UK Ministers have pumped £800,000 into efforts aimed at cracking down on illegal loan sharks out to exploit the most vulnerable borrowers. Rogue lenders capitalising on desperate borrowers are going to face a fresh stringent crackdown. £100,000 of the money set aside was seized from dodgy firms. The £800k will be spent on efforts aimed at encouraging vulnerable borrowers to join credit unions instead of considering high-cost credit options.
A record £5.6 million will be availed to Illegal Money Lending Teams in the UK to fight unscrupulous lenders who target poor and desperate borrowers. The money is meant to help troubled borrowers get out of debt and stay away from lenders offering loans at ridiculously high interest rates.
An estimated 300,000 British households are indebted to illegal lenders. According to Treasury’s Economic Secretary, John Glen, “high-interest lenders are lowlife crooks who take advantage of the most vulnerable. The 300,000 Britons indebted to these illegal lenders must know we are on their side. This is why we are spending more to support the victims and fight the loan sharks.”
The news has been received positively by many including The Sun which already has a campaign pushing for a ceiling on the total cost of high-cost credit offered via rent-to-own products and doorstep loans.
In 2017, 7 million British households used high-cost credit like doorstep loans and rent-to-own products. Ministers have called on an extension of the payday loans cap to many other types of high-cost credit including credit cards.
Stella Creasy has been on record accusing high-cost lenders of “preying” on Britons who survive on insecure incomes. In a recent statement, she pleaded with ministers to borrow from the payday loan cap lessons and apply a similar cap to other loan products stating that Britain is drowning in debt.
The latest statistics indicate that there have been 380 prosecutions against illegal lenders since the IMLT (Illegal Money Lending Teams) was formed in 2004. The IMLT has written off 73 million pounds of illegal debt saving 28,000 poor borrowers from the jaws of loan sharks.
According to Peter Tutton, StepChange Debt Charity’s Head of Policy, the move by the ministers is welcome. In a recent statement, Tutton stated that the crackdown on illegal loan sharks needs to extend to the entire high-cost credit market to ease the harm experienced by many British households forced to take loans to survive. While reacting to the new efforts aimed at boosting the IMLT’s mandate, Tutton stated it is time for the UK government to seek creative and sustainable alternatives to help vulnerable households.
Why is it important to stop loan/credit rip-off
According to The Sun, no borrower should be forced to pay twice as much as they borrowed or more regardless of the type of loan product they are taking. Paying interest that is equal or more than the borrower amount is unethical in any standard.
This thinking is what inspired UK newspaper The Sun to launch a campaign pushing for a cap on the cost of doorstep loans and rent-to-own loans. The Sun is calling for a cap similar to that set on payday loans in 2015 where the total cost of loans can never exceed the loan amount.
Since the payday loan cap came into effect in the UK, the number of payday loan borrowers with unmanageable payday loan debt has decreased by over 50% according to Citizens Advice which offers free, independent and confidential financial advice to anyone in need.
People earning the lowest incomes and living in the most poverty-stricken places are paying the steepest price for loans. Doorstep and rent-to-own loan lenders target individuals whose income isn’t enough to cover all the basic monthly household expenses. These high-cost loans are extended to individuals who have problems paying for utility bills and rent among other essential bills. The loans are also extended to borrowers who want to buy household goods like furniture.
Although the loans seem helpful, they attract exorbitant interest rates amounting to 1,500% in some cases. It is scandalous for anyone to have to borrow money for subsistence and then be forced to pay three times the loan amount.
With the IMLT funded, there is enough momentum to deal with all high-cost lenders in the UK conclusively.