Putting Loan Sharks behind Bars

I came across this really excellent leaflet from Tower Hamlets Council Trading Standards while trying to put together a “financial inclusion” pack for all new residents.

Quite rightly progressives of all shapes and sizes get very “full on” about the serious issues of child poverty, crime and social exclusion. The community destroying and leaching activities of unauthorised loan sharks who prey on the poor and desperate is sometimes overlooked. We have comptletely vile gangsters who terrorise the vulnerable for debt repayment in many inner city estates and who do deserve long imprisonment for their crimes.

I am pleased that the local Council is trying to do something about them. Yes, send ‘em down, every one of them! But do not forget the far more widespread and “legal” culprits - the "door to door" collectors and the high street money shops.

They may not break your legs but they will charge up to 1845% pa (I say again if you think you have misread this – 1845% per annum! - Payday loans website - can you believe it this has gone up from January 2008 when it was “only” 1330% pa) for credit. The current Bank of England bank rate is 1.5%.

How can we tackle poverty when our very poorest estates pay this sort of money for credit? Credit unions and good consumer advice are key but the Government needs to outlaw such usury. There is no excuse for such interest rates. There should be a maximum rate for all personal loans.

1330% APR - Tackling the Loan Parasites (and Sharks)

I’ve been thinking of yesterday’s post and about what should be done about the likes of “Money Shop” and the rest (Payday UK “only” charge 1330% interest for a 30 day loan – please click on the link to check I am not making this figure up. It is unbelievable. Apparently they have 100,000 UK customers) who make such excessive interest charges.

Firstly, why not legislate against it. Usury use to be illegal for centuries. There also use to be numerous Bank of England regulated credit controls which were abolished by Thatcher?

This is not just “Old Labour” but actually surely it is the role of the state to legislate against such blatant exploitation of vulnerable people? These interest rates are just parasitical. We have after all made other justifiable interventions into the “market” such as the minimum wage and now personal pension accounts.

Of course there must be better education in schools about personal finance and what high interest rates really mean. Maybe also we should think whether the government could open an account for everyone in a community credit union as they did recently for kids?

There is an argument that if you restrict the “official” interest rate you may encourage people to use loan sharks. According to recent research 165,000 Brits already use loan sharks. So that argument is pretty poor. You are more likely to need a loan shark if you have to spend so much of a limited income on “over the counter” interest. Also these mind boggling rates almost make loan sharks respectable. It is interesting that the BBC link above mentions that Tower Hamlets loan sharks are being targeted by special trading standard teams. We have a bit of a history of this sort of thing.

If there is (rightly in my view) a fuss about the “unfair” charges paid to proper banks by (dare I say mostly “middle class”) bank customers and even a legal test case by the Office of Fair Trading, then why can’t the government take action to restrict the interests rate paid by the mostly very poor, “working class”?

Apart from being a point of principal and social justice - can you imagine the Tories supporting such a move? What would their paymasters, such as the pro-unfettered market "Fidelity Fund managers" say!

A decisive move in this direction would let in some clear red water... Gordon?