This week the Financial Conduct Authority published a report detailing consumer experiences of illegal lending in the UK. The report highlights some of the experiences of ‘hard-to-reach’ consumers and the effects that illegal lending has had upon them.

However, the report notes the difficulty in establishing hard evidence of the number of consumers involved with unregulated lenders, due to the hidden nature of the practice and therefore is unable to assess how widespread and significant illegal lending is. It is also therefore not able to properly assess if the FCA’s regulatory actions within the consumer credit market that reduce access to regulated credit, are adding to the use of illegal lending.

What we do know from the FCA’s Financial Lives survey, published last month, is that of those interviewed directly, just under 100,000 had used an unregistered lender[1].

What the report does demonstrate is that those consumers using illegal lenders fall across all demographics and consumer types, including those in employment and from a financial background. The common denominator across all users is an income shortfall and a subsequent desperate need for money urgently. Some were reported as being cut off from credit completely and others avoided mainstream credit for fear of being rejected, or they found it too complicated to use.

The report also highlights the lesser known areas in which illegal lenders can operate, where they practice alongside regulated lenders in areas such as, home collected credit, catalogue credit, pawnbrokers and credit brokerage. It also highlights that illegal lenders can also be found in workplaces as well as exploitative landlords who have not applied for FCA authorisation but have carried on their credit business regardless.

Many of the stories reflect the plight of vulnerable individuals who were pinpointed by illegal lenders with a view to “put them in their debt and seek to keep them there”[2]. With Christmas just around the corner, FCA Chief Executive Andrew Bailey was right to issue a warning to families on the dangers of using unauthorised lenders, stating; “It leaves those who borrow with no safety net or protection against extortionate amounts of interest or threatening behaviour”[3].

The report is a useful indicator of and warning to consumer groups and regulators about the ease with which unauthorised credit can be obtained and the far-reaching consequences attached to it. However, with no analysis on how far current regulatory actions are increasing the use of illegal lenders, it adds little to what was already known.

At CCTA, we continue to lobby the regulator on the effects of FCA regulation on legal lenders and to campaign for access to responsible and affordable credit to support consumers during the peaks and troughs of their financial lives.

[1] https://www.fca.org.uk/publication/research/financial-lives-survey-2017.pdf pg 139

[2] https://www.fca.org.uk/publication/research/illegal-money-lending-research-report.pdf – pg 13

[3] http://www.mirror.co.uk/money/shameless-loan-sharks-lurking-around-11603208