What is a Loan Shark?

The challenging economic environment of surging food and fuel prices, energy bills and a National Insurance increase is creating a cost-of-living crisis that may be driving many more desperate people into the grasp of illegal money lenders. These are often people who can’t get standard loans or credit to keep up with the demands of higher and higher prices.

The financial effects of the COVID pandemic saw a surge in people needing support from food banks, with 2.5 million people using a food bank in 2020/21 in the UK. It is also thought that there was a marked increase in the number of people who needed to take loans from loan sharks during this difficult time. However, as many cases go unreported, accurate figures for illegal money lending by loan sharks are not available.

According to new research released by the Centre for Social Justice (CSJ), more than one million people are currently borrowing money from illegal loan sharks, although this figure may be far lower than the actual number, and this number may well be rising.

Their research found that the victims of loan sharks in 2021 fall into the following social and economic categories:

• Claiming benefits 75%.
• Owe money to a legal creditor 66%.
• Long-term health condition 65%.
• Income below £20,000 62%.
• Unemployed 49%.
• Live in social housing 48%.

And that:

• 80% of victims who attempted to borrow from legal sources first are refused.
• 44% of victims who try to borrow have tried a bank.
• 27% of victims who try to borrow have tried a high-cost, short-term credit provider.

Stop Loan Sharks investigates and prosecutes illegal money lenders and provides support for borrowers in the UK. According to their 2019 Summary Report, 69% of their clients owed money to legal creditors as well as to the loan shark. The average amount owed was £12,749.26, a rise of more than £5,000 on 2018.

They asked the victims of loan sharks they have supported during 2019 about the amounts they initially borrowed and have paid back so far:

• 71% had borrowed from the loan shark more than once.
• The lowest amount borrowed was £60 for new baby expenses and the highest was £125,000 over four loans to help with business costs.
• One borrower received £300 from the loan shark during the last two years. After repaying £15,000 so far, the lender is demanding a further £170.
• One person who borrowed £75 paid back over £13,000 during the last eighteen months and still has an outstanding balance of £600.
• Median total amount borrowed is £3,500, median total amount repaid is £11,050.

53% of those who Stop Loan Sharks have supported are in full- or part-time employment; an increase of 9% in a year; 62% of victims were claiming some form of benefits; and 23% of respondents claiming benefits were on Universal Credit. The main reason given for borrowing from loan sharks is everyday living expenses, just getting by until the next payday or benefits payment day.

What is a loan shark?

Most firms that offer goods or services on credit, lend money to consumers, or provide debt plans and advice, are offering “consumer credit” products and services and these firms must be licensed to do so. Someone who engages in unlicensed lending is typically known as a loan shark.

It is a criminal offence to lend money for profit without a consumer credit licence, although it is not illegal to borrow from such a company or person.

Some of the guises that loan sharks operate under include:

• Credit brokers.
• Payday loan companies (including home collected credit).
• Pawnbrokers.
• Businesses offering hire-purchase agreements.
• Logbook lenders (lenders who offer loans secured against your vehicle).
• Peer-to-peer lenders.
• Debt management and collection firms.
• Rent to own.
• Guarantor lenders.
• Consumer hire.

There are authorised lenders operating in all the above categories; loan sharks are unauthorised and therefore criminals.

Illegal lending exists in many forms, from small-scale lenders who pester their victims into repayment to violent predators and organised crime groups. Some lenders even attempt to add a thin veil of legitimacy to their illegal lending by advertising themselves as a company, drawing up fake contracts, and independently lending to vulnerable clients while working for a separate, legitimate company. Yet the practices used by illegal lenders are changing.

New evidence presented in the CSJ report shows illegal lenders to be increasingly operating online, using the rapidly evolving social media landscape to entice and exploit new victims. In a small number of cases, loan sharks are found to be linked to organised crime groups. These ranged from a small group of accomplices to wider groups.

