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Published 07 July 2023
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Loan Sharks: How to Spot an Illegal Lender

Loan sharks are illegal lenders who are not authorised or regulated. They may charge high-interest rates and use threats and intimidation towards anyone who borrows from them. Find out how to spot and report a loan shark.

More than three million adults in Great Britain may have borrowed from a loan shark, or illegal money lender, in the last three years, according to research carried out for Fair4AllFinance in June 2023. 

These illegal money lenders may target individuals who are particularly vulnerable and desperate for money, and who could be dealing with other problems alongside their financial troubles.

And with many households struggling with the rising cost of living, there is a risk that the number of people turning to loan sharks for money could increase even further.

While it’s illegal to lend money without authorisation, it’s not illegal to borrow from a loan shark. So, if you have borrowed from a loan shark, you don’t need to worry that you will get in trouble with the police by reporting them.

Whether you want to know how to spot the signs of a loan shark or you’re worried that you or someone you know is already in debt to a loan shark, you can find out more below.

What is a loan shark?

Loan sharks are individuals or organisations that lend money illegally, without having the proper authorisation from the Financial Conduct Authority (FCA). They could be an organised group disguising themselves as a legitimate lender, or simply someone working alone that you meet in your day-to-day life.

Borrowing money from a loan shark can be dangerous, but spotting one may not always be straightforward. 

Some loan sharks could be involved in other criminal activities, such as drug dealing, but others may have a more legitimate image. 

A 2023 report from Fair4All Finance found that loan sharks can come in a variety of forms, but they often are prominent and well-known in their local community. They may have links to businesses that primarily use cash, or even to a legal and regulated lender.

For example, some agents that are, or were previously, employed by a legitimate lender may offer loans separate from the lender’s regulated activities. These people may take advantage of the trust and reputation they have among clients from their work for the legal lender to run their own illegal lending operations. This is known as parallel lending.

In these cases, borrowers may assume that the loan shark is still working for a legitimate company and not be aware that anything illegal is going on.

The Fair4All Finance report also showed that many people who borrowed from an illegal lender were introduced to them by friends or family.

But, while some loan sharks may be known as an option if you need to borrow some money, others may disguise their true intentions.

For example, a loan shark could be an acquaintance you meet at work or the school gates, who seem friendly and helpful at first by offering to lend you money. They may lull you into a false sense of security before they then take a more intimidating and threatening approach. 

This intimidation may not just happen in person either, as a March 2022 report from The Centre for Social Justice found, loan sharks often harass victims online on social media too.

Why are loan sharks dangerous?

To be able to lend money legally in the UK, providers need to be authorised and regulated by the FCA.  This ensures lenders abide by certain rules and makes sure that borrowers have some protection.

Loan sharks are not regulated, which means they operate illegally. Unlike authorised lenders, loan sharks may not feel obliged to meet any of the industry standards set by the FCA, which puts anyone who borrows from them at risk.

For example, loan sharks will often charge incredibly high-interest rates and may use threats and violence, especially if you can’t make a payment. Even if you only borrow a small sum of money to start with, a loan shark could trap you, so you end up owing thousands of pounds.

Some loan sharks may also be involved in other criminal activities. There have been cases of borrowers being forced into even more serious and dangerous situations, such as drug dealing, as a way of repaying their loans.

It’s very easy to get trapped in a spiral of debt after borrowing from a loan shark, which can have long-term consequences on your finances as well as other aspects of your life, including your mental health and relationships with your family and friends.

If you’re struggling with debt, or feel like you need emergency money, there are debt charities you can turn to for free advice and support.

How to spot a loan shark

You can see if a lender is authorised to lend money by checking the Financial Services register. If they’re not listed, they can’t lend money legally. You may want to contact the FCA directly if you’re still unsure if a lender is legitimate after looking at the register.

If you’ve been talking to an individual who claims to be from an authorised firm, it may be worth contacting the firm directly to confirm that the person works for them.

As well as checking that a lender is authorised by the FCA, below are some of the warning signs that could indicate someone is a loan shark.

