The real cost of Christmas: A Circle Anglia report

The Real Cost of Christmas report¹, which was authored by think tank the Financial Inclusion Centre², estimated that £29 million in illegal doorstep loans were taken out over the holiday season, making it the worst Christmas in a generation for this type of borrowing.

Circle Anglia commissioned the research to highlight the issue after noticing an increase in the number of its residents being targeted by loan sharks, and launched the campaign to raise awareness among residents, who find themselves in financial difficulty, about the sources of help available to them.

Evidence shows that on average people borrowed nearly £300 from loan sharks to cover the cost of Christmas, but with exorbitant interest rates averaging a whopping 825 per cent (some rates can reach as high as 1,500 per cent), they will pay back over £800. The average loan repayment period is a year, meaning that a large number of Britain’s poorest households will still be paying off their debt in Christmas 2010.

The report also found that illegal loan shark activity is on the up in the UK. Over the last three years the estimated use of loan sharks increased from 165,000 to over 200,000 households per annum – a 22 per cent rise. As the recession continues to bite, loan sharks have moved in with loans from illegal doorstep lenders at Christmas time accounting for up to half of all loans borrowed from loan sharks in 2009.

Andy Doylend, Executive Director of Operations at Circle Anglia, said: “These figures are very concerning and demonstrate the scale of illegal lending across the UK. We hope that by turning the spotlight on loan shark activity we can help more people to seek help and get sound financial advice. A simple step such as borrowing from a credit union or a community finance organisation instead of a loan shark could have saved the typical low income household £500 in debt repayments – more than enough to fund the whole of Christmas 2010 as well.”

“The challenge in 2010, for all of us in the housing sector, is to make sure that we reach out to our residents to make them aware of the availability and accessibility of affordable finance and to help them manage their finances better.”

Consumer Minister Kevin Brennan said: "The Government has created specialist Trading Standards illegal money lending teams around the country so that they can come down hard on loan sharks. The teams have helped more than 10,000 victims and written off more than £30million of illegal debt. They have already secured around 50 years in prison sentences, helping to rid communities of these criminals. I'd encourage anyone who feels trapped by a loan shark to get help and advice as soon as possible."

Faisel Rahman, Managing Director of ethical lender Fair Finance and from the Debt on our Doorstep campaign, said: "Millions of pounds are being taken out of the pockets of the poor by illegal and extortionate lenders every year. As the credit crunch continues, more people are being left behind by mainstream financial services. This, coupled with the downturn on the economy, means 2010 promises to be a very difficult year for low income and vulnerable communities. Social landlords should be active in developing local partnerships and promoting affordable alternatives to extortionate and illegal lenders, because every person deserves access to fair and affordable credit."

Circle Anglia has provided some tips to people, who are struggling with debt problems:

Budget correctly: Write down all your family’s finances – it can really help to focus the mind. Create a very simple list of incomings (e.g. wages, benefits, child support) and outgoings (e.g. food, fuel, travel) – this will enable you to identify what areas of spending you might be able to trim. Don’t fool yourself about how much you spend on things. The key is being totally honest with yourself to make it a valuable exercise. What can you cut down on or cut out altogether?

Get free advice from experts: If you feel your debts are unmanageable and they seem to be spiraling out of control, speak with experts, who can guide and support you. Identifying and negotiating payment plans is something that organisations like the Citizen’s Advice Bureau, the National Debtline (0808 808 4000) and Consumer Credit Counselling Service (0800 138 1111) can help with.

Never borrow from loan sharks: Loan sharks are illegal and charge exorbitant interest rates at an average of 825 per cent APR. There are other ways you can access fair and affordable credit – find out about third sector credit providers such as credit unions that are in your local area and get in contact with them to discuss ways of accessing fair and affordable finance.

Shop the shark: If you have borrowed money from a loan shark you are under no legal obligation to repay the debt. A debt 'owed' to an illegal lender is not legally enforceable, which is why loan sharks often resort to violence and intimidation.

If you think you’ve been the victim of a loan shark or that there is one operating in your community contact the Trading Standards Illegal Money Lending team on the 24/7 confidential hotline 0300 555 2222 or text ‘loan shark’ and your message to 60003. They will help you deal with your situation and the loan shark. All reports are treated in confidence and the safety of the person calling is given the highest priority.

Be realistic: Set yourself a realistic time-frame to get out of debt. Don’t get frustrated that it will probably take more than a few weeks. If you’re serious about addressing your debt problems, you need to take a long-term view.

Key findings from the report:

• Nearly 100,000 households were forecast to have turned to loan sharks at Christmas in 2009
• The value of illegal loans taken out this Christmas was an estimated £29m
• The final cost of repaying this debt, faced with exorbitant interest rates, will be £82m
• The average interest rate charged by an illegal money lender this Christmas was equivalent to an APR of 825 per cent
• A consumer taking out a £288 loan from an illegal money lender with an APR of 825 per cent will end up paying back nearly three times this initial amount (£820)
• It will take over a year before most families manage to pay back their Christmas 2009 loan shark debts
• Borrowing from a third sector credit provider like a credit union instead of a loan shark in 2009 would have saved a typical low income household £500 (based on an original loan of £288)

--ENDS--

¹The Financial Inclusion Centre is an independent, not-for-profit think-tank, whose aims are to promote greater financial inclusion and provision so that consumers' core financial needs are met.

²'The Real Cost of Christmas' incorporated desk research and analysis of the existing data sources and studies on illegal money lending in the UK. Due to the illegal nature of the problem and the secrecy surrounding the subject, the body of research on this problem is limited to a select number of reports. The Financial Inclusion Centre's research team have applied this gathered information and statistics in developing a series of scenarios that seek to quantify the scale of expected illegal money lending in the UK this Christmas, taking into consideration the current economic downturn and the expected problems in accessing legal finance for the UK's poorest households.

Press contacts:

Olly Kendall: 020 7824 1866, 07793 224749, olly@insightpa.com
Natasha Spong: 0207 447 3024, 07527 020 817, natasha.spong@circleanglia.org

15/01/10 14:17