CSFI

CSFI
US experience
is not that
encouraging...
Policis offers the following warnings for the UK, based on US experience:
• The future of illegal lending is not the loan shark with a baseball bat of popular
imagination, but online and at scale.
• Demand does not go away when supply is restricted, it just goes elsewhere – to,
among others, unlicensed, unregulated lenders, potentially off-shore.
• Once the illegal lending market becomes established, it is very difficult to tackle.
• Illegal lenders tend to look just like licensed lenders, and unsophisticated
consumers
• find it hard to differentiate between them
• If regulators measure impact and realised consumer benefits in the authorised
sector alone, they may miss the larger detriment arising from illegal activity.
The CFA’s 2015 report, “Credit 2.0 – a commentary on borrowing and spending
in the 21st century”, raised similar concerns about the unintended consequences of
regulation. Its conclusion was that many customers will fail to check the legitimacy
of a lender’s licence and so will not know whom they are dealing with.
So, monitoring the activity of illegal lenders is a challenge – one that will largely fall
on the government, the regulators and the judicial sector.
Loan sharks of the traditional sort are still active in the UK. To tackle them, the
government’s National Trading Standards office has set up “illegal money lending
teams’”, hosted by Birmingham City Council and Cardiff Council. According to the
Birmingham team, around 300,000 households in England currently borrow from
illegal lenders. There is no typical borrower profile, but they are generally located
in low-income neighbourhoods, and have a high level of debt. Even though 95% are
said to have some sort of bank account, they have few alternative sources of credit
when money is needed for everyday expenses such as food and clothing or to pay off
existing arrears.
Hence, recourse to the unregulated sector. Loan sharks are generally known to
family and friends, and are regarded as part of the community. Notwithstanding that,
involvement with a loan shark can go well beyond financial extortion to physical
and mental distress – at its most acute, leading to suicide. Immigrant populations
are particularly vulnerable as many have yet to meet the requirements necessary to
interact with the formal credit sector.
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