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Illegal Money Lending

Volume 723: debated on Tuesday 29 November 2022

Motion made, and Question proposed, That this House do now adjourn.—(Amanda Solloway.)

It is a pleasure to serve with you in the Chair, Madam Deputy Speaker. I will endeavour to make concision my watchword, with my eye half on the clock, but I want to give this issue an airing. Illegal money lending is a growing and pernicious problem in constituencies such as mine, but it receives little attention and is almost surrounded by stigma. I am grateful to the Centre for Social Justice for its assistance in preparing for today’s debate, particularly Matthew Greenwood, who authored an exceptional report on the issue.

On the surface, illegal money lending sounds as though it might be a rather low technical offence—lending money as a business without approval from the Financial Conduct Authority. In practice, however, it is a frequently devastating crime that sees the exploitation of the financially vulnerable and carries with it deep financial, mental and physical costs. No two cases of illegal money lending are the same, but, in England today, the Centre for Social Justice estimates that up to 1 million people could be borrowing from an illegal money lender. Those people each experience illegal lending in their own way and for their own reasons. It is dangerous to over-generalise and I will try to avoid doing so.

Anyone can be the victim of an illegal money lender—indeed, anyone can be an illegal money lender—but known victims tend to share a number of common experiences. Just over 60% have an income below £20,000 a year and almost half live in social housing. That constitutes a large proportion of my constituency, as Blackpool has eight of the 10 most-deprived neighbourhoods in the country. Illegal money lending is a danger that stalks every street in the centre of Blackpool. It is a risk to almost every home, but those who are often the victims have limited awareness of it.

Sometimes illegal money lenders are called loan sharks, but I am not fond of that phrase, because the problem is much more insidious than the almost-cartoonish quality of “loan shark” suggests. The lender is not an unknown quantity circling menacingly outside the front door; too often, they are a friend or relation popping round for tea and sitting on the sofa. When people are struggling to afford the costs of everyday items and bills, and often unable to access credit, they turn to someone they know and consider a friend, or even a family member they trust, but they are deceived.

Simply, that lender is not a friend, but a fraud who deceives their victims with an offer of financial support that does not materialise in practice. Having advanced money to their customer illegally, the lender does not adhere to the stringent credit regulations put in place more widely to protect consumers but exploits their sense of obligation to repay for financial gain.

We have an excellent illegal money lending team in this country, who I know the Minister supports and works with closely. They can evidence annual percentage rate repayments into the thousands, as people are emotionally manipulated into a deep sense of obligation to repay a so-called mate who once ostensibly helped them out.

I commend the hon. Gentleman for bringing this forward. In Northern Ireland, we have real problems with illegal money lending, and paramilitaries are usually involved. People on estates are desperate, with energy prices and everything else rising to a level that is absolutely beyond their means, and they think the only way out is via illegal money lenders. In these trying times, with the rise in the cost of living, many may be tempted to go down this route for a quick loan, so does he agree that more needs to be done—I am looking forward to the Minister’s response—to make people aware of the damage that loan sharks can cause? A £100 loan could mean an £800 repayment, and that is outrageous.

I thank the hon. Member for his intervention. As ever, he speaks a lot of sense. His evidence from Northern Ireland shows why we cannot generalise about this issue—there are specific circumstances there—but I join him in looking forward to the Minister’s reply, and I am sure those points will be taken on board.

I was struck by one example in which an illegal lender took all a young girl’s money in repayments because she felt obliged to him, as he had taken the effort to go round and put drops into her pet dog’s eyes because she could not manage it herself. What an awful situation to be in. Coercion and intimidation are all too often encouragements to repay, and that should not be the case.

What about when a victim cannot pay? Illegal lenders have been known to add arbitrary late fees, causing the debt to spiral out of control, and to threaten their victims and even demand sexual favours. I know the Minister is more than familiar with the practices of illegal lenders and their economic abuse, but for the benefit of a wider audience, let me tell the House about Michelle. Michelle met her lender on the school playground. She needed money and her friend—her lender—offered to meet that need. She thought she was borrowing from a friend. When she struggled to repay, her lender made it her business to know when money went into her account so they could make her repay. The more she repaid, the more she needed to borrow, but that was not all. Michelle received threats, and she had her windows smashed. As she tried to sleep at night, she was shouted at, making her own home an unsafe place to stay. It got so bad that Michelle and her two children were put into temporary housing. Why? Because she borrowed £50.

I raise these issues not only because they are a blight on our communities, but because we are facing an increase in the cost of living. Those on the sharpest edges will be pushed further away from financial inclusion and the legal credit market into the hands of the most unscrupulous. I very much welcome the financial support that the Government have already given to support people’s incomes, but we must do all we can to prevent illegal money lenders from taking hold by supporting the illegal money lending team to do its job and provide long-term, scalable market solutions to financial exclusion.