  • You were offered a cash loan. Loan sharks traditionally deal in cash, but be aware that they may operate online too.
  • A lack of paperwork. All legal lenders will provide you with the necessary paperwork explaining the terms of the loan. Loan sharks may not give you a formal agreement or proof of repayment.
  • A lack of clear information about the loan, such as the interest rate and repayment terms. Loan sharks may be vague about the amount of interest they charge and when exactly the loan would be paid off.
  • Lending with no checks. Unlike authorised lenders, loan sharks won’t conduct credit checks or affordability assessments.
  • Taking any of your possessions as security. Loan sharks may take valuables, or even items such as your passport or bank card, which they say will act as “security” on the loan.
  • Threatening and violent behaviour. Loan sharks may use intimidation and force if you don’t pay back the loan, which authorised lenders would never do. This could be in-person or online via threatening messages, for example.
  • Your loan never gets paid off. Once loan sharks get you to borrow money once, they are likely to charge such high-interest rates you won’t ever repay it in full. They may also lend you more money or add further charges, so you stay indebted to them.
  • If someone you recently met offers to lend you money. Even if they seem friendly and you think you can trust them, if you don’t know them very well, you should always be cautious if they offer you a loan. 

Some loan sharks may pretend to be payday lenders or doorstep lenders. However, these lenders need to be authorised by the FCA, so you can check if they are legitimate lenders on the FCA register. 

You can also contact the company they claim to be working for to see if they are acting on behalf of the legal lender or not.

The rising cost of living means that many households are under a lot of financial pressure. In this kind of situation, it could be tempting to turn to a loan shark to cover the cost of bills or food shopping, for example.

However, if you need to borrow money, don’t turn to a loan shark. Even if you have a bad credit history, there are legal, authorised options available, such as loans from credit unions and specialist bad credit loans. You are likely to face higher interest rates if you have poor credit compared to someone with a good credit score, but it is always a much better option than borrowing from an illegal lender.

If you have already borrowed money from a loan shark, you have not done anything illegal and you should report them as soon as possible.

» MORE: Loan shark warning signs

What if a friend or family member lends me money?

It’s not illegal for a friend or family member to lend you money, even though they’re not authorised by the FCA. So, if you need a one-off loan, feel free to ask a loved one if they can help you out.

In many cases, borrowing from friends or family can be a better option than taking out an official loan as you are unlikely to be charged interest. However, make sure both parties are clear on the terms of the loan, such as how and when you will repay it.

If you borrow from friends or family, they are not allowed to use illegal methods, such as intimidation or threats, to force you to repay the loan.

Be careful when accepting a loan from a friend or a more casual acquaintance, especially if you’re not very close or haven’t known them long. Someone who seems friendly and wants to help you by offering a loan may turn out to be a not-so-friendly loan shark later on.

Only borrow from people you are sure you can trust. If you have any doubts at all, don’t take any money from them.

What if I’ve borrowed money from a loan shark?

If you, or someone you know, think you have borrowed money from a loan shark, the first thing to understand is that you have not done anything illegal.

Lending money without the proper authorisation is illegal, but borrowing from an unauthorised lender is not. So, if you have borrowed from a loan shark, you shouldn’t feel ashamed or worried about getting into trouble with the police as you haven’t broken the law.

Loan sharks may threaten you and may say they’ll take you to court to get you to repay the money. However, they have no legal right to do this and you have no legal obligation to repay them. It’s the loan shark that has broken the law, not the person who borrowed the money.

If you’ve borrowed from a loan shark, or suspect that someone is a loan shark, you should report them as soon as possible.

How to report a loan shark

You can report a loan shark anonymously, or you can give your name and more details to help the investigation into the loan shark. All reports of loan sharks are confidential and will be looked into.

In England, you can report a loan shark online on the Stop Loan Sharks website. Or you can call 0300 555 2222.

In Scotland, you can report them through the Trading Standards Scotland website or call 0800 074 0878.

In Wales, you can contact Stop Loan Sharks Wales online or by calling 0300 123 3311.

In Northern Ireland, you can report a loan shark by calling the Trading Standards Consumerline on 0300 123 6262.

If you’re in immediate danger from a loan shark, contact the police.

After you report a loan shark, you will get a call back (if you choose) to talk more about the situation. You may also have a liaison officer who will support you during the investigation and help you deal with any money worries you may have.

If you report a loan shark, you can make a formal witness statement. However, you can choose to stay anonymous and the investigation will still go ahead.

Image source: Getty Images

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