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LOAN SHARKS TARGETED IN CONSUMER CREDIT SHAKE UP

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Loan sharks who prey on vulnerable people will be targeted by new ...
Loan sharks who prey on vulnerable people will be targeted by new

undercover officers, in plans announced by trade and industry

secretary Patricia Hewitt today.

The move is part of the biggest shake-up in consumer credit laws for

30 years.

The 'loan shark hunters' will work in deprived communities to tackle

gangs of criminals who lend people more than they can afford and then

extort payment with the threat of violence.

The move is one of the measures in the Consumer Credit White Paper,

which will also:

- strengthen the rules governing credit licences, putting debt

management companies and rogue moneylenders under closer scrutiny;

- give the Office of Fair Trading the power to fine lenders and

conduct surprise raids on loan companies;

- lenders will have to provide standard information when advertising

financial products so consumers can compare like-for-like and find

the best deal. Small print will have to be legible and lenders will

need to provide upfront informati on similar to US style 'honesty

boxes';

- set out fairer rules for people who pay back loans early. Around 70

per cent of all personal loans are settled early but often under

the weight of heavy charges; and

- pave the way for a new telephone gateway to debt advice services.

The DTI estimates that if everyone switched to a cheaper credit card,

consumers would save around £1.9bn, more than £400 per household. The

reform of early settlement charges will benefit consumers to the tune

of £60m which is a saving of around £1,300 on a £10,000 loan repaid

over 15 years at 16% APR, settled early after five years.

Patricia Hewitt said: 'It is more often than not the most vulnerable

who are preyed on by loan sharks. It is simply not possible to escape

from poverty if what little you have is asset-stripped by predators.

These measures will crackdown hard on loan sharks and other ro gue

lenders.

'Credit has become an integral part of our daily lives. For many, it

is the lifeline that enables us to deal with emergencies that arise,

helping match regular income against irregular demands and the risks

of modern life.

'But credit can also introduce risks of its own. Some consumers take

out loans that are inappropriate and expensive. And some fall into

debt because of unexpected events like redundancy or illness. These

measures will help them find a way out.'

Changes to the Consumer Credit Advertising Regulations will include

new requirements for advertisements to be clear, fair and not

misleading. Currently, there are around 400 different types of loans

available and interest rates vary widely.

Changes to the Form and Content of Credit Agreements will increase

transparency, enabling consumers to compare the interest, charges and

penalties associated with any type of loan. Consumers will be able to

take pre-contractual information away to compare prices and get the

best deal before they sign on the dotted line.

Consumers will be able to take out loans and apply for credit cards

online for the first time under changes to the law announced today.

Up until now, people using online banks and building societies have

had to sign contracts by hand and send them in by post. The new rules

will help consumers to be more confident about choosing credit

products online and make internet shopping quicker and easier.

The new 'loan shark hunter' pilot programmes will be run by Trading

Standards in Birmingham and Glasgow and will begin next April. The

projects are backed by £2m of new funding from the DTI and are set to

run for two years. Using powers of investigation, including

undercover surveillance under the Regulation of Investigatory Powers

Act, the teams will gather the evidence necessary for the Proceeds of

Crime Act to be used to recover the illegal profits of the lenders.

Each te am will consist of a mixture of experienced trading standards

officers and enforcement officers with a suitable background, such as

police experience.

Local authorities will be encouraged to have intervention plans ready

so that as soon as the illegal lenders are arrested the authorities

and organisations in the voluntary sector can move into the area with

money advice and support before new lenders exploit the gap in the

market.

The pilots will be complemented by better money advice in order to

address the fundamental issue of over indebtedness. The DTI is also

commissioning research to find out the full extent of illegal money

lending in the UK. The DTI is also forming an overindebtedness

advisory group to be jointly chaired with the Department for Work and

Pensions to build on the work of the Overindebtedness Taskforce. The

organisations represented on the Group are: Citizens Advice Bureaux,

National Consumer Council, Financial Services Authority, Office of

Fair Trading, British Bankers' Association, Consumer Credit

Association, Finance & Leasing Association, Council of Mortgage

Lenders, Money Advice Trust, Church Action on Poverty, Experian and

the Personal Finance Research Centre.

