undercover officers, in plans announced by trade and industry
secretary Patricia Hewitt today.
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
- 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
'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
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
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
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%
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.