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In Focus Risk

Loan sharking, a new cottage industry

Moves are under way to combat an increase in illegal personal lending

Murray Bailey

Independent risk specialist Murray.bailey

I recently worked with a near-prime lender and once a week saw a bank statement with unusual regular (usually weekly) transfers in from other individuals. When questioned, the applicant would say that it was money repaid from loans to friends.

However, it would appear that the squeeze on payday lenders has created a new cottage industry: borrow money to lend to others at higher rates.

Why do I suspect this rather than just straight-forward loans to friends? Because the repayment amounts are often in pence. I could also see the money going out and, I would guess, the APRs were in the thousands. It is not just about high rates of interest to the people who can least afford it. It is also about threats, intimidation, and violence.

The problem

County councillor Azhar Ali, of Lancashire County Council, said: “Loan sharks cause misery for some of our most vulnerable people and we work closely with the Illegal Money Lending Team (IMLT) and the police to pursue them.” The government has established national IMLT and, so far,

they have stopped and written off over £60m of debt.

This is likely to be the tip of an iceberg. It is estimated that about 310,000 households across the country are in debt to a loan shark, and IMLTs are set up to take reports from the victims. An individual can lend money via a P2P platform, or to family and friends, but as soon as it becomes a business, they must be registered with the FCA. Historically, the illegal money lenders have operated with cash, but they are moving to electronic money. Maybe it is a sense that they are acting with impunity, or maybe these are new lenders who see a quick way of making money. Whichever, this is a new face of the micro loan sharks.

Taking action

It would appear that the squeeze on payday lenders has created a new cottage industry: borrow money to lend to others at higher rates

March 2017

So, what should you do if you see a bank statement and suspect the applicant for a loan is acting as an unregulated lender? Holly-Leigh Luckman, the press and communication officer for England’s IMLT, suggested I send the bank statements to an IMLT for investigation. However, there are clear Data Protection Act issues here, if I was not absolutely sure of an illegal activity. How about reporting it to the MLRO? It could be appropriate; there is often a link between loan sharks and money laundering. If you do action via the MLRO, it may be reported to the National Crime Agency. However this is a niche issue and money laundering will need to be confirmed before action will be taken. An IMLT would be required to confirm illegal lending first. What about treating it as fraud? You probably do not have ‘loan sharking’ as a loan purpose in your application form, so, if

someone is borrowing to lend it to others, it is fraudulent. If you can prove that, then you can report it to CIFAS under their ‘abuse of facility’ category. Proving the loan was used in this way would necessitate monitoring the bank account and, if you are not the bank, this could prove problematic. Nicole Gibbs, business engagement executive at CIFAS, said: “Members could use the FraudCheck service to notify the applicant’s bank.”

Illegal lending is a growing issue and the government has acted by creating the IMLTs. However, the focus is on the borrowers and asking them to report a loan shark. We, on the other hand, can see it from the other side – particularly now the lenders are using bank transactions.

If you are an underwriter, then look for it. If you are the MLRO or fraud manager, then update your policies and procedures. Action needs to be taken, and it needs to be both effective and coordinated. CCR

Murray Bailey is also a crime-thriller writer. His novels, I Dare You and Map of the Dead are available now in paperback and e-book from Amazon and


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