Devastating stories in a new report from the Centre for Social Justice show how easily illegal lenders ensnare ordinary people. It finds nowhere is safe from loan sharks and estimates at least a million people are borrowing from an illegal money lender – more than the population of Birmingham.
The consequences include extortionate repayment costs, manipulation, threats and violence, homelessness, breakdowns and the tragic loss of lives. The report expects the situation to worsen because of the developing cost of living crisis. It makes 24 recommendations to renew the fight against sharks, including measures to scale-up CDFIs.
We welcome this harrowing report. Illegal lenders ruin people’s lives. Credit is not the answer to poverty but is a fact of life and necessity for millions, and when people need to borrow they deserve better choices than a menacing shark tank.
It’s never been more urgent to scale-up and signpost to Community Development Finance Institutions (CDFIs), so more people have a better alternative when they need to borrow.
CDFIs’ customers mirror the victims of illegal moneylenders:
- 62% of loan shark customers have an income less than £20,000, whilst 63% of CDFI customers have an income less than £18,600
- 49% of loan shark customers are unemployed, 55% of CDFI customers are unemployed
- 75% of loan shark customers are claiming benefits, 71% of CDFI customers are claiming benefits
- 48% of loan shark customers live in social housing, 58% of CDFI customers live in social housing[1]
But their experiences are vastly different. CDFIs are non-profit lenders which exist to help people, not to exploit them. People who need a small-value, short-term loan, can afford to repay it, and can’t get it elsewhere because of a low or fluctuating income or poor credit score often find a CDFI can say yes. Thousands of CDFI customers say what a good experience it is to find a lender who wants to help them. Many wish they had known about CDFIs before they were fodder for a predatory lender.
Choice is key for consumers who need credit. With a significant reduction in legal lenders to the so called “sub-prime” customer base, the CDFI sector must grow. Otherwise the sharks and predators will keep preying.
And housing associations, councils and debt advisers who warn of the dangers of illegal lenders must highlight ethical alternatives: CDFIs and credit unions. If people don’t know about them, they won’t find them when they need their support. CDFIs offer multiple wraparound services which build financial resilience, including helping people access means-tested benefits they often don’t know they are entitled to[2].
We must starve the sharks. Scale up the Illegal Money Lending Team. Attract and secure more investment into the CDFI sector. Improve and extend the Community Investment Tax Relief scheme. We look forward to working with the Government and the CSJ to progress the report’s recommendations.
[1] Read more in our 2021 annual impact report: https://responsiblefinance.org.uk/policy-research/annual-industry-report-personal-2/
[2] For more information, listen to our CEO Theodora Hadjimichael speaking on BBC Radio 4’s Moneybox in March 2022: https://www.bbc.co.uk/sounds/play/m00159sk