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In a predictable but worrying development, a local-government think tank had published a report stating that a growing number of people in the UK are likely to use loan sharks during the recession.

It is estimated that 35,000 more people could turn to illegal money lenders because of the squeeze by traditional lenders making it more difficult to get credit through the normal channels.

The New Local Government Network report said Stoke, Gateshead, Lincoln and Manchester were among the places most likely to be targeted by loan sharks and called for councils to pump funds into credit unions.

The author of the report has said that ‘There is evidence to suggest that the pernicious trend of illegal unsecured lending at extremely high rates of interest, or loan sharking, is making a comeback.’

The New Local Government Network think-tank was founded in 1996 with aim of raising the credibility of local government. Some may say they have not been conspicuously successful in this role.

However, this important report makes the point that at least 165,000 people are already using loan sharks in the UK.

As if this isn’t high enough, it is expected to rise sharply because the global downturn has caused the regular sources of lending to greatly restrict their activities.

This includes traditional lenders and sub-prime lenders, which has also increased the rate of refusals for those seeking loans.

This last point is particularly important. The diminished availability of regulated sub-prime credit is creating conditions where a sizable number of people have little option but to borrow from illegal sources.

Loan sharks are those operators who are unregulated and demand very high rates of interest They are apparently most likely to operate included Lincoln and Manchester, the think-tank said, although they pose a danger anywhere in the UK that there are desperate people in need of credit.

The think tank has recommended that councils set up their own banks or to pump funds into regulated credit unions to offer affordable credit to people who cannot access High Street loans.

Those counter measures will take some time to implement, if they are indeed accepted. However, everyone can take action against loan sharks by never using them, reporting their activities to local authorities and advising friends, relatives and neighbours of the dangers they pose.

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There has been good news this week for people with debt problems but a lot of pride. Debt collectors have been warned not to disclose people’s debt problems by leaving messages with the neighbours of those being chased to pay up.

The Office of Fair Trading (OFT) said it was “unacceptable” that debt collectors left messages with neighbours of those being traced. It also noted that this had the potential to cause embarrassment.

The OFT has already told one London-based company to stop this practice and is pledging to monitor other companies.

Link Financial Limited, a “trace and collect company”, (known as bailiffs to most of us) has promised to stop this practice, following a review carried out by the OFT and Lambeth Trading Standards.

Debt collectors will soon be required to treat people with financial difficulties fairly. I would have hoped that the rules already had this clause contained within them but apparently not.

From the end of May, debtors will be given “breathing space” if they have sought help in making repayments. This means that once a debtor has sought specialist debt advice, a debt collector must give them 30 days grace.

Current rules ban so-called “fishing trips”, which is where collectors contact people with a similar name to the genuine debtor, although this is a common practice and can be very scary for the innocent people involved. It is also, thankfully, illegal to harass consumers.

The Credit Services Association states that an average debtor may owe as much as £27,000 across up to 10 separate accounts.

Typical debts include unpaid utility bills, credit card debts and missed repayments on bank loans.

However, there is now evidence that UK consumers are turning away from credit card spending during the recession.

Spending on credit cards fell by 3% in the first three months of the year, compared with the same period last year, the group said.
However, increased use of debit cards meant spending on plastic cards was up 5.4% over the same period to £94.2bn. The number of purchases made on cards was also up, by 6.5%.

This was in contrast to the declining numbers of payments made by cheque. In the first quarter of the year, the number of cheques used fell by 10.6% and the total value of cheques dropped by 9.4%, compared with the same three months a year earlier.