Context
Illegal money lending operates below the regulatory radar. It can be difficult to identify and quantify, given the taboos that surround it and what is at stake. For consumers, that could be shame or violence, and for lenders fines or imprisonment. To overcome this, the FCA held a series of conversations and discussions to gather insight and improve their understanding of illegal money lending.
The study
The insight was generated from eight round table conversations across the UK (five in England, one in Northern Ireland, one in Scotland and one in Wales), attended by over 70 people from more than 50 organisations that deal with consumers who had experience of unauthorised lenders, or were aware of their operating methods.
From this initial group, a wider set of over 150 contacts were identified, who were contacted by phone and email to gain additional understanding.
Key findings
Overall
- Unauthorised lending has existed in communities for generations, happens across the UK and is most likely to be found in areas of high economic deprivation, particularly within social and rented housing estates (in both urban and rural areas) with close knit communities.
People who use unauthorised lending
- Organisations involved in the research reported that their clients were facing a tough financial environment, with external factors placing pressure on incomes, alongside increasing demands on essential expenditure.
- Unauthorised lending was reported across all age groups and consumer types, including those in work, with their own businesses and from financially comfortable backgrounds.
- The consumers most often seen by organisations in the research were from low income families on economically deprived estates, including lone parents, and people with cultural, educational or language barriers to legitimate lending and form-filling.
The lenders
- Illegal lenders are part of a way of life in many communities. There are different types of lender, and lending can take many forms, in many places – wherever there are people with an urgent need to borrow.
- Lenders can be relatively benign, and feel like a legitimate business, sometimes operating alongside regulated lending (‘parallel lending’). Other lenders can be life-threatening, exploiting people for financial and personal gain.
Models of lending
- ‘Renting’ money was reported as common, where an amount is lent to a borrower who pays back a weekly ‘rent amount’ until the lump sum is repaid, which is hard to achieve and repayments can last indefinitely.
- Lenders may be embedded in workplaces, and generally larger institutions with a low paid, often migrant workforce, in both urban and rural areas. They tend to rely on word of mouth, including social media which can be used to threaten non-payers. Most stay out of the public domain.
Points to consider
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Methodological strengths/weaknesses: This was a qualitative study aimed at describing, and getting deeper insight into, experiences rather than producing statistical information about the prevalence and types of people who use or provide unauthorised money lending.
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Generalisability/ transferability: Insight was gathered within a UK setting, so transferral to other territories may need to account for differences in the welfare, benefits and financial regulation structures in those nations.
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Relevance: This report is of potential relevance to anyone with an interest in the impact and characteristics of illegal money lending.