The illegal money lending team is a specialised body equipped to identify and prosecute illegal money lenders, but its current scale is insufficient to meet rising demand. Money is scarce, but support to improve the team and its data capabilities would go a long way to improve understanding of this issue and better tackle it. I know the Minister will be aware of the consumer credit levy that raises funds for the team, but perhaps funds could be found from elsewhere in the Department, even in these straitened times. Another part of this support must surely be improving the quality of debt advice and its ability to identify clients who are borrowing from illegal lenders.

It is worth touching briefly on the Help to Save scheme, which is one of my pet favourite projects of the entire Government. It is a fantastic mechanism by which people on universal credit and some legacy benefits can save for a rainy day. To date, His Majesty’s Treasury reports that the scheme supports almost 360,000 people, but this is well below 10% of even those on universal credit. Improving access to and the uptake of this solution to financial resilience is a priority.

May I make a wider point? I have participated in numerous online sessions, meetings there, speeches—you name it—and often all I hear is how we remedy the consequences of poor financial resilience, not how we avoid it in the first place. Help to Save should be front and centre in all our debates about this, not waiting for things to go wrong when we could solve them further upstream. I urge the Minister, as he is new to the job, to make Help to Save a personal passion, because it can make so much of a difference to so many lives.

Finally, let me touch on credit unions and the consumer credit market more widely. Accessing credit should be something that everyone can do. It should not be stigmatised as wrong for certain types of people, as sadly I often hear in this place. We need to do much better through innovation at ensuring that those who most need credit can access credit that is affordable, and that successful repayments can open the door to future, cheaper forms of credit. That journey—the focus of the much lamented and unadvanced Woolard review—is crucial if consumers are to steer clear of illegal lenders.

Part of creating a healthy credit ecosystem is emphasising the role of credit unions, which are strong, community-focused organisations that offer low-cost, alternative credit. However, they are not currently up to the task of plugging the entire credit gap because of over-prescriptive legislation that is both old and in need of modernisation, as well as designed in such a way that it limits their growth, scalability, size and membership.

I know that this is an area of work that the Minister is taking an interest in, and I welcome the provisions in the Financial Services and Markets Bill, which he is shepherding through the House. The Bill will help to expand credit unions’ coverage across the credit spectrum and improve access to services, but if we are to truly scale these lending bodies, we need to reimagine what is called the common bond. By tweaking existing legislation to allow credit unions to have a maximum membership rather than a maximum potential membership, we might allow them to cover a wider geographic area, pool their talent into bigger, more professional bodies and compete with one another to offer the best services. That would create scale, and it seems to me to be a sensible, market-oriented Conservative policy. If only we had so many more of them at the moment. Come along—it cannot be that difficult.

More widely, it is important that the consumer credit market is fit and able to serve customers across the credit spectrum. I urge the Minister to undertake work to see whether the Bill can be adjusted to accommodate those views. Reimagining the common bond, promoting strategic mergers and supporting the illegal money lending teams to clamp down on illegal lenders are small tweaks. I know that those are issues that he takes seriously. I hope—I ask this in every Adjournment debate—he will meet with me and the Centre for Social Justice to discuss how we can take this agenda forward. I thank him for his time today and for listening to me. I thank hon. Members present and hope that, as I have been concise, the staff of the House can make it in time for kick-off.

It is a pleasure to speak in this debate. I congratulate my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard), who has a distinguished record in advocating for this subject that is matched only by his distinguished record in speaking up for his constituents.

As my hon. Friend so persuasively explained, loan sharks—he prefers to call them illegal money lenders, so I will do so going forward—can at best use unfair, hidden fees and sky-high interest rates and, at worst, some of the much more aggressive practices that he talked about. The Government recognise many of the concerns that he outlined, and I recognise them from stories that I have heard.

Illegal money lenders prey on the most vulnerable people, which is one of the saddest things about this particular form of crime. As we heard in the case of Michelle, it causes the victims great harm and distress, as well as inflicting damage on the wider communities—sometimes, those communities already face adversity—in which they operate. It is a devastating crime.

This is not a novel issue affecting only some. Only recently, I too met the Centre for Social Justice, including Matthew Greenwood, who has produced an excellent report, to listen to the findings about the prevalence of illegal money lending in England. I want to be absolutely clear with the House that lending money without Financial Conduct Authority authorisation is a crime. We want to clamp down on this immoral and damaging practice, and that is why, as my hon. Friend mentioned, the Treasury funds the illegal money lending teams across the UK. Those teams include specialist local trading standards officers who operate nationally and work alongside the FCA in maintaining standards in the consumer credit market. They can draw on geographically dispersed community intelligence officers, who are crucial in identifying local illegal money lenders, who disproportionately operate in low-income communities, and clearly, by the nature of the crime—my hon. Friend mentioned that there is often a family and friends link—can be hard to detect.