How to know if a lender is authorised

In the UK, nearly all financial service activities must be authorised by the Financial Conduct Authority (FCA). If someone is lending you money, they must be registered with the FCA, so you should always check the register before entering into any financial arrangements. Firms that the FCA have been told are providing regulated products or services without the correct authorisation, or who are deliberately running scams, are now included in the Register with prominent warnings.

Many scammers including loan sharks pretend to be a legitimate firm. Use the contact details on the FCA register to confirm you are dealing with the genuine firm before doing business with them. If you deal with a firm or individual that is not regulated by the FCA, you may not be covered by the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).

You can search the Register for a firm using the:

• Firm name.
• Postcode.
• Firm reference number.

This will help you find out:

• Whether a firm has FCA authorisation to offer consumer credit.
• The type of activities covered by the authorisation.
• The contact details, trading names and main business of a consumer credit firm.

Why are loans sharks bad?

Loan sharks will often charge incredibly high interest rates and may use threats and violence, especially if you can’t make a payment. Even if you only borrow a small sum of money to start with, a loan shark could trap you, so you end up owing thousands of pounds, as we have seen from the Stop Loan Sharks Summary Report highlighted above.

Some loan sharks may also be involved in other criminal activities and there have been cases of borrowers being forced into even more serious and dangerous situations, such as drug dealing, human trafficking, or even becoming a victim of cuckooing, where the criminal takes over the victim’s home as a way of repaying their loan.

Getting trapped in a never-ending spiral of debt after borrowing from a loan shark, can have long-term consequences, not only on your finances but also on most other aspects of your life, including your mental health, work and relationships with your family and friends.

Even if you are on a low income or have a poor credit rating, there are safer and far less expensive ways to access money or to cover your expenses, such as using Credit Unions, which can help you save money as well as offer manageable credit products.

There is likely to be a credit union in your local area, and they will consider credit applications from people with poor credit ratings. The Bank of England has compiled a list of UK authorised credit unions.

Credit unions have three main aims:

• To provide loans at low interest rates.
• To encourage all members to save regularly.
• To help members in need of financial advice and help.

How to spot and avoid loan sharks

Loan sharks often lend money alongside other legal or illegal businesses and the methods they use to lend and collect money can vary a lot.

Signs that may alert you to the fact that a lender is unauthorised (a loan shark) or that you may not be getting a fair deal with a financial loan or credit facility can include:

• Some consumer credit firms require customers to pay a fee before being offered a loan or credit. Make sure that you understand what you are paying an upfront fee for. Also, factor this fee into the overall cost of credit when comparing which credit product is right for you. Be clear about the likely costs, and always check the terms and conditions before going ahead. Paying an upfront fee for a loan may be a scam, especially if you have been contacted out of the blue, or the firm is not regulated by the FCA. The lender may claim that the fee is refundable and will be used as a deposit, administrative fee, insurance or because of bad credit history.
• Once the first upfront payment has been made, the lender might contact you again to ask for more payments before they can give you the loan, and even though you make the payments, you may never receive the loan.
• The lender is offering you little or no paperwork on a loan, such as a credit agreement or record of payments.
• The loan that you have been offered is a cash loan.
• The lender refuses to give you borrowers’ information, such as the interest rate or how much you owe.
• The lender takes items as security for the loan, such as passports, bank cards and driving licences.
• You may have made several loan applications online and then been contacted out of the blue by text, email or phone and offered a loan.
• You are asked by the lender to transfer money via an unusual method – be cautious if the lender also asks for your bank details.
• The lender keeps adding more interest or charges so the debt never goes down. Loan sharks are illegal lenders and therefore do not subject themselves to any meaningful regulation around Annual Percentage Rate and affordable lending. Annual Percentage Rate (APR) is the interest charged for borrowing that represents the actual yearly cost of the loan expressed as a percentage.
• The lender adds additional payments to the loan for late repayments or arbitrarily adds costs.
• You are being harassed or threatened if you fall behind on payments or are coming under pressure to borrow even more money to repay your original loan. Doing this gives the loan shark more power over you, and makes you more vulnerable to intimidation and violence.

