Thousands of people rely on the help of loan shark companies to pay back unexpected debts. These people offer unsecured, high-interest loans without the hassle of completing paperwork.
Some loan sharks use threats and harassment to ensure they get their money back, intercepting benefits and cash payments. One mother of four managed to pay her debt, which had increased to £2,000 due to delays, by selling some of her possessions. Thankfully, she found help from a community centre and was able to get the money she needed.
Illegal payday advance businesses
The number of illegal payday advance businesses in the UK has increased dramatically in recent years. The 2008 financial crisis caused banks to become less willing to offer temporary credit, leaving poorer families struggling to cope with the costs of living and low wage growth.
Many politicians have sought to sway public opinion by positioning themselves on the side of low-income families, and have been calling for a crackdown on the industry. As the cost of payday loans continues to rise, the British government is determined to protect consumers from being ripped off.
The number of illegal payday advance businesses in the UK has also increased since the Financial Conduct Authority (FCA) released a consultation document in April 2013. The report found that the market was distorted and that the majority of firms were not compliant with the law. The consultation closed on 1 May 2013.
Licensed payday advance businesses
Licensed payday advance businesses provide short-term loans to businesses at above-market interest rates. This form of lending has the potential to generate large profits, but it also faces considerable legal risks.
Fortunately, it also provides a lucrative business opportunity for those who want to make a quick buck without exposing themselves to the hassles of traditional bank lending. In fact, many businesses have turned to payday lenders for short-term financing.
Licensed payday advance businesses offer high-interest loans on the security of a post-dated cheque. While many critics have referred to these companies as “loan sharks,” the distinction is not quite as simple as one might think.
The essence of loan sharks is not illegal lending or violent debt collection. Instead, it is their high interest rates and credit products that trap debtors. Licensed payday advance businesses are close relatives of early twentieth-century salary loans and are legally protected.
High interest payday loans
A study carried out by the Competition and Markets Authority and the Financial Conduct Authority found that around 60 per cent of people take out a payday loan. In addition, customers are largely young and male.
They typically have low incomes, with the median net income of a customer at a high interest payday loan company being £16,500 in 2013. Furthermore, 21 per cent of customers don’t even know what their household income is.
Although loan sharks are illegal, they can act as if they are legitimate companies. You should seek advice from an official financial services organisation if you are unsure about the terms and conditions of a loan.
If you receive threats or harassment from a loan shark company, you should contact them directly and seek help from the appropriate body. In some cases, they may be operating online and don’t provide any paperwork explaining the terms and conditions of a loan.