There is a severe problem with illegal lending both in the UK and in other developed nations around the world. These illegal lenders, more commonly known as ‘loan sharks,’ are unlicensed and therefore unregulated. It is thought that in the UK alone, 100,000 families borrow money from loan sharks every Christmas and even more throughout the remainder of the year. Because they operate outside the law, they are not tied to Office of Fair Trading regulations. This means that their interest rates and charges are unregulated. So too is their conduct. This results in many borrowers being harassed when they miss payments or pressured into borrowing more in order to make their repayment.
So, with this in mind, why do people turn to loan sharks in order to borrow money? Well, in the vast majority of cases, the people borrowing from illegal lenders are those who are unable to obtain credit from an alternative legal source. People with poor credit ratings, for example, may find themselves unable to obtain loans from banks or licensed lenders. If these people feel so desperate about their financial situation that the only way they can see of rectifying it is through obtaining a loan from somewhere, they are susceptible to loan sharks. Loan sharks tend to operate in areas with a particularly low average income, where poverty is common. They are able to identify and prey on the desperate and, for those who have massive financial worries, the offer of a lump sum can be too tempting to turn down. A borrower can often be blinded by sheer desperation and fail to really take stock of the extortionate interest rates at which they will be required to pay back.
Unfortunately, this remains all too common an occurrence. The recent recession has done its bit to further this and until there is some real education made available to poorer families about debt and potential debt solutions, there are likely to be more families yet to fall victim.