What is happening?
This year a staggering one million people are going to take a loan from an illegal and unlicensed loan shark. We look at what has caused this prolific increase in illegal lending, and more importantly what can be done about it?
The first issue causing this rapid increase of illegal lenders is the demise of the old pay day lending sector and the contraction of essential credit providers paying out loans to credit impaired applicants.
If you are old enough you will remember the cheesy Wonga TV adverts pushing eye watering interest rates reaching 4,000% rep APR. Since then the FCA has cracked down on Wonga and all the other pay day lenders.
This has now resulted in the creation of a massive gap in legal lending, and there are just not enough lenders providing essential credit that millions of people rely on.
The majority of lenders have either been targeted by claims management companies and have been forced into insolvency, or they have not been able to meet the new high standards expected by the FCA. Whether these standards are realistic or not is now open for debate.
Now pay day lenders like Wonga have all moved out opportunistic criminals have moved in.
Unfair financial opportunities
There is a growing concern from within the trade bodies and the industry that this has now gone too far, and the regulator has been over zealous, and caused a credit vacuum that is now pushing over a million people this year alone to borrow money from an illegal loan shark.
Jason from theConsumer Credit Trade Association:
“there is now a credit vacuum which unfortunately is being filled by illegal and unlicensed lenders. Provision of affordable credit is one of the most important issues we are concerned with at the CCTA”.
“There has been a constantly increasing regulatory cost and constantly increasing red tape, combined with an increase in interest rates corporate funders are expecting lenders to pay for their funding. The costs of operating in the sector are just too high for most lending businesses now”.
There is no doubt that we need more lending from essential credit providers to prevent these customers being forced into taking credit from illegal loan sharks.
