are especially at risk. Those with poor skills around money and budgeting and who may fall easily into spending temptation are also vulnerable. In such cases, people often get caught out by unforeseen spending, get increasingly desperate for money just to pay for the necessities of life, run out of options around borrowing from family members and close friends and then end up falling victim to loan sharks. Often, the victims of loan sharks include young people lacking in financial skills, notably young single parents without enough family support.
Loan sharks do not advertise - they find people to lend to by word of mouth. They are often involved in other criminal activities in addition to their illegal lending. Typical loan shark behaviour includes not giving written credit agreements, simply saying things like “you owe me this much today”, not giving receipts or payment books, threats, intimidation and violence if payments are missed, lending money to young people under the age of 18 and illegally taking personal items for security. Repayments to loan sharks are usually at least twice the amount of money borrowed to begin with and sometimes much more than this, with high charges being added for failing to make repayments.
While they might appear to be friendly and helpful to begin with, loan sharks often turn to threats and violence if people fail to pay back money on time or try to avoid them. This includes threats to relatives as well as the person who took out the loan. When this happens, people have been known to be forced by the loan shark into illegal activities - such as prostitution and cannabis growing - to raise money to pay back the loan and interest. Tragically, some people resort to suicide as a result of the pressure from loan sharks when they can’t pay.
Although this picture is very worrying, there is also some positive news. To begin with, it is not illegal to take a loan from a loan shark - but it is illegal to offer one. Loans by loan sharks are financial crimes under the Financial Services and Markets Act. They are not enforced directly by the police, but are handled instead by the Trading Standards England Illegal Money Lending Team.
Three illegal money lending teams cover England, Scotland and Wales and can help combat loan sharks and their activities. There are two main ways to report a loan shark - anonymously or by a witness statement. Reporting through a witness statement is the best and strongest way. The teams can provide help in various ways. If you think you have borrowed from a loan shark and want help or advice please contact the Illegal Money Lending Team on 0300 555 2222.
Local Trust is keen to support Big Local areas that want to help combat loan sharks locally. Already, some Big Local areas are starting to address the issues of loan sharks and better money management and are working with various partners - including the Illegal Money Lending teams, credit unions and housing providers - to make things better for residents and their communities. For example in the West Country, work is going on with the Bristol Credit Union to set up savings schemes for residents. This is being paid for by money taken from convicted loan sharks under the proceeds of crime act!
Big Local also has the support of a team of social investment reps who help connect Big Local areas with the England Illegal Money Lending team who can provide information and advice and various resources for areas. For example, the Illegal Money Lending team can supply lesson plans and resources for primary and secondary schools, write articles for newsletters and provide training for staff and residents. The team can also take part in events, supplying information leaflets and even a loan shark costume! All of their services are free of charge.
To find out more about loan sharks and ways to combat them, please speak with your Big Local rep who will be pleased to help.