Tackling the growing problem of legal loan sharks

At the first Council meeting of the new year, at a time when many people will be feeling the squeeze following the festive period, the Labour group will be putting forward a motion that seeks to ease this burden.

The motion seeks to tackle the legal loan sharks that are rapidly expanding their operations in the UK, taking advantage of the lack of regulation and growing demand for finance as more and more families struggle to make ends meet.

Such operators have been allowed to flourish, as since the start of the recession mainstream lenders such as high-street banks have been much less willing to lend money. This leaves more and more people with only the option of high-cost credit such as payday, doorstep and hire purchase lenders.

Borrowing money is sometimes essential, whether to enable a person to pay for training courses, start a business or to buy a house. However, there is a point at which borrowing can become unmanageable, especially if the terms of any loan are high-cost or if the interest rates charged start to rise.

Due to a lack of competition in the market, interest rates for these type of loans are artificially high. The APR for payday lenders often begins at 600% and can escalate to 2,500% or more. And home credit lenders, who make home visits in order to collect repayments for their short-term loans, can charge £82 in interest and collection charges for every £100 lent.

We challenge ministers to offer credible and detailed proposals for tackling the problems inherent in the high-cost credit sector, for example:

  • Introducing caps on the total lending rates that can be charged for providing credit
  • Giving local authorities the power to veto licences for high street credit agencies where they could have negative economic or social impacts on communities
  • Promoting credit unions in Medway, as community based organisations offering access to affordable credit and promoting saving

Cllr Vince Maple, Deputy Leader of the Labour Group, who is moving this motion said,

“Though growing levels of personal debt may be in the interests of loan-sharks, it will not help the local or national economy recover, and will only lead to more plight for struggling families across Medway.”

Notes:

The majority of this information was derived from the campaign materials of Labour MP Stella Creasy who has been campaigning nationally for these changes, her background brief on this matter can be found here.