Up to one million people in hock to loan sharks, new report finds

As many as 1.08 million people in England could be in debt to an illegal money lender, commonly known as a loan shark – over 700,000 more than official estimates – a leading think-tank has found as the cost of living crisis bites on family budgets.

In the first detailed investigation into the scourge of illegal money lending in a decade, the Centre for Social Justice (CSJ) also reveals in its Swimming with Sharks report the devastating impact it has on victims.

Analysing the largest sample of known victims of illegal lending compiled to date, the research found that 80 per cent of victims who applied to legal lenders first were refused, then turning to exploiters who often pose as a ‘friend’ before converting their victims into an illicit revenue stream.

Thousands of victims are forced down a pathway of ‘hidden debt’, not realising its risks until late in the day. Some are in denial, not recognising illegal loans as a debt out of a sense of embarrassment or shame.

Victims of illegal lending are the target of appalling abuses. Many pay way over the odds and are the targets of intimidation. Some are even coerced into signing contracts promising sexual favours, in the event of late repayment. Meanwhile, lenders are employing new methods to reach vulnerable people via social media, one convicted loan shark even using an ‘influencer’ to attract victims.

The report declares: “The consequences of borrowing from an illegal lender can be severe. The cost of repayment is often both arbitrary and extortionate where terms such as ‘double bubble’, where victims pay twice what they have borrowed, are used to extract large sums.

“In others, late fees and purposeful obfuscation can lead to spiralling costs and payments are made long after the initial loan has been repaid.

“When victims can’t pay, ‘payment in kind’ can be demanded. We have been alarmed by numerous cases we have seen in which illegal lenders have demanded a borrower support their ‘business’ by delivering drugs or referring new clients to them.

“Illegal lenders are increasingly operating online, using the rapidly evolving social media landscape to entice and exploit new victims. This allows them to intimidate their victims 24 hours a day.

“We have heard countless examples of loan sharks terrorising victims through a steady stream of threatening messages and pictures – often in ‘disappearing’ sharing apps. Now, more than ever, victims are exposed to the relentless manipulation of their exploiters.”

The effects can be tragic. More than one in ten loan shark victims go on to attempt to take their own life later on – with 70 per cent of attempted suicides occurring while the debt is outstanding. Yet more than half of known sufferers consider loan sharks to be a friend (55 per cent) when first borrowing.

Worryingly, 42 per cent of UK adults on the lowest incomes said that they are ‘very worried’ about the cost of living crisis in a new poll presented in the report. The CSJ learnt that 45 per cent of victims of illegal money lending use the cash for everyday expenses and household bills, almost three times higher than those borrowing to fund special events such as weddings.

Of known victims in 2021, 62 per cent had an income below £20,000, 66 per cent were already indebted to an authorised creditor, and 65 per cent had a long-term health condition.

Joe Shalam, Policy Director at the CSJ, said:

“The combination of mounting pressures on household budgets, low financial resilience and increasingly limited credit options is liable to produce a “perfect storm” in which people are driven towards exploitation.  Our report makes 24 recommendations to the Government to renew the fight against illegal lending in England.”

While welcoming the Government’s commitment to clamp down on economic crime, the think-tank proposes a three-pronged attack to ensure that tackling illegal lending is at the forefront of this agenda:

  1. Clamping down on illegal money lending – by scaling up the operations of the Illegal Money Lending Team England, bringing sentencing for the worst cases up to par with fraud, and using the Online Safety Bill to address illegal lending on social media.
  2. Protecting the most vulnerable – through a generational national awareness campaign and new guidance for debt advisers, councils, police, housing providers and work coaches to bring hidden debt to the surface.
  3. Providing the alternative – increasing the generosity and take-up of the Help to Save scheme to improve finanical resilience, and cutting red tape still in place from the 1970s to enable bigger and bolder credit unions for those at risk.

Andy Cook, Chief Executive of the CSJ, said:

“The CSJ’s Alliance of frontline charities have been telling us for years about the hidden debts their clients owe to suspicious ‘friends’ or shadowy local figures –  debt shrouded in taboo but causing untold misery for those already facing considerable barriers in their lives.

But even so we have been shocked by the findings of this investigation, in particular the scale of the havoc brought upon the lives of exploited individuals, families and whole communities. With the cost-of-living crisis only set to the get worse, the Government must act to protect those at its sharpest edges by renewing the fight against illegal money lenders.”

Tony Quigley, Head of the England Illegal Money Lending Team, said:

“We welcome this new report from CSJ which highlights emerging trends in illegal money lending and in particular, the menacing techniques and exploitative methods used by loan sharks to deceive their victims. It also highlights the education and disruption activities undertaken by the IMLT to combat the scourge of predatory lending practices that are extremely harmful to consumers and communities.

“Victims are often subjected to threats, intimidation and psychological coercion which prevents them from speaking out and accessing help. We will continue to work with partner agencies across the country to encourage reporting and ensure that victims who come forward receive specialist support that’s tailored to their individual needs and circumstances.

“We also encourage consumers to utilise credit unions that provide a safe and convenient route for responsible financial products and services. This helps build financial resilience in communities across the country.

“We have the ability to investigate and prosecute loan sharks and help people get away from their grasp. We encourage anyone who is currently borrowing from a loan shark to speak to the team for assistance. ”

Anyone with concerns about illegal money lending can contact the Stop Loan Sharks Helpline in confidence on 0300 555 2222.

If calling isn’t for you, you can use the Stop Loan Sharks live online chat service to talk to a support worker in real-time. Just click the chat box in the right-hand corner of your screen. The service is available between 9am and 5pm, Monday to Friday.

Click here to read the latest report by the Centre of Social Justice: Swimming with Sharks.