28 June 2023: Over 3 million people in Great Britain may have borrowed from an illegal moneylender in the last three years according to new research by IPSOS for Fair4All Finance.
Results from a new online survey amongst a representative quota sample of GB adults aged 18-75 found 7% said that to the best of their knowledge, they or someone in their household has borrowed from an unlicensed or unauthorised informal money lender who charges interest (sometimes known as a loan shark).
The prevalence of unregulated lenders is further explored in a separate lived experience report published today which highlights the relative ease that people can access £1,000s from illegal moneylenders in towns and cities around the UK.
The report from Fair4All Finance and specialist researchers We Fight Fraud ‘As one door closes – Experiences of illegal moneylending during an emerging cost of living crisis’ presents a candid new insight into the nature of this problem based on rare access to both illegal lenders and nearly 300 people using them in Port Talbot, Preston, Glasgow and South London.
Sacha Romanovitch OBE, CEO of Fair4All Finance said:
“Our research suggests illegal lenders are flourishing in the credit vacuum left by the departure of high cost yet regulated lenders. The unintended consequence is that millions of people who can well afford to repay a fair loan are left with fewer safe options.
“There is a growing consensus that structural change is needed to create a credit market that serves everyone. Fair4All Finance is convening support from across the financial services sector, regulators and cross-party policy makers to ensure that mainstream banks and lenders better serve millions of creditworthy, lower income individuals alongside accelerating the scale up of community finance provision.”
The report presents seven recommendations for policy reform to accelerate people’s access to fair credit from both commercial and community finance providers, to introduce a credit broking exemption to third sector organisations and to further resource the Illegal Money Lending Teams.
Responsible Finance called for an extension of the credit broking exemption to reroute more people away from high-cost and illegal lenders in our recent Impact Report.
Community finance providers include our members, the UK’s not-for profit community development finance institutions (CDFIs). They play a crucial role in helping people avoid loan sharks and high interest lenders. In 2022, they helped households save £28m in interest they would have paid to a high-cost lender, by lending £46m to 90,630 people
Theodora Hadjimichael, CEO of Responsible Finance, which represents the UK’s CDFIs, said:
“Illegal moneylenders and loan sharks often prey on people with lower and variable incomes who can’t get an overdraft or a cheap credit card. They are the same people who not-for-profit community lenders, also known as CDFIs, specialise in supporting.
“But their experiences are vastly different. CDFIs exist to help people, not exploit them. People who need a short-term loan, can afford to repay it, and can’t get it elsewhere 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 fell into a loan shark’s jaws.”
What next?
- Read this Financial Times article by Helen Thomas about the rise in use of illegal lenders, the gap in provision of affordable credit, the need to scale community lenders including CDFIs, and the potential impact of a Fair Banking Act.
- Read the story in The Independent, the Evening Standard and Yahoo Finance about how 7% of people said they or someone else in their household has borrowed from an unlicensed or unauthorised informal money lender who charges interest in the past three years. The story points out that if people need credit and their bank cannot help, they should consider the UK’s community finance sector, and includes a link to our Finding Finance website.
- Read the BBC ‘s powerful article about loan sharks here, in which Mick McAteer, a former board member of the UK’s financial watchdog, says more should be done to boost community lenders. Watch the BBC’s Newsnight programme, to be broadcast on the evening of 28 June too.
- Read our piece from 2022, The sharks’ feeding frenzy and how to starve them.