Since the teams were established in 2004, they have prosecuted over 400 cases of illegal money lending and the associated criminality that accompanies it, and have caused nearly £90 million of illegal debt to be written off. That is a huge number, but there is more we can do.

I thank the Minister for the comprehensive and detailed response he is giving, which I think is what the hon. Member for Blackpool North and Cleveleys (Paul Maynard) is looking for. I mentioned the issue in Northern Ireland in my previous intervention. I know that the Minister may not have had an opportunity to speak to anyone in Northern Ireland, whether in policing and justice or in the Police Service of Northern Ireland, but if he has, can he give any indication of what discussions he has had with those in Northern Ireland, where paramilitaries seem to be the moneylenders, about how we can take those bloodsuckers—which is what they are—out of society and off the backs of the local people?

I thank the hon. Member for his intervention. I have not had that opportunity: I am a relatively new Minister, but one who has already had impressed upon him the gravity and prevalence of this situation. I will undertake to understand the situation not just in England, but in all parts of our Union, including with the Police Service of Northern Ireland. Of course, if we are going to tackle this problem, it is right to tackle it in every corner of the Union and make sure there is no hiding place.

The Government have increased funding since the Treasury took over responsibility in 2017. That funding has gone up by 37%, and this year, the Government will provide around £7 million to the teams. I understand the desire of my hon. Friend the Member for Blackpool North and Cleveleys for more resources to be put into this area. I will take that away, meet with the teams and those responsible, and see what more we can do, whether that is simply a question of resources and priorities or whether some legislative changes could be examined. I cannot make any promises at the Dispatch Box today, but I will do that for my hon. Friend as we seek to bear down on this issue.

Those teams also provide support to victims and education to those who are most at risk, and they tell me that they have helped over 30,000 people through that process. They undertake community work, warning people like Michelle, my hon. Friend’s constituent, of the risks of loan sharks—perhaps that term is okay in this colloquial context—or illegal moneylenders. They also support people through the provision of legal and affordable credit, which is something I am very keen to increase. As my hon. Friend impressed on me, we have to work upstream, providing safe, legal and low-cost alternatives to cut off the demand for this product at source. I want consumers to build resilience through having a savings buffer, as well as getting young children into the savings habit at a very early age, as I did. That is a great life gift to give to somebody, and we are well placed to do so through the provision of things like credit unions—safe, legal and affordable credit when people need it.

The Minister is incredibly gracious in giving way, and I am not going to hold up the debate for much longer. I just want to say that I was very fortunate to have a mother who, when I was 16, gave me my first £10. I went down to the Northern bank, as it was then—it is now Danske bank—and that was the first stage in my savings. That instilled a habit in me, and probably in all my brothers and sisters, of saving and being able to pay our debts.

I commend the hon. Gentleman and his mother—he probably would not be where he is today if not for that brilliant savings habit established at an early age. I had a National Savings and Investments blue book; I used to go along to the post office, put in my pound and get a little entry into that book.

I do not mean to digress—not every part of the United Kingdom has an important fixture, a date with destiny, shortly—but I share the passion of my hon. Friend the Member for Blackpool North and Cleveleys about getting people into the savings habit. I will be meeting soon to understand more about the opportunity presented by community development finance institutions, which provide a local, place-based alternative source of credit to people. Also, as my hon. Friend mentioned, there is the brilliant Help to Save scheme, and it would be a delight to work with him to see how we can upscale that—I am sure that he has great insights into it. The scheme is very creditable. It does a good job, and I am delighted to learn that it has helped more than 350,000 individuals. However, as we learned on the prevalence of illegal lending, there is a great deal more to do, and I am keen to understand that scheme more. I recently met the management team of National Savings and Investments at its new offices just around the corner from here. It operates that scheme on behalf of the Department for Work and Pensions, and that could provide a great opportunity.

I know that people across the United Kingdom are worried at this time about the cost of living. Some of them are seeing their disposable incomes decrease or be squeezed. We are fully alive to the fact that that may induce people to turn to illegal lenders. To help the most vulnerable, we have announced £37 billion of support for the cost of living this financial year. We have taken decisive action to support millions of households and businesses with rising energy costs this winter through the energy price guarantee and the energy bill relief scheme. I know that my hon. Friend would say that there is always more to be done, and that the Prime Minister would say that, however generous the Government wish to be, there is a limit to how much we can do. We seek to get the balance right.

In addition to the energy price guarantee, millions of the most vulnerable will receive £1,200 of support through the £400 from the energy bills support scheme, the £150 from the council tax rebate and a one-off £650 cost of living payment. I hope that that gives my hon. Friend some reassurance about how seriously we take this issue and how we are putting the taxpayers’ money where our mouth is, in terms of helping the most vulnerable and trying to keep them out of the clutches of illegal money lenders. I undertake to him to continue to work hard to introduce safe, legal and affordable alternatives, as well as to be relentless in our pursuit of those who would try to exploit this opportunity.

Question put and agreed to.

House adjourned.