A Way to Starve the Sharks

By Baird, Rachel | New Statesman (1996), March 26, 2001 | Go to article overview

A Way to Starve the Sharks


Baird, Rachel, New Statesman (1996)


The law cannot keep up with illegal lenders but the market may yet drive them out of business.

Not all moneylenders are loan sharks. At the far end of the spectrum of legitimate financial institutions, increasing numbers of companies are offering an expanding range of very expensive credit services. True loan sharks are a different, and much more dangerous breed.

Loan sharks beat up people who don't keep up with repayments. They terrify borrowers into silence and compliance. They often use the proceeds of crimes such as drug dealing and selling counterfeit products to finance their activities. And they lack the licences, issued by the Office of Fair Trading, that the law requires all moneylenders to have.

Hidden in the criminal underworld, loan sharks also get away with charging annual percentage rates (APRs) in the thousands and even millions, according to trading standards officers. The secrecy of the loan-shark business makes it impossible to gauge its extent, but it is a nationwide phenomenon and is particularly rife where people's incomes are very low and unemployment is high.

Focus-group research by Bristol University's Personal Finance Research Centre (PFRC), among people receiving benefits or a government budgeting loan, found a consensus that "most" had used a loan shark at some point.

However, this applies only to deprived communities. In the words of one trading standards officer, who wishes to remain anonymous: "Loan sharks' clients are people who are very, very vulnerable, who are then easy prey for them. People who are surviving on benefits, single-parent families and the elderly."

For obvious reasons, these lenders don't advertise. Local people desperate enough to use their services know where to find them, or know someone who does. Illegal lenders also avoid giving their victims any written evidence of their operations. Robin Croft, the Liverpool trading standards manager, says: "There is very little paperwork involved. Interest rates and the length of the repayment period are often not discussed."

People typically borrow less than [pound]100, for costs such as Christmas presents and unusually large fuel bills. Croft says: "Records of repayments are not given to the borrowers and when top-up loans are involved, the borrower often has no accurate record of what has been paid and what is still owed."

Why do people turn to sharks? Because they need money quickly and feel they have absolutely no alternative. The PFRC found that illegal lenders are the least favoured of 11 possible sources of credit, including pawnbrokers, government loans and friends and family. But for those who are desperate, they may be the only one. This helps explain why investigators find it so hard to get evidence against loan sharks. Borrowers do not want to lose their only source of credit. But the threat of violent retribution also keeps people quiet. Glasgow City Council now has a telephone hotline on which people can leave information without revealing their names.

It is common for loan sharks to take benefit books as security against the risk of non-payment. They hand back the books, temporarily, so people can claim their money. But then, according to the PFRC's findings, they take as much as three-quarters of the cash in repayments.

The Office of Fair Trading is aware of only eight successful prosecutions against unlicensed traders in 1999 (not necessarily all loan sharks: other businesses, including debt collectors, are also supposed to have consumer credit licences), and 11 in 1998. As trading standards officers are not obliged to notify the OFT about loan-shark prosecutions, these figures probably under-represent the total numbers of cases. But they are depressingly low.

The anonymous trading standards officer is not confident of winning the war. "The illegal lenders have become more aware of being investigated. They're tightening up their practices as a result, for example using mobile phones to warn each other when law enforcers are watching them handle benefit books at social security offices. …

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