Millions turning to unauthorised lenders

Results from a new online survey amongst a representative quota sample of adults in Great Britain 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).

While users of illegal money lenders generally borrowed hundreds rather than thousands of pounds at a time, the total amount of debt per borrower was significant at around £3,000 on average.

Repayment rates were different but invariably involved paying double.

However, a lack of transparency or awareness of the total cost of credit was commonly reported.

With increasing numbers of people struggling through the cost-of-living crisis, illegal moneylenders appear to have moved upmarket targeting lower income workers with a median customer income of £20,000 – £24,999.

This group is better off than the poorest fifth of the population and may not have considered this option until recently.

Researchers found that although actual violence was rare, the pervasive threat of it along with coercive control tactics were common.

There was also evidence of former collectors for now defunct home credit businesses continuing their operations without regulatory oversight, in a practice known as parallel lending.

Joseph Rowntree Foundation recently reported 2.8 million low-income households having been declined lending between May 2021 and May 2023 which appears to highlight a growing credit vacuum for lower income households.

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.”

Jason Wassel, chief executive of the CCTA, said: "132 years ago this week, the Consumer Credit Trade Association was formed to promote access to credit for groups that were underserved or not served at all by the larger lenders.  

"So I was delighted to serve on the sounding board for this report, providing some insights but allowing the academics and IPSOS to do the research. 

"My hope is that we now turn to the future and that CCTA members – alternative lenders – are part of the solution."