Hundreds of thousands of Britons could resort to using loan sharks to cover the cost of Christmas, the Office of Fair Trading warned today, as it urged struggling families to avoid using illegal money lenders to pay for presents and festive celebrations.
As many as 165,000 households use loan sharks with many more expected to fall victim to unlicensed lenders over Christmas, according to research for the Stop Loan Sharks campaign. The OFT is backing the campaign alongside Trading Standard's illegal money lending team.
Half of households using loan sharks are in the most deprived areas of the country, with particular loan shark hotspots including Scotland, the north of England and the West Midlands.
Anyone lending money should have a consumer credit licence from the OFT. Licensed lenders have to comply with legal obligations in dealing with customers, including the use of proper paperwork and fair collection methods. But unlicensed loan sharks will often offer cash loans without paperwork, use benefit or bank cards as security, and threaten or use violence to get money.
Ray Watson, director of the OFT's consumer credit group, said: "We are always concerned about people using loan sharks, but particularly at this time of year when people are under significant financial pressure.
"Loan sharks are never a good option, as they are violent and operate outside the law. We would strongly urge people not to borrow from them under any circumstances."
The Consumer Credit Counselling Service (CCCS), which offers help and advice to those burdened with debt, said borrowers who turn to loan sharks tend to be those who find themselves excluded from the mainstream banking system and cannot access credit any other way.
A CCCS spokeswoman said: "If you have borrowed money from a loan shark you are under no legal obligation to pay the money back and should contact your local trading standards officers".
Payday loan lenders
The OFT has also cracked down on payday loan lenders, imposing requirements on Safeloans Limited (which trades as Paydayok) today, and warning others they must not misuse direct debit facilities to vary the amount or date of a loan repayment.
Direct debt facilities are used by some payday lenders to give them greater control over the repayment of short-term loans. This means that if a borrower defaults on the loan, the lender can make multiple attempts to take money from the borrower's account without agreeing specific amounts or dates with them.
The OFT believes some lenders use this "continuous authority" as a way to bypass proper checks on a borrower's ability to repay. The OFT is also concerned that taking money from a debtor's account when they are already in difficulty could prevent them from meeting priority debts, such as rent or mortgage payments.
Following the OFT ruling Safeloans Limited, which typically offers same-day loans of £50-£400 on a short-term basis, must only take money from borrowers' accounts on the date or dates set out in the loan agreement, unless otherwise agreed with the borrower in advance.
It must also not change repayment amounts unless this has been specifically agreed with the borrower in advance, and it must only take money from an account specifically given to Paydayok for the repayment of that loan.
Failure to comply with requirements could lead to a fine of up to £50,000 per breach, or action to revoke a company's credit licence. The requirements imposed on Safeloans Limited follow similar action announced last month against CIM Technologies Ltd, trading as Toothfairy Finance.
Watson said: "We have made it clear we will not tolerate companies misusing repayment facilities and we will take action to ensure that unfair terms are not used. Those who offer payday loans must do so responsibly and in accordance with the expected standards."
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