Articles > Vulnerability to Loan Sharks

An independent study has shown that millions of people in deprived areas are forced to borrow money from unscrupulous loan sharks because they do not have access to mainstream banking.

Nearly 3 million people do not have access to any banking services because more than 3,100 bank and building society branches have closed since 1995, found the Housing Corporation, which funds and regulate housing associations.

Despite the introduction of the basic bank accounts and banking services through the Post Office, people in deprived communities remain financially excluded and are forced to turn to doorstep lenders and loan sharks to borrow money, often paying interest of more than 400% a year.

One in 12 of 1,731 people surveyed by the corporation reported having suffered from financial exclusion, with a fifth saying they had turned to a doorstep lender for a loan.

The Housing Corporation called on housing associations and social landlords to help provide financial advice and support to their tenants in a bid to address the problem.

Its chief executive said: "Housing associations and other social landlords are not just there to collect the rent.

"They can help ease the stress that people face when they have little money to live on and urgent bills to pay."

According to Moneyline Yorkshire, a debt advice service set up last year, some 60,000 households in Sheffield alone don't have bank accounts or access to mainstream lenders. They provide rich pickings for the armies of doorstep lenders now offering 'cash for Christmas' loans and catalogues full of exciting ideas for presents, all at crippling repayment rates - in some cases 900 per cent.

Over the past 11 months, Moneyline has granted 317 loans for a total of £154,679. They have been granted to only half the people who have so far approached the service.

While many consumers would baulk at paying 31 per cent APR, McCollough suggests that those with middle-class notions of credit should visit a council estate, where the rates from lenders start at 177 per cent and go far higher. Moneyline resists the 'cartoon baddies' stereotype of doorstep lenders and views them as a necessary evil, helping poor people in emergencies.