Research Project

Circling the Loan Sharks: Predatory lending in the recession and the emerging role for local government
25 May, 2009

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200,000 people in Britain are at risk from illegal loan sharks because they cannot access credit from traditional lenders according to a new report published today (Mon).

A combination of the reduction in sub-prime lending, often known as “door-step lending”, and the economic downturn may lead to more people having to use illegal money lenders according to the independent think tank the New Local Government Network.

The report predicts that an additional 35,000 people are likely to have to use loan sharks during the recession but admit that the figure could be even higher. The think tank is urging local authorities to put additional resources into local credit unions and even to use new Council Banks to offer affordable credit to people who can’t access high-street loans.

NLGN warns that the legal sub-prime market has declined since the recession. It predicts that an additional 250,000 people will lose access to doorstep lending under the downturn. This period has also seen the number of loan refusals by the Government’s emergency Social Fund increase from 316,000 to 596,000. The report warns that customers who would have previously used these services may now have to turn to loan sharks.

It argues that local authorities need to step in to protect vulnerable people in their local community by offering a range of support including more Credit Unions, mapping predatory lending and enhancing enforcement against loan sharks.

Author of the report, Chris Leslie says that:

“There is evidence to suggest that the pernicious trend of illegal unsecured lending at extremely high rates of interest, or ‘loan sharking’, is making a comeback. The diminished availability of regulated sub-prime credit is creating conditions where a sizable number of people have little option but to borrow from illegal sources. At least 165,000 people already use loan sharks in the UK and we can expect the number to rise sharply.”

“Local government has historically been at the forefront of new service provision where community needs exist and have the advantage of proximity to their front line and prime local knowledge. Further intervention from local government is a crucial next step and we look forward to strong leadership from the sector at a time of great urgency.”

Loan sharks are unlicensed money lenders, who operate illegally and are not regulated by the financial industry. They are prepared to lend to the financially vulnerable but charge astronomical interest and the borrower is not protected by any form of contract or terms and conditions. Some credit unions have reported loan sharks charging interest of up to 2,500,000%.

Publication Date: 25 May 2009