Loan sharks on the rise with 3m people turning to illegal lenders amid ‘credit vacuum’
Over 3m people have turned to illegal lenders in the past three years, demonstrating the size of the “credit vacuum” in the UK’s lending market.
According to research conducted by IPSOS for pressure group Fair4All Finance, more and more struggling households are turning to illegal lenders sharks in the absence of regulated firms operating in the market.
“As the subprime lending market has shrunk, the opportunities for obtaining credit for people from low to middle income households have become harder to find,” the report noted.
Between May 2021 and May 2023, 2.8m low income households had lending applications declined by regulated firms.
Sacha Romanovitch, chief executive of Fair4All Finance, said the decline of regulated lenders and a deteriorating economy had created a “perfect storm” in the credit market.
“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,” she said.
The research suggests that people in low-wage but full-time employment – earning between £20,000 and £25,000 – are increasingly using loan sharks.
Although a typical loan was in the hundreds of pounds rather than thousands, the total amount of debt per borrower was around £3,000.
One loan shark admitted to researchers that they targeted individuals who would struggle to repay their loans.
“Your volume of money returned is astronomical, you know. The longer they couldn’t pay you back, the better,” they said.
While actual violence was rare, many lenders threatened it. One illegal lender said “you only had to really find out where they actually lived, what the registration number of the car was, where their mum lived, what school the kids went to, and you could lend them”.
Romanovitch argued the data pointed to urgent need for reform. “There is a growing consensus that structural change is needed to create a credit market that serves everyone,” she said.
The report suggested that policy makers and regulators should accelerate the support for alternative forms of credit, such as through credit unions and community development finance institutions.
It also recommended that banks reach out to their current customers where they believe they may be at risk from illegal money lending.