Government goes fishing for Loan Sharks

Posted in 'Dealing with Debt' by Barry Stamp

05 March 2009

The Loan Shark Helpline has been launched by the government in an attempt to stem the increasing use of unlicensed lenders in the current recession, as consumers who fail to obtain credit from legal sources turn in desperation to the dark side of personal lending.

Victims of loan sharks are encouraged to ring the new confidential hotline on 0300 555 2222. Consumers can also text "loan shark" and a message to 60003, or learn more about the concerted efforts to catch loan sharks by the CAB’s, the Police and the OFT on a new website.

The task is a very difficult one and the initiative is to be fully applauded, though no-one should underestimate the power of loan sharks to intimidate their clients. The use of physical and psychological pressure to obtain repayments is all-too-often reported, alongside other less frequent, but nevertheless regular reports of sexual assault. Both understandably and unfortunately, many consumers who use loan sharks will be too afraid to use the new help line.

You can read about the successes of the pilot schemes that led to the launch of the Loan Shark Helpline here.

The best advice is always to avoid the use of loan sharks in the first place. This is much easier said than done for someone whose financial fortunes are in a desperate situation and who is faced on the doorstep by a persuasive and apparently ‘helpful and obliging’ loan shark.

There is much confusion about loan sharks. Some media reports have wrongfully reported the government initiative alongside stories containing the rates charged by doorstep lender Provident, or many of the Payday loan companies that we have recently imported from the US. Although the APR is usually exceptionally high for loans extended by Provident (around 189%), and by Payday loan companies (anything from 1000% to 10,000%), one should bear in mind that these lenders are licensed and actually do work within the law. Their APRs are high because the term is often very short indeed, and the APR calculation was never designed to be used for very short term loans. If the customers of Provident could access cheaper credit they probably would, and Payday loans have boomed in the US (and are beginning to boom in the UK) because consumers are more than happy to pay a fixed fee for a very fast, non-bureaucratic short term loan.

Indeed, while eye-poppingly expensive, both Provident and Payday loans are still preferable to using a loan shark.

If the traditional credit sources fail to help our free Find a Lender service will match your credit rating to likely credit card and loan sources.

If that fails, then the next step should be to try a local credit union (look them up in your phone directory), or to use a licensed pawnbroker if you have assets to pledge as security.

And don’t forget that the Social Fund is also there to help pay for many of the causes that drive people to loan sharks.