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If you have the wrong postcode no bank will look at you, says Tony Levene. So what options are available and is an illegal loan the worst choice?
Loan sharks get a bad press. And yesterday's launch of a government helpline for victims of illegal lenders won't exactly burnish their image. The Department for Business, Enterprise and Regulatory Reform (DBERR) set up the line to give people who fall into the hands of unlicensed moneylenders a single point of call. This will build on the government-funded Stop Loan Sharks teams, which were rolled out in 2007.
But just as Jaws gave the great white shark an undeserved reputation for mindless violence, loan sharks may not merit all the opprobrium thrown at them. The helpline press launch had examples of loan shark violence but displayed little or no comprehension of why people turn to them.
Some years ago, I visited one of the poorest estates in the east Midlands. No one could get a loan from a bank – the postcode sent up instant red alarms – and the social cohesion and organisation needed for a credit union was not there. The residents' choice was between the legal doorstep lenders and the illegal sharks. Many chose the latter – they were more flexible (who else would deliver you £20 when you came out of the pub and felt like a curry?) but, more importantly, the illegals often charged less than the legals.
That could be because they didn't have overheads such as regulation and the cost of a consumer credit licence (not tough to get, as I once found when I obtained one as a stunt for a TV programme). DBERR spokespeople talk of loan sharks with 150% APRs. What do doorstep lenders charge? Often their rates start at 170%, and some legal payday loan operators charge well over 1,000%.
If you turned the contentious high street bank penalty charges into APRs you could get rates running into the hundreds of thousands – someone who collects three £35 fines for being £1 overdrawn for a few days suffers a rate that goes well beyond the capacity of my calculator. And while banks do not use baseball bats to do their collecting, their policies of chasing whichever partner (usually the woman) they find for joint debts can and does lead to domestic violence if the woman tries to recover the money from her ex.
In any case, a combination of the credit crunch and government regulation has forced some doorstep lenders into trouble. London Scottish Bank went into administration in December. And the share price at Cattles, another doorstep lender which trades as Shopacheck, speaks volumes. But whatever happens to these firms, the illegals will still be around, often as the lender of last resort. They perform a social service – if others could do it better or cheaper they would cease to exist.
Breaking limbs is clearly wrong. But if I lend someone £20 today and they return it next week with a pint to thank me, is that loan sharking?
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