28th December 2015
In the past few years there has been a lot of criticism of payday loan lenders and broker services in the UK. This has led to many changes in regulation and a major crackdown on illegal loan sharks. Now, the UK Government is proposing a new tax against payday loan lenders to The Government is looking to introduce a new levy on payday loan companies. George Osbourne plans to use this to finance support schemes for individuals who have become victims of illegal loan sharks.
Illegal loans sharks are defined as people who lend money to individuals without any permission from the FCA (Financial Conduct Authority) who regulates such matters.
In an address to MPs, Osbourne explained how he planned to use the money raised from the tax. There is currently a large funding gap in the national authority who are trying to crack down on illegal loan sharks and support the people left in debt; the tax will hopefully bridge this financing gap.
Osbourne is proposing to bring in this tax under the Conservatives who also introduced the lending caps on payday loan lenders last year. Osbourne stressed that they “take very seriously illegal loan sharks” as well as “excessive interest charges” during an address on Prime Minister’s Questions.
The Conservative government are not the only party to recognise the importance of the illegal loan sharks problem. The Labour party also suggested a similar proposal in their election manifesto of 2015. The key difference was that Labour planned to use the money to finance other alternatives such as credit unions.
Birmingham City Council is home to the national team that tackles illegal lending and loan sharks. So far, they have helped over 24,000 individuals who have been victims of illegal lenders and according to Richard Burden, a UK Labour MP, they have been able to write off over £63 million in illegal debts. He says that the current Government is slashing funding to the Council’s team.
As the MP for Birmingham Northfield he says “debt is a real problem” in his constituency “and throughout the UK” which is why he says the work done by the Illegal Money Team is so crucial.
When he asked Chancellor, George Osbourne, about the funding cuts he was denied an answer. Burden strongly hopes that Osbourne and Sajid Javid, Business Secretary, think about the “impact the cuts will have on the service”.
The CFA, Consumer Finance Association, did warn back in July that a clampdown on payday loan lenders would force many vulnerable borrowers to turn to illegal lenders and loan sharks. In January of 2015, new caps were introduced on payday loan lenders so loans could not be more than twice the amount originally borrowed and there was an upper limit set on interest payments. The aim was to protect vulnerable people who were looking for finance but the fear is that now more and more people are turning to riskier and illegal loan lenders.