Loan shark. For many these words will evoke images of a hardened thug in an underprivileged estate bashing down someone’s door as a result of a late payment. However, in reality, the modern day loan shark hides behind a shop front, a glossy suit and liberally applied hair gel. Both charge extortionate interest rates; both prey on desperate people in need of quick cash; the only difference is that the latter is perfectly legal.
So called ‘legal loan sharks’ fill our streets and offer the poor and most desperate the hope of a quick fix solution to all of their money problems. In reality all they provide is a service that encourages financial ruin and a culture of debt.
Something needs to be done about this. More pressure needs to be put on the government to halt the spread of these shops and greater regulations need to be put in place to control these manipulative companies.
Walk through Lewisham, Peckham or Croydon town centre today and you are immediately struck by the sheer number of these shops. They are everywhere. On every corner, bright colours, pictures of happy smiling families and promises of financial security are put in place to lure even the most cynical. Worst of all, it works. Take my borough of Lewisham, for example, known to be one of London’s most underprivileged areas. It tops the table for the amount of payday loans taken out this year. The easy accessibility to these shops and no-questions-asked nature of gaining this type of loan have made it a viable option for a large percentage of residents. Over 10 percent of Lewisham’s 270,000 residents owe on average £530 to these companies.
It is not only the sheer volume of these companies, but more alarmingly, the government’s laissez-faire attitude towards them. At the moment, Britain is the only country in the Western world that does not have stringent controls on high-interest loan companies. France, Germany and even America have regulations put in place that cap the level of interest these companies can place on their loans. So why has Britain not followed suit?
Where a standard APR, the interest you will have to pay on a loan by the end of the year, will rarely exceed 10 per cent from any high street bank, the APR on any private, short-term loan can reach anywhere up to and in excess of 400 percent. That is one hell of a lot of debt!
In these trying times where unemployment is high and banks are less at ease with lending money to the poor, these shops have filled the void and have, quite literally, taken advantage.
As a result of the reluctance of the banks to lend, credit unions provide an alternative, offering low interest rates to those most in need. However, many people are ignorant about what service these places provide or whether they exist at all. I have a credit union within about a ten-minute walk and I was only made aware of what it actually did during my research for this piece. More work needs to be done to increase financial literacy throughout London and raise awareness of the admirable services schemes such as credit unions administer.
Local authorities are starting to take notice of London’s growing dependence on these private loan companies and are beginning to put pressure on the government to act. In addition to this, pressure groups such as Compass’s End Legal Loan Sharking campaign are working tirelessly to promote awareness on the subject. Nevertheless, much more needs to be done to pull London and Britain out of the jaws of these ‘legal loan sharks’ and ensure that fewer people get bitten.
Image by HelenCobain courtesy of Flickr