Illegal Money Lending In The UK
The Financial Conduct Authority (FCA) published a document last month entitled “Shining a light on illegal money lending: consumer experiences of unauthorised lending in the UK”. You can read it in full on the FCA website but we thought you may find it of interest if we highlighted some of the findings.
To help produce the report the FCA spoke with a number of contacts including some of those in the community who have direct contact with some of those consumers who end up borrowing money from illegal money lenders. In doing so, the FCA has been able to learn more about what unauthorized lenders look like, how they run their illegal money lending businesses and what causes people to feel it necessary to borrow money from such lenders.
People usually end up turning to illegal money lenders as a last resort when they are in desperate need of laying their hands on some cash. Whilst it is typically people living in deprived areas of the UK who seek out such lenders there are still people coming from reasonable financial backgrounds who are working who also borrow from such sources. Many people in severe financial difficulty prefer not to approach the major high street banks to borrow money perhaps because he or she feels that the process is too complex or have been turned down in the past. Illegal money lenders often operate within closely knit communities relying on word of mouth for their business introductions.
Some people may have been brought up in a community where the norm was to borrow money from an illegal money lender. One adviser taking part in the report made reference to the fact that on a particular housing estate a number of loan sharks were giving out their cards to pupils as they were leaving school suggesting that their parents could contact them if they wanted to borrow money perhaps to get some new training shoes for their child.
SMEs have also resorted to borrowing money for their business from loan sharks such as a taxi driver who needed to have some repair work carried out on his vehicle.
Although some loan sharks lent out money at rates that were comparable or even lower than those offered by authorised sub-prime lenders there were some borrowers paying extortionate amounts back. For instance, on a loan of £250, the average amount that would be charged in interest amounted to £167.
Apparently, the Financial Conduct Authority will continue to liaise with its consumer network to assist it when making any decisions from a regulatory perspective. As we said earlier, do visit the FCA website and read the document in full.