According to Stop Loan Sharks, 64% of victims believed the loan shark was their friend at the point of borrowing; most lenders will make borrowers believe that they are doing them a favour. 61% of victims supported during 2019 were told about the lender by friends or family members whilst 10% met the lender at either their own or the lender’s workplace.

Buy now pay later, payday loans and doorstep loans can be convenient, if you need money fast. These types of loans may in some cases be offered by legal, registered lenders, whilst others may be being offered by loan sharks.

Legal or illegal, they are an expensive way of borrowing and can leave you worse off financially. You should make sure you can afford to repay the full amount, including the interest which may be at an extortionate rate. You also need to think about what might happen if you fall behind with payments.

Signs someone you know may be involved with a loan shark might include:

• They have debts that keep growing even though they are making regular payments.
• They are handing over all their benefits and money to someone who they owe money to.
• They say that bad things will happen to them if they don’t pay their loan on time.
• They are feeling afraid or anxious about visitors to their home.
• They stop seeing friends and family and appear to be emotionally withdrawing from others.
• They are or have handed over personal items such as bank cards, passport or jewellery to someone who they owe money to.
• They are receiving threatening text messages or phone calls about money being owed.
• They are being forced into having sex or committing crimes to pay off their debts.
• They are anxious, depressed, withdrawn and experiencing suicidal thoughts.
• They show signs of physical violence, such as bruises, sprains or cuts.
• They don’t want to leave their home and leave the curtains drawn to avoid being noticed.

If you are worried about someone, you can speak in confidence to the Illegal Money Lending Hotline on 0300 555 2222.

The law around loan sharks

It is a criminal offence to lend money without authorisation and it can lead to a two-year prison sentence and/or £5,000 fine. The regulatory jurisdiction for the FCA register comes under the Financial Services and Markets Act 2000 (FSMA), Payment Services Regulations 2009, Electronic Money Regulations 2011 and Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Loan sharks can’t pursue you through the courts for the money you owe them, because the way they have lent you money is illegal. However, a loan shark might harass or intimidate you if you don’t pay them back.

Don’t stop paying a loan shark if you are worried about your safety. Get advice from a specialist such as those detailed below, before you make a decision to stop payments. Intimidation or harassment is a personalised form of anti-social behaviour, specifically aimed at particular individuals. Intimidation or harassment may constitute a criminal offence under the Protection from Harassment Act 1997 and a restraining order may be made in addition to the conviction, or an injunction obtained.

What to do if you have borrowed money from a loan shark

If you have borrowed money from someone who isn’t an authorised lender, a loan shark, remember that you have not broken the law. The person lending you the money might have broken the law. If you think a money lender is operating without being FCA authorised you can speak in confidence to the Illegal Money Lending Hotline on 0300 555 2222.

The Illegal Money Lending Team (IMLT) is a national team that investigates and prosecutes loan sharks and works closely with the Financial Conduct Authority (FCA), local Trading Standards and police forces to crack down on illegal money lending. They have secured hundreds of prosecutions for illegal money lending and related activity, written off millions of pounds of illegal debt and helped thousands of people.

• For England – Contact the Illegal Money Lending Team, Report a loan shark online reportaloanshark@stoploansharks.gov.uk Telephone: 0300 555 2222 a 24-hour service. Text a report to 07860 022 116.
• For Northern Ireland – Contact Trading Standards Consumer line www.consumerline.org Telephone: 0300 123 6262.
• For Scotland – Contact Trading Standards Scotland Report a loan shark online Telephone: 0800 074 0878 24-hour service.
• For Wales – Contact Wales Illegal Money Lending Unit imlu@cardiff.gov.uk Telephone: 0300 123 3311 24-hour service. Text a report to 07772 608 931.

You can also contact:

• FCA consumer.queries@fca.org.uk Telephone: 0800 111 6768 Monday to Friday, 8am to 6pm, Saturday, 9am to 1pm.
• The Money Advice Service – a free, independent service.
• Crimestoppers 24/7 helpline 0300 555 2222.