Scottish loan shark industry back to post 2008 crisis level

The finding was made by the Scottish Illegal Money Lending Unit (SIMLU), part of Trading Standards Scotland, which is run by local authorities body Cosla.

The unit said its research into unlicensed lending, which is the first to look specifically at Scotland since 2008, had identified the UK Government’s new Universal Credit (UC) benefit as the biggest factor driving the use of loan sharks over the last 10 years.

The finding is based on researchers’ canvassing of agencies working with customers of loan sharks who found pressures on clients caused by UC are a “major concern”.

Researchers said aspects of UC – including the “waiting period” before payments commence and sanctions that stop the income of those deemed to have broken the rules – are among the reasons people are now forced into illegal lending.

Researchers also found that general delays in benefit payments, the fact Universal Credits are usually monthly and that hardship payments for those struggling are converted by the Department for Work and Pensions into loans are exacerbating problems.

The SIMLU reported that conditions now mean the illegal loans market is now similar to a decade ago in terms of the interest debtors are charged and the way lenders recruit them.

They also found that once recruited, debtors are being charged between £3 and £5 a week in interest for every £10 borrowed.

Other reasons identified for resorting to illegal money lending included addictions, sudden loss of earnings and abusive domestic situations.

Although some had taken out larger payments due to a temporary fall in income, or to buy Christmas presents.

Those who are most likely to turn to illegal money lenders are those in destitution or severe poverty, the report says.

Many said they had been harassed or pursued for payment, often being watched or harassed in their homes, while some had experienced threats, often of serious violence, as the consequence for not paying.

The report also stressed that criminal lenders were moving their recruitment operations online, allowing them to hide their activities, stifling efforts to target the users of illegal moneylenders through the advice sector.

The report also suggests many of those caught in the grasp of illegal lenders tend not to seek help.

Councillor Kelly Parry, chairwoman of the Trading Standards Scotland Governance Board, said: “We welcome the independent research conducted by Nick Hopkins Research in association with Craigforth. This is the first Scottish specific research to be conducted and shows some of the reasons why people use illegal lenders, the amounts of interest charged and how threats and intimidation are used to force people into paying the loans.”