Bishop Warns Against Using Loan Sharks
The Bishop of Newcastle has warned of the dangers of loan sharks after revealing the extent of inequality in some parts of the north-east.
Speaking in the House of Lords, the Right Rev Martin Wharton expressed his belief that the government needs to do more to tackle the issue of doorstep lending by raising people out of poverty and educating them about good financial management.
Only then will the culture of dependency on loan sharks in Newcastle be eroded, he said.
Rather than seeking out cheap loans to fund purchases, or finding out about debt consolidation loans when in financial difficulties, it is possible people have been relying on unregulated lenders who abuse their vulnerability. He cited one instance where someone had revealed that borrowers continued to pay a loan shark even when they owned nothing “because you never know when you might need to use him again”.
He also warned that some families in Newcastle and elsewhere did not have the means to finance basic necessities like food and heating, reports local newspaper the Journal. As well as engaging the government on the issue, the bishop said charities, churches and councils need to work together to overcome “social evils”.
“On one estate in Newcastle, 87 per cent of 142 households were paying doorstep lenders an average of one-third of their total weekly income,” he told peers.
Last week, the Archbishop of Canterbury, Dr Rowan Williams, called on the government to do more to protect the poorest people in Britain from the consequences of a downturn in the economy. In order to avoid “cycles of unsustainable debt”, he recommends improving financial education, enforcing tighter controls on doorstep credit agencies and loan sharks and fostering “responsible alternatives” to doorstep lending.
Earlier this year, the government announced new rules to target debt collectors. Under the terms of the Consumer Credit Act 2006, lenders now have to endure a more painstaking test by the Office of Fair Trading (OFT) before they are granted a consumer credit licence. Moreover, the OFT has more flexible powers to tackle rogue lenders. Commenting on the new rules, business secretary John Hutton said that extortionate interest rates, unfair conditions and aggressive debt collection “will not be tolerated”.
“There will be more protection for people who get caught out by rogue lenders who pretend to play by the rules but act like loan sharks,” he promised. “Enforcers now have the powers they need to crack down on the small minority of traders who treat consumers unfairly.”
Although loan sharks tend to be a working-class phenomenon, there are warnings that more affluent consumers are being ripped off by store cards, some of which charge interest rates of 30 per cent. In fact, one MP on the House of Commons’ treasury select committee said that store card issuers are “designer loan sharks”. Rather than seeking out the best rate loans, consumers rely on store cards which charge comparatively high rates of interest.
It begs the question of how much consumers would save if they took out a personal loan to consolidate their debts. According to Alliance & Leicester, a customer with 2,500 pounds of store card debt could save 437.76 pounds by paying their balance with one of many unsecured personal loans on the market. Andy Bayes, spokesperson for the firm, said cardholders should “take a good look” at the interest rates they are charged and consider taking out debt consolidation loans.
“It is time consumers started to fight back against store card charges,” he added.
In recent debt news, it was asserted by MoneyExpert that those juggling more than one credit card were in danger of getting into significant debt. More than three per cent of people hold five or more credit cards. Anyone finding that they are struggling to meet monthly demands for repayment from such cards might find that debt consolidation offers a way of restructuring borrowing to make it easier to address.
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