The White Paper also proposes an alternative dispute resolution

system to make it easier to resolve disputes without having to go to

court. One option is to use the financial ombudsman service. A

further consultation paper will be published within the next two

months.

Notes

1. The Consumer Credit White Paper can be found here.

2. Also published today are:

- A consultation on proposals for regulations on: Early Settlement,

Consumer Credit Advertising, Form and Content of Credit Agreements,

APRs on credit cards, On-line Agreements;

- Evaluation of Money Advice Debtline pilot and business case for

development of 'National D ebtline';

- Consumer Credit Advertising Research;

- Summary of Responses to A Consultation Document on Enabling and

Facilitating the Conclusion of Credit and Hire Agreements

Electronically under the Consumer Credit Act 1974,

which can be found here.

3. A MORI poll for DTI was published yesterday and can be found here.

A victim of loan sharks in Birmingham

A single man living in a suburb of Birmingham was in need of cash to

meet everyday commitments. He saw an advertisement in the window of

his local newsagents offering 'cash loans' and giving a telephone

number. He rang the number and was told that they would loan £100 but

there would be £50 interest charged.

They came to the victim's home that evening and passed over £100 in

£20 notes. The agreement specified eight weekly payments of £20, the

moneylender explained that they normally charge #60 interest but as

he had said £50 over the phone, they would stick with that. The

interest rate at this point would seem to be in the region of 280%

p.a.

The moneylender explained that the loan came from a group of people

and that they provide the money themselves so that they can make sure

they get it back. The victim asked what this meant as he didn't want

anyone 'getting heavy'.

During the course of the next few weeks payments were made, but

eventually one was missed resulting in a message being left on the

victim's answer machine including a death threat. The victim then

received a visit from two men the next night. During this visit he

paid £40 and was told that a further £46 would be added to his loan

for the 'trouble he had caused' and that the payments would go up to

£25 to cover the increased amount.

It was at this stage that the victim refe rred the matter to the

police and through them to Trading Standards.

Loan shark hunting in Scotland

The Scottish project will build on the work of Strathclyde Trading

Standards taskforce in the early 90s. They identified more than 60

rings of illegal lenders operating in the Strathclyde area alone. In

one of the worst cases they found a resident of a hostel for the

homeless being charged 1.3 million per cent. In another case a gang

working in a local community centre were charged with a number of

offences including illegal money lending, fraud and importuning a

15-year-old who was forced to act as a prostitute in order to pay off

debts. Gang members were jailed for a total period of 12 months on

the illegal money lending, it having proved impossible to get

witnesses to speak to the other charges.

The Scottish Executive already supports the provision of face-to-face

money advice. The Executive provides funding of £3m per annum,

channelled through local authorities. This has resulted in an

additional 120 full-time equivalent money advisers across Scotland,

operating in both the statutory and voluntary sectors. The Executive

provides further resources for a central support organisation for the

money advice sector, that delivers training and second tier support

for money advisers.

The Executive provides resources for Credit Union development in

Scotland and recently announced additional funding for credit unions

to develop to sustainability and also to deliver financial inclusion

initiatives. These activities underpin commitments to promote

financial inclusion in the May 2003 post-election Partnership

Agreement. Commitments include working with DTI to tackle harassment

by loan sharks.

Credit unions locally are able to provide affordable alternatives to

illegal and sub-prime money lending. Wher e there is credit union

coverage in a local area, they will be able to respond by offering

new opportunities to individuals for savings and loans. The

Executive, through the Scottish Credit Union Partnership, will

discuss with the movement how these responses can be delivered

quickly and in partnership with money advice agencies.

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