Fear of loan sharks stops desperate victims seeking professional help over debts, new report warns

Fear of reprisals by loan sharks is deterring many impoverished, vulnerable people from seeking vital advice from professional debt advisers, according to a major new report.

Up to one million people are in hock to illegal money lenders as the cost-of-living crisis bites and front-line poverty-fighting charities are warning that the numbers of people turning to debt advisers in desperation is growing fast.

However, for a variety of reasons, fear included, many of those seeking urgent help fail to tell their advisers that they owe money to loan sharks who can charge up to 1,000 per cent.

The disclosures come in a new report from the Centre for Social Justice, which analysed data from 700 victims of illegal lending and a survey of 171 debt advisers.

The need for debt advice has soared as the cost-of-living crisis has put household finances in turmoil. The number of debt assessments carried out by Citizens Advice has risen by 69 per cent in the year to February 2023, driven by substantial increases in the number of clients seeking advice for fuel debts (19 per cent increase) and council tax arrears (10 per cent increase). This comes off the back of StepChange’s recent announcement that the amount of unsecured debt held by their clients has increased by 25 per cent to an average of £13,941. 

In a foreword to the report, Friend or Foe? Yvonne Fovargue, Labour MP for Makerfield, endorses the CSJ’s call for a revolution in the quality of advice given by debt specialists, who typically work for Citizen’s Advice Bureau and other charities.

She says: “Not only do large numbers of people continue not to seek advice at all but significant proportions of clients with debts to an illegal lender say that they did not tell their debt adviser about it – often citing that they weren’t asked, didn’t know they could help, or that they were afraid.”

In its report, the CSJ says that debt advisers are experiencing a record surge in demand.

“Debt advice agencies across the board are witnessing steep rises in the need for debt advice and Citizens Advice, StepChange, and Christians Against Poverty have all reported record requests for help,” the report finds.

Suspected cases of illegal money lending and confirmed cases of illegal money lending are rarely properly transferred to the Illegal Money Lending Teams, Britain’s chief loan shark prosecutors, after debt advisers become aware of a client’s circumstances, it adds.

Shockingly, fewer than 40 per cent of the victims of illegal money lending have received debt advice. More worryingly, even of those victims that do seek advice, over a third of those in debt to loan sharks never tell their adviser. The most common reason for this disturbing state of affairs is that they say debt advisers do not ask those seeking financial advice about loan sharks – but fear of reprisals also plays a big part.

The report finds: “Just over a fifth of victims [who did not tell their debt adviser] said that they were too scared or ashamed to tell their debt adviser.”

“Given all we know about the pervasive nature of an illegal lender and the methods they use to enforce repayment – from pester power to extreme violence – this will almost always be the hardest barrier to overcome.”

Over 90 per cent of debt advisers are aware of illegal money lending with more than half having supported a client who has borrowed from a loan shark. Yet this is not part of any debt advisers’ routine assessments of new clients.

The report has six bold recommendations for the Government, Money and Pensions Service and debt advice agencies to:

• Improve consumer awareness of illegal lending
• Implement training on illegal lending as part of an adviser’s introductory training
• Focus on confidence as well as knowledge so advisers can discuss an illegal lender
• Commit to directly transferring clients to the illegal lending teams over signposting
• Add debts to an illegal lender and seeking support box to the Standard Financial Statement
• Implement a new framework for investigating an illegal lender

In her foreword, Ms Fovargue says:

“During a cost-of-living crisis, advisers need to be able to have difficult conversations with clients about their finances and root out illegal lenders where they exist. They cannot work miracles and there will always be clients who feel unable to speak up about the debts that plague them, especially where loan sharks can be found, but every effort must be made to support those who present themselves.”

Matthew Greenwood, the CSJ’s Head of Debt, said:

“Debt advisers are one of the first lines of defence against illegal money lenders. If we cannot clamp down on the scourge of loan sharks we are failing some of the most vulnerable in society.

“We need to empower advisers so that they are better equipped to help those who have been targeted by loan sharks and to start to ensure that illegal money lenders face justice.”