There are times in life when you need to borrow money. That’s a reality for almost all of us. From mortgages, to car loans, covering unexpected payments or paying for something special, borrowing is a normal part of modern life. A huge industry has sprung up around lending, meaning that there are lots of ways to borrow what you need. However, not every loan being offered is safe – we’re talking about loan sharks.
Unauthorised money lenders, aka Loan Sharks
Many of us will recognise unauthorised money lenders better as ‘loan sharks.’ Essentially, this is someone offering to loan you money who isn’t authorised by the Financial Conduct Authority (FCA). Sometimes, borrowing like this can seem like a good idea. Inevitably there are less approval processes, the money is available quickly and often in cash. However, as many people have no found to their cost, unauthorised money lenders have a very dark side that could end up costing you thousands.
The impact of loan sharks
Sometimes, the stories that we hear about loan sharks seem too fantastical to be believed. However, sadly they are all too true. Because loan sharks aren’t regulated by the FCA they have complete freedom to behave as they want to, and that includes threatening behaviour and overcharging on interest. The negative impact can be widely felt.
Debt that escalates uncontrollably. Reports in the news recently identified a 42 year old jobless ex-RAF serviceman who had borrowed just £20. Now, he owes the unauthorised money lenders around £7,000, having been sucked into a spiral of borrowing more and more.
Constant hounding. Loan sharks don’t keep business hours, they hound borrowers for money at all hours of the day or night. Often this can get violent – in 2014 The Guardian reported that 60 loan shark borrowers had been placed in witness protection for their own safety. This kind of intimidation is just not something that regulated lenders are allowed to do.
Loan sharks don’t respect arrangements. Stories of issues with loan sharks not keeping promises are all too common. ‘Mary’ was profiled in The Independent as a victim of a loan shark. She had borrowed £200 and been told she could start repaying a week later. Just three days after she borrowed the money the lender turned up on her doorstep demanding repayment. When Mary couldn’t repay she was bullied into taking out another loan to repay the first, ending up owing even more.
The FCA is cracking down on loan sharks
In January of this year it was reported that the FCA had taken its first criminal action against an individual acting as unlicensed consumer credit lender. As it is estimated that Brits owe around £700million a year to unregulated money lenders the FCA has recognised that it’s time to take action. So, from here on in, it should be much harder for unauthorised lenders to even carry out their business. However, they are still out there – and for many people they may seem like a good idea at the time. If you’re looking to borrow money then there are some very good reasons why it’s worth using a broker or lender that is authorised by the FCA.
The authorisation process is extensive. The FCA demands a lot from businesses looking to be authorised to lend to consumers. This includes making sure the business has the proper resources to provide a goof service and ensuring that the lender is suitable with a workable business model and proper processes.
The FCA sets rules for its authorised lenders. Perhaps the most important of these is that consumers must be treated fairly. This means that an authorised lender could never intimidate or threaten, or suddenly change the lending arrangement, as a loan shark might.
The FCA has enforcement powers. For lenders that aren’t up to scratch, the FCA has various powers to shut them down. This has a pretty motivating effect on lenders and brokers who want to remain FCA authorised and so ensure that they play by the rules.
You can complain about an FCA authorised lender. If you have a problem with a lender then you can contact the Financial Ombudsman or FCA and they will take your complaint forward. If you’re borrowing from a loan shark then there is no one to complain to if you are being treated unfairly, overcharged or intimidated.
Borrowing from a loan shark might seem like a good idea at the time but that’s rarely the case. There’s such a range of FCA authorised lenders and brokers to choose from now that you can get the loan you want, at the speed you want it, without taking the risk. We work with numerous, properly regulated lenders if you need a quick loan.
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Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley