Unscrupulous Lenders

Derek Twigg Excerpts

Monday 10th January 2011 Commons Chamber

[Derek Twigg (Halton) (Lab)]

First, may I express my gratitude to you, Mr Speaker, for allowing me to hold this debate, the first of the year, on illegal moneylending? It is held at a most poignant time, with individual and family debt increasing following the financial pressures of Christmas, the new year VAT increase, higher transport and energy costs and the spectre of public service, job and benefit cuts looming large in the UK economy. Indeed, we are in an economic climate most conducive to increasing the number of vulnerable people who fall prey to the illegal and intimidating practices of unscrupulous loan sharks, which have severe and, in some cases, devastating effects on victims, their families and the wider communities.

It will come as no surprise to many of us that the areas with the greatest concentration of loan shark activity are deeply deprived social housing estates, as identified by Policis, the independent economic and social research consultancy, in its November 2006 report, “Illegal Lending in the UK”, for the then Department of Trade and Industry, arguably the best academic study of illegal lending to date.

Those areas, largely urban conurbations and predominantly in the north, the west midlands, Scotland, Wales and the deprived parts of London, have relatively high rates of home credit exclusion, which in itself correlates strongly with deprivation. Loan sharks are illegal moneylenders: they lend without a credit licence, causing immense misery by preying on some of the most vulnerable in our society. They subject many of them to intimidation and threats of or actual violence, while charging super-inflated interest rates—sometimes about 2,500%—and arbitrary late-payment penalties.

A particularly distressing case from my constituency of Halton is my principal reason for applying to hold this debate this evening. Brian Shields, from Runcorn, committed suicide on 3 December 2005 aged just 22. A keen sportsman and a promising footballer, he had run up debts to a loan shark, owing to the extortionate interest rate of 90% that he was charged. A debt of £300 rose to more than £3,400 in a matter of weeks.

The illegal moneylender, Paul Nicholson, was jailed indefinitely in 2009 for offences including moneylending without a licence, blackmail and assault against a number of his victims. He was convicted of raping one woman who could not repay her debts and of threatening to petrol-bomb another woman’s house. The judge in the case said it was

“deliberate, blatant, systematic and sustained intimidation”,

and Nicholson was locked up indefinitely for the public’s protection.

Brian Shields’ mother, Carol Highton, also from Runcorn, hopes that the case of her son’s death might at some stage be re-investigated, owing to evidence of a struggle in the house and the presence of another person shortly before he died. I pay tribute to Mrs Highton, who has been leading a campaign on behalf of families and their victims to introduce far tougher legislation to halt the practice of illegal moneylending, which takes place in a secretive and shadowy world, in clubs, pubs and bars, on mobile phones and through text messaging.

Carol Highton believes that the death of her son Brian raises two very important issues that need to be addressed. First, not enough is being done nationally and particularly in communities of low-income and single-parent families to halt the practice of illegal moneylending and the cynical use of high interest rates to maximise profits from loans. Secondly, there might be many more suicides or attempted suicides by victims who cannot cope with the threats and intimidation that are often the trademark of loan sharks who prey on vulnerable young people and people in general. Mrs Highton believes that the wording of the Suicide Act 1961, which says that it is a crime to

“aid, abet, counsel or procure the suicide of another”,

should apply when people are known to have taken their own lives as a result of threats and intimidation from a moneylender. If such a prosecution policy became more widespread, that would help to deter the practice.

Mrs Highton feels that the law on assisted suicide, which carries a maximum jail sentence of 14 years, should be used to prosecute individuals whose threatening, menacing and intimidating behaviour can drive a person to take their own life, as she says happened with her son. Will the Minister talk to his colleagues at the Ministry of Justice about that? Will the issue be considered when there is a review of criminal offences?

On the night prior to his death, Brian received two phone messages from Nicholson demanding payment—one as late as 11.3 pm. Nicholson also imposed a £10-a-day late payment fine. At the inquest, the coroner noted that Brian had a history of drug taking and financial problems and had received threats concerning the debts.

Since launching the Brian Shields Trust to campaign against loan sharks and provide confidential advice to victims and their families, Carol Highton has discovered that hundreds and possibly thousands of people across the country have suffered at the hands of loan sharks and have been driven to the point of suicide—in some cases, by tactics even worse than those employed by Nicholson.

Carol has appeared many times in the broadcast and print media and is a willing and courageous campaigner, lending active support to teams across the country to help raise the profile of their work on illegal moneylending and of the misery that the practice can cause. That can include forcing victims to engage in drug running, fencing stolen goods and forced sex acts. Her work has been recognised nationally and locally, with television and community awards for her campaigning and courage and the work in close partnership with housing associations, credit unions and the police.

National figures produced recently by Birmingham-based illegal moneylending teams show that since 2004 more than 1,700 illegal moneylenders have been identified, more than 500 arrests have been made and £37 million of illegal debts have been written off. The illegal moneylending teams throughout the regions have helped more than 16,000 victims and more than £20 million of assets are expected to be seized under proceeds of crime procedures, with £1.3 million being seized in cash.

For the launch of the national “stop loan sharks” campaign video last May, the Office of Fair Trading commented that

“Nationally, the Stop Loan Sharks project has so far helped more than 11,500 people, written off more than £31 million of illegal debt, secured more than 60 years in prison sentences including an indefinite sentence for public protection, and seized £1 million in cash.”

At this point, it is worth drawing the House’s attention to the illegal moneylending team structure that the previous Labour Government put in place to tackle the issue head on. It will be useful to quote from the 2009 press release of the Department for Business, Innovation and Skills on the extension of the regional pilot schemes.

“Under the Illegal Money Lending Project the Department has been funding regional teams in Glasgow and Birmingham since 2004 to investigate the impact of strong enforcement against illegal moneylenders (loan sharks).

In 2004, BERR invested £2.6 million in the project and secured a further £1.2m from the Financial Inclusion Fund to expand the pilot into Liverpool, West Yorkshire and Sheffield.

In 2007/8, the project was rolled out throughout England, Scotland and Wales with an additional £2.762m from the Financial Inclusion Fund. BERR committed a total of £16.5 million to the Illegal Money lending Project since the launch of the pilot in 2004.

It was announced In December 2007 that BERR would continue to fund an illegal money lending team in every region in Great Britain until March 2011.

Current plans are that activity will continue at a similar level of intensity throughout the period, subject to periodic review of the impact of the initiative.

The project is a key part of the Government’s”—

that is, the then Government’s—

“financial inclusion agenda, one of the aims of which is to help people gain access to affordable credit. To this end, the teams will focus on providing support to victims as well as on securing convictions against illegal lenders.

The teams will initially target their activity in the areas identified in research published by the Department in December 2006 as areas where the incidence of illegal money is likely to be particularly high.”

I shall not list all the areas, but they include: Cardiff and Swansea in Wales; Hackney, Tower Hamlets and Newham in London; Southampton in the south-east; Newcastle in the north-east; Leeds and Sheffield in Yorkshire and the Humber; and Liverpool and Greater Manchester in the north-west. The press release went on:

“The Birmingham team expanded its existing operations to cover the North West, the South East and the East of England.

It was also given additional funding to support increased financial inclusion and victim support activity in its existing areas: West Midlands, West and South Yorkshire, and Liverpool. The Glasgow team was given additional funding to enhance its financial inclusion and victim support work in Scotland.

New regional teams have been established in the North East, East Midlands, South West, London and Wales, Merseyside and the North East. Since the pilots were established in September 2004, the teams have achieved a number of notable successes.”

The illegal moneylending team and the Brian Shields Trust, which work closely together, have welcomed the Minister’s recent announcement that the illegal moneylending team regime is to receive Government funding of £5.2 million a year over three years. While the Government’s commitment to such work is welcomed, the Brian Shields Trust points out that just over £5 million a year is only a fraction of the money that is expected to be seized in assets from illegal moneylenders under Proceeds of Crime Act 2002 procedures. In the case of Paul Nicholson alone, the authorities managed to recover £800,000, although Nicholson’s ill-gotten gains were originally put at £4.3 million.

