The High Cost Of Doorstep Credit
There are many people who find it difficult to get credit. People with a poor credit history, with defaults, arrears and County Court Judgements (CCJs) may find that credit card companies and banks prefer to avoid them. That's why it can seem very attractive when someone is willing to overlook their financial history and give them the loan they desperately need.
There are many lending firms that operate from the high street who will visit your home to discuss borrowing requirements. Many of their representatives walk around with large sums of cash and will offer an on-the-spot loan for the amount you require. They will also tell you what the interest on the loan will be and negotiate a payment schedule. This is often weekly. The minute you accept the money, you owe both the money and the interest.
High Interest Loans
The interest added to the loan can be very high. It can be anywhere from around 40% to upwards of 170%, depending on the lender. This means that people who are already in difficult financial circumstances find that they owe double or treble the amount owed, with little prospect of paying it back successfully. There is little protection for the consumer as these illegal lenders, also called loan sharks, pay little attention to the rules.
This is an expensive way for people who are already struggling to borrow money. In one case, people who borrowed the sum of £5,000 found themselves with more than £300,000 to pay back. Illegal loans tend to add up quickly as people are only paying small amounts weekly.
How Illegal Lenders Get Paid
Illegal lenders do not wait for payment patiently. Borrowers need to pay the agreed amounts on time or things could turn nasty. Illegal lenders will use violence and threats to extort their money. Some will even seize borrowers' possessions if payments are not made on time. This can be a terrifying experience.
People who fall victim to illegal lenders have a few ways to fight back. Recent changes to the Consumer Credit Act have given consumers more power to challenge unfair loans. However, in the case of illegal lending, consumers' best options are reporting the lenders to the Department of Trade and Industry (DTI) or The Office of Fair Trading (OFT). The DTI or OFT can investigate the illegal lending. They may even be able to prosecute, with the cooperation of the borrower.
Prosecuting Illegal Lenders
Illegal lenders can be charged with unfair lending, though this can be hard to prove. Unfair lending relates to the way loans are sold and how the terms are presented. If the lender does not make it clear how much the borrower is borrowing, this may be unfair lending. This carries a fine of up to £5,000 and a prison term of up to two years.
Instead of going for illegal doorstep lenders, borrowers are likely to be better off getting a credit union loan. Many credit unions operate locally with a mission to help people manage their money and stay out of debt.
Some examples:
