The loan that charges 131,000% APR

by StepChange Debt Charity on 16 November 2011  |  5 comments
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Illegal loan sharking might seem a world away from your own life but these criminals are circling those in deep financial water. And they could bite a chunk out of someone you know.

Loan sharks prey on those who can’t borrow money from legitimate means. The prospective borrower is trying to keep their head above water any way they can, but the banks, loan companies and payday lenders have turned their loan requests down, usually due to a poor credit rating.

The bills are stacking up and they think, wrongly, that there’s no one else to turn to.

Usually loan sharks live in the same area as the borrower, or are recommended by someone down the pub, or (perhaps surprisingly) advertise in the local paper, a tactic which lends an air of respectability to their operation.

The loan shark might turn on the charm when they arrange the loan, but they soon drop the act, whether the debtor is paying back the loan or not, because they can prey on the weak. Even if the loan is paid back the shark returns to the debtor’s home time and time again to demand more.

This extortion can be laced with threats, blackmail, stealing goods as “security”, kidnap and worse. Loan sharks can trap borrowers in a never-ending spiral of debt and violence.

Many will charge exorbitant interest rates - for example the highest APR seen by Trading Standards amounted to a whopping 131,000%. By continuing to grab money from the borrower, well after the loan’s original value is paid back, or by forcing them to add more loans to “help” pay off existing debts, a small loan from a shark quickly turns into a never-ending cycle of misery.

Stop Loan Sharks Project

Every day there are more terrible stories of people who were forced to borrow money from a shark – often just £100 or so for the gas bill – but ended up paying back thousands. The CCCS MoneyAware blog has a typical loan shark victim's story, detailing one woman’s experiences with a shark who had over 900 other clients.

To counter this, in 2004 the Stop Loan Sharks project was set up by the Department of Trade and Industry (now BIS) to encourage the general public to report these dodgy dealers.

The three national teams – covering England, Scotland and Wales – have been very successful in the past few years, writing off tens of millions of pounds worth of dodgy debt and prosecuting nearly 200 loan sharks. They’ve helped around 16,000 victims of illegal loan sharking and the project vows to stop dodgy dealings.

Despite the good headlines the fight goes on, especially as legitimate credit has dried up in this age of austerity.

Make sharks extinct

We don’t expect that any of you have borrowed money from a loan shark. If you need a loan your bank would provide it, at a pretty reasonable APR.

But if you hear of an illegal loan shark in your area please don’t just mutter under your breath about how the neighbourhood’s going to pot. Get in touch with the Stop Loan Sharks project and get this person stopped for good.

There are numerous ways to get in touch with the team confidentially:

• Call the 24/7 confidential hotline 0300 555 2222
• Text ‘loan shark + your message’ to 60003
• Email reportaloanshark@stoploansharks.gov.uk
• Find the Project on Facebook
• Go to the Stop Loan Sharks website

If you know of a friend, neighbour or family member that’s suffering from a debt crisis caused by a loan shark tell them to phone for debt help straight away, or use the online counselling service CCCS Debt Remedy. CCCS counsellors are trained by Trading Standards to spot suspected loan shark activity and pass any evidence on to the Stop Loan Sharks team.

You can also advise them that there are legitimate ways to obtain support when the money runs out. There is hope. There’s no need to ever consider a loan shark as Government hardship funds and maternity grants are available. Tell them to visit trusted charities like Turn2us or Citizens Advice to find out more.

Illegal loan sharks prey on some of the most vulnerable in society; this is one animal that should become extinct as soon as possible.