The Dangers of Loan Sharks

May 25th, 2009

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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Don’t tell the neighbours there’s a debt problem next door

May 18th, 2009

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.

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Attempts to write off debt passed to the courts

May 11th, 2009

Judges, optimistic claimants and large financial institutions are becoming something of a regular combination for this blog.

News has emerged this week that judges in England and Wales are considering putting on hold up to 100,000 claims for the cancellation of credit card and other consumer debts. Many of the cases have been generated by claims-handling firms advertising in newspapers and on TV.

The firms argue that the debts cannot be enforced if lenders have not kept the right paper work and needless to say many debt ridden hopefuls have leapt at the chance to have their burden lifted from them.

Apparently the judiciary is planning to select a few claims for a test case in the High Court to decide the issues involved. The aim is to find a way of dealing with a very large number of claims in a sensible time.

The intention of the judiciary has been revealed in a recent letter written by Judge Derek Halbert, the head civil judge in Cheshire.

Part of the letter reads, “It is apparent that there are a number of claims to be commenced nationally in which the main claim will be for a declaration of the invalidity of a credit agreement for non-compliance with the Consumer Credit Act (CCA).”

Estimates vary but up to 100,000 claims may be involved. No deadline has been set for any decision on the test case, which will be decided by Lord Justice Moore-Bick, the deputy head of civil justice.

Last year, a Staffordshire couple gained widespread publicity for managing to persuade lenders to write off more than £65,000 of assorted credit card debts and other loans.
They relied on various arguments, including that the lenders had not produced accurate paperwork to back up their loans, or had not complied with other requirements of the CCA.

However, when they went to the High Court to challenge further debts, and establish a legal precedent, they lost.

Judge Simon Brown accused them of lying, and said their arguments were factually and legally flawed, describing some of them as “pure sophistry” or “totally without factual or legal merit”. So it would seem that there is still some way to go in establishing the exact stance of the law.

The idea that some borrowers might be able to renege on some of their debts hinges on the wording of the 1974 CCA, which covers agreements struck before the advent of a new Act in 2006. The purpose of the 1974 Act was stop unscrupulous lenders exploiting unsophisticated borrowers.

But according the Consumer Action Group (CAG), it also contains requirements that can be used by some borrowers. If you write to the lender under the CCA asking for a ‘true copy’ of loan agreement and they are unable to supply it in the required time, then it becomes an unenforceable agreement.
It is now clear that tens of thousands of such claims, based on this and other requirements of the 1974 Act, have been building up, garnered in many cases by claims-handling firms, and threatening to swamp the county courts.

Claims-handling firms are regulated by the Ministry of Justice. In February, as discussed here on this blog, the ministry and the Office of Fair Trading (OFT) warned they would close down any firms which made misleading claims about their ability to get their clients’ debts written off.

The CCA issue has clear parallels with that of the bank charges saga, in which tens of thousands of claims for the return of bank overdraft charges were put on hold in the summer of 2007 pending the outcome of a High Court test case.

That has still not resolved whether overdraft charges are fair or not, and the first part of the litigation between the banks and the OFT reaches the House of Lords for an appeal in June.

The Commercial Court, part of the High Court, has agreed to hear any CCA test cases. From the bank charges saga it would seem that there is hope but it is distant. The courts take an awfully long time to decide these things so anyone hoping for instant relief will be disappointed.

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