Sunday, June 30, 2013

Loan Sharks and Pay Day Lenders

It is estimated that 165,000 households in Britain use illegal money lenders and that many thousands are in serious debt to them. The borrowers are people with a bad credit history or who cannot manage their finances or whose income is very low. The current recession is blamed for the squeeze on people’s incomes and state benefits are rarely enough to fill the gap. In extreme cases, parents resort to stealing food.

The poor are fertile territory for doorstep lenders. If you are desperate and the kids haven’t eaten for three days, a person coming to the door and offering a loan seems like the Messiah. In fact, they are a pack of wolves.

Demands for action against loan sharks led to the establishment of official Illegal Money Lending Teams which operate across the country. They claim to have secured 222 prosecutions, assisted 19,000 victims and secured prison sentences on perpetrators totalling 150 years.

Debra Wilson wanted to buy a computer for her daughter as a Christmas present. The cost was £350 so she borrowed £500 from a money lender, accepting that there would be “a bit of interest” added to the repayments. A few days later, the lender said he wanted £750 in return, payable the following month. Mrs Wilson could not meet the terms and took out further loans, increasing her debt. At one point she was paying more than £2,000 a month and over seven years the lender charged her a total of £88,000, sometimes accompanying demands with threats of physical violence.

In Newcastle Crown Court, Judge John Evans told Robert Reynolds, Mrs Wilson’s lender: “You are a loan shark, a person without a conscience. Your behaviour was beneath contempt. Reynolds admitted a charge of harassment with intent to commit violence and received a suspended prison sentence.

The supposed legal sector of pay day loans is little better. For Wonga and other "legal loan sharks" it is a £2bn business. One million families are being forced to take out payday loans every month as they struggle to meet the rising cost of living, new research reveals today. A poll for Which?, the consumer organisation, shows that nearly 400,000 of them use the high-cost loans to pay for essentials such as food and fuel, while 240,000 need the money to pay off existing credit. Half of the people who take out payday loans find they can't cover the cost of repayments – which can attract interest rates of more than 5,000% – which means they are forced to take out new credit and spiral further into debt.

The poll by Which? found that 4 per cent of people, equivalent to one million households in the UK, said they had taken out a payday loan in the last month. Some 38 per cent of people who do so use them to pay for food and fuel, while 24 per cent repay existing payday loans. A total of 79 per cent of people, about 38.5 million adults, use some form of credit, while 44 per cent are worried about their household level of debt.

Seven in ten of payday loan users regret taking out credit in the past, while 49 per cent found they couldn't meet the high cost of payments, and 28 per cent said that, while they don't like being in debt, they saw it as a necessary part of their life. While the repayments and interest on a month-long loan may be initially small, borrowers get into trouble when they cannot pay back on time, or have to roll over the credit. What starts off as a small amount can spiral into tens of thousands of pounds.

1 comment:

ajohnstone said...

Payday lenders are failing to live up to the spirit or the letter of codes to which they signed up last year and must do much more to protect vulnerable customers...Consumer Minister Jo Swinson said "Evidence of significant widespread problems in the payday market is concerning."