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Illegal Lending Enforcement Pilot Project

Under the Illegal Lending Enforcement Pilot Project the DTI is funding regional teams in Glasgow and Birmingham to investigate the impact of strong enforcement against illegal moneylenders (loan sharks).

Illegal moneylenders, or loan sharks, are those who lend money to people without a credit license. Loan sharks prey on some of the most vulnerable people in society and cause immense misery. It has always proved very difficult to bring them to justice.

DTI has invested £2.6 million over two and a half years in the project, and has secured a further £1.2m from the Financial Inclusion Fund to continue the pilot in 2007/8 and expand it to cover Liverpool, Leeds and Sheffield. HM Treasury also announced that the project is to be rolled out nationwide.

Illegal lending project - national roll-out - bidding process

On 25 January this year, the Government announced its intention to extend the illegal money lending pilot project to all regions of England, Scotland and Wales. The project is a key part of the Government’s financial inclusion agenda, one of the aims of which is to help people gain access to affordable credit. To this end, the teams will focus on providing support to victims as well as on securing convictions against illegal lenders

To implement this Government commitment, DTI has invited Local Authority Trading Standards Services to submit detailed proposals to bid for funding. The closing date for all bids to be received is Monday 2 July 2007.

To assist in the bidding process, DTI is hosting a conference on Monday 21 May 2007 in London to give potential bidders an opportunity to ask questions and seek further information from the two current pilot projects and clarify any points of process.

We plan to announce the successful bidders in the summer.

The aim of the pilot project is:

• To have an impact on illegal money lending, initially seeing more prosecutions for illegal money lending, eventually reducing the incidence of illegal money lending.

• To obtain a clearer understanding of the scale and impact of illegal lending as well as learning lessons on the best way to enforce.

• To create a climate where victims can come forward - confident that prosecutions will be undertaken, and convictions obtained, without fear of reprisals.

• To change the perception amongst those lending, that illegal money lending is rarely prosecuted.

• And to develop ways of replacing the removed lenders with more support for their victims.

Since the pilots were established in September 2004, the teams have achieved a number of successes:

1. Sums likely to be recovered estimated to be close to £2 million, roughly equivalent to the original budget for the pilots over the two-year period (although this figure is critically dependent on outcomes of a few large cases).
2. The removal of lenders has benefited about 1765 victims.
3. The removal of lenders has saved victims an estimated £3.3 million in payments.

Research Report

Recent research commissioned by the DTI (link on right) shows that loan sharks victims appear to fall into two broad camps:

• The credit impaired (about a third of victims), who have “chaotic lifestyles” typically associated with drug or alcohol abuse, but who may occasionally be in work. This category have typically worked their way down the “credit ladder” until a loan shark is the only person who will lend to them.

• The credit excluded (two thirds of victims) are those who are unable to access mainstream credit for a variety of reasons – often simply because they live in high-rise estates where home collected credit agents will not tread. This group are typically on benefits – single mothers, the disabled, and are among the most vulnerable in our society.

Pilots Evaluation

The evaluation of the pilots has now been published (link on right) and shows that since September 2004 the teams carried out 111 investigations and helped 1765 loan shark victims. They recovered £1m in assets, with a further £1m likely to be collected pending court cases. The evaluation, together with the research report, will help to inform policy decisions on taking forward this work with other relevant government departments and organisations as part of the wider social and financial exclusion agenda.