How to reel in a loan shark
When my team and I talk to people to help them overcome their debt problems, part of the assessment is to identify all the lenders to whom they owe money, including family and friends.
Nothing unusual here, you may think, but digging a little deeper reveals an alarming trend where often, through embarrassment, some individuals will say their debt is to a relative or friend when in reality, they owe money to a loan shark.
According to a recent report, around 200,000 people in Britain are at risk from illegal loan sharks because they can’t access credit from traditional lenders.
In addition, over 100,000 people from the UK's poorest families borrowed a total of £29 million from loan sharks to get through last Christmas, which meant they started 2010 already crippled by debt.
It's estimated that these vulnerable families will pay back around three times the amount they borrowed. On average, they borrowed £288 with an interest rate of 800%, but for some this rate could be even higher and the average expected repayment period is one year.
With millions of consumers in the UK finding it difficult to meet monthly bills, it is inevitable that more will now fall foul of the loan shark.
What is a loan shark?
According to the English thesaurus a loan shark is a 'swindler', 'crook', 'double-dealer' or 'con artist'. I can't really argue with that, but what is clear is within the law a loan shark is an unlicensed moneylender.
A person or firm can only legally lend money if they are licensed and regulated by the Office of Fair Trading (OFT) and they also must follow the OFT's strict codes of practice.
The disadvantages of using a loan shark are:
- You pay a very high rate of interest.
- You get a loan on terms that suit the lender and not you.
- You may be put under pressure to borrow more to pay off another debt as this makes more money for the loan shark.
- You may be harassed or intimidated if you get behind with your repayments.
Since loan sharks are not licensed, they operate outside the law, which means they can’t rely on the law and courts to collect unpaid loans.
Identifying a loan shark
So how do you find out if a lender is licensed? The OFT has formed a Consumer Credit Public Register that lists everyone with an OFT licence and includes anyone that has previously applied for one or has had one taken away or suspended.
The register also details trading names and the activities for which a business is licensed - this information is free to access.
You access the 'Consumer Credit Public Register' here or you can call them on 020 7211 8608, between 9.30am and 4pm, Monday to Friday.
If you find a lender isn't listed as having a current licence to lend, then don't borrow money from them.
If you’re stuck, need to borrow money and have been unsuccessful with a bank then consider joining a credit union.
The government recently relaxed the rules on credit unions to make it easier for them to operate. Credit unions help you to save a little each month and in return they eventually make an advance to you, but with a very fair interest rate.
For example, if you had a £200 loan, often the interest will only be around 1%, which in this case will make the interest payable at £2 per month. Your nearest credit union can be found here.
If you are worried you may have borrowed from a loan shark, your first step is to search the Consumer Credit Public Register. If you draw a blank, think about contacting your local Trading Standards Office as they have staff trained to help you deal with loan sharks.
Visit tradingstandards.gov.uk to find your nearest Trading Standards Officer by entering your postcode.
A common question I get asked is ‘Do I legally have to repay the debt to a loan shark?’ The simple answer is no. You are under no legal obligation to repay the debt. If the lender is not licensed by the OFT then they have no legal right to recover the money.
Because of this, a tactic often used by loan sharks is to intimidate and harass you for payment, but it is an offence for any lender, whether licensed or unlicensed, to harass you.
If this happens, keep a note of the harassment - the date and time it took place - and try to get a witness. You should report any harassment to your local Trading Standards Office and any threats or use of violence should be reported to the Police.
Word of warning
Always go to a licensed lender as this gives you protection under the Consumer Credit Act. Bear in mind, however, that although the lender is licensed, this doesn’t mean they will offer the best interest rate.
The licence covers practices and codes of conduct and is not given to a lender because they are competitive, so always do your research and seek the best deal from three or four lenders.
The last government set up Illegal Money Lending Teams mainly consisting of former police officers, to tackle loan sharks.
If you need help or know of someone that is caught up with a loan shark then contact the support team by calling 0300 555 2222, texting ‘loan shark’ and your message to 60003, or emailing email@example.com.