End Legal Loan Sharking

High Cost Lending

• The UK’s poorest borrowers pay the highest price for credit in Europe. [i]

• Around 3 million people use the very high cost door to door or home credit lending market. This high cost market charges £82 in interest and collection charges for every £100 lent. [ii]

• Other forms of high cost lending, such as Payday loans, which charge up to £35 per £100 lent, and recover monies directly from bank accounts, are expanding rapidly. [iii]

• The government has pledged to “give regulators new powers to define and ban excessive interest rates on credit and store cards”, but not all sectors of the credit industry. [iv]

• A million and a half more are indebted to payday lenders which have short-term loans with APR that often begins at 600% and can escalate to 2500% or more. [v]

• Research carried out by Paul Jones at John Moore University, shows that far from borrowing money to pay for luxury or non-essential goods, people on low incomes need credit just to get by. They know they are paying well over the odds for credit but have no choice but to pay the high prices charged. [xxx]

• High cost lending and debt affects certain groups of people disproportionately. Fair Finance, a social enterprise bank which offers loans and debt advice, has seen clear trends in those seeking its help. 75% of them are women, 70% are single mothers, 80% are on benefits, 60% are minorities and 75% are currently borrowing from expensive lenders. [vi]

• As banks are lending to fewer customers overall, there is evidence that doorstep and payday lenders are moving up the income scale, leaving a gap where low-income families have no access to credit apart from that offered by loan sharks who do not use contracts, paperwork and are often aggressive when chasing repayments. [vii]

• There is evidence that the prices charged are not subject to normal competitive pressures both as a result of the near monopoly positions of large lenders and because low income borrowers often have an urgent need for cash which means they can be exploited.  Poorer households often experience financial emergencies.  This causes competition for their business to take place on the speed of the loan offer rather than on price terms. [viii]

• Research for Leeds City Council conducted in 2004 reported that interest payments to home credit, or door to door, moneylenders alone were costing the local economy up to £9.5 million per year.  This drain on the local economy was particularly concentrated in already deprived areas of the city. [ix]

• Some legal loan sharks are charging more than illegal ones. [xxxi]

• Experiences of many families suggest that extortionate lenders still use high pressure sale techniques. [xxxii]

Debt

• Total UK personal debt at the end of March 2010 stood at £1,460bn. [x]

• £181 Million of personal interest is paid in the UK daily. [xi]

• Average household debt in the UK is £8,796 (excluding mortgages). [xii]

• Some banks continue to charge the equivalent of up to 3000% APR for unauthorised overdrafts. [xiii]

• One study talked about debt as being ‘depressing’, ‘devastating’, ‘demoralising’: ‘When added to the high number of women depressed in our sample, a connection between debt, isolation, shame and depression is clear’. [xiv]

• High debt repayments affect the quality of life for these households.  The results are poorer diets, colder homes, rent, council tax and utility arrears, constraints on job seeking behavior, and poor health, including mental health, all of which present wider economic costs that have to be met by national and local government and create pressure on public services. [xv]

• Britain’s interest repayments on personal debt were £67.8bn in the last 12 months. The average interest paid by each household on their total debt is approximately £2,692 each year. According to Price Waterhouse Coopers the average household will need to spend approximately 15% of net income purely to service the interest payments arising from this debt. [xvi]

• The National Equality Panel reported recently that the poorest 3% of the population now have ‘negative wealth’. [xvii]

Credit Caps

• A Yougov poll carried out in April 2010 found 89% of those polled supported a cap on credit in the UK. [xviii]

• Caps on the cost of credit exist in a many U.S States, two provinces of Australia, Canada, and eight E.U countries including Germany, France and many others.  [xix]