The scale of the problem—one that is likely to be made worse by the current economic climate—raises the question of whether sufficient is being invested. Will the Minister say what impact assessments have been made of the scale of the threat posed by loan sharks socially and economically, and what criteria have been established for the new funding arrangements to match the funding needs to tackle illegal lending? How can he be confident that the resources at the Government’s disposal are sufficient to deal with the growing scale of the problem? Is he keeping the situation under review?

The Brian Shields Trust wonders whether the money claimed under the Proceeds of Crime Act is new money or money reclaimed by the courts originally belonging to the victims. Would it not be fair if some mechanism were put in place to enable victims to reclaim money paid to illegal moneylenders, who are obviously operating outside the law? I also share Carol Highton’s concerns about whether the replacement of the regional teams with one team for England based in Birmingham will achieve the desired result of a more robust and better restructured strategy or, as I suspect, will spread more thinly the good work that has been done in tackling loan shark practices. This is the important point I want to make to the Minister. The regional illegal moneylending teams themselves express such concerns about the proposals of the Department for Business, Innovation and Skills to replace them with one national body for England in Birmingham, as announced by the Minister at the end of December.

Howard Turton, enforcement manager of the north-east illegal moneylending team, says that such a proposal would be a backward move in the fight against illegal lenders. He is on record as saying:

“We believe that the decision to deprive the North-east of a local team will be damaging to the communities we serve and is a retrograde step”

that will have

“an adverse effect on the levels of enforcement activity across the region.”

That is despite the success of the north-east illegal moneylending team, which was set up by the Labour Government exactly three years ago precisely to tackle the prevalence of illegal lending in the area. That team has written off some £2 million of illegal debt and secured the arrests of 80 illegal lenders.

Particular successes have included the seizure of £6,000 in cash and cheques following a home and office raid during December 2009 in Redcar and three arrests in connection with the confiscation of counterfeit luxury goods. Mr Turton worries that smaller community lenders—more prevalent in the north-east—will be overlooked by a nationally based operation that is keener on targeting the really big players. As Councillor Brian Hubbard of Middlesbrough argues,

“to centralise something that essentially works better when it is localised does not make any sense.”

Indeed, surely a legitimate concern is whether local existing expertise in tackling loan shark activity and supporting its victims at the coal face will be lost in the concentration of resources to a single centre of operations.

I am aware that my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) made representations to the Leader of the House in business questions on 25 November to secure not only a Commons debate on the issue, but a top level meeting with BIS Ministers. The Department for Business, Innovation and Skills has admitted that some redundancies will take place among regional lending team staff, and one has to question what the uptake will be of staff accepting job transfers from the north-west and north-east to, for instance, the national Birmingham centre.

Indeed, at a time when vulnerable people will be even more exposed to loan shark victimisation due to the austerity cuts, how can the Minister justify the sacking of existing local lending team staff, who are there to help people? That will doubtless put more pressure on already stretched Jobcentre Plus staff, who I understand will be trained in identifying those who have fallen prey to moneylenders. My local citizens advice bureau has expressed similar concerns to me. Indeed, what kind of perverse logic deems it necessary to axe the jobs of those who are there to help vulnerable people escape the traps of unemployment, indebtedness through illegal lending and, in many cases, the mental and physical ill health that is associated with it for themselves, their families and their communities? I remind the Minister that the coalition agreement said:

“Difficult decisions will have to be taken in the months and years ahead, but we will ensure that fairness is at the heart of those decisions so that all those most in need are protected.”

I should like to make it clear that no criticism of the hard work of the illegal moneylending team in Birmingham is intended, as it has proved how successful it has been in the past four years and is doing fantastic work in setting up savings accounts and directing people towards legitimate credit unions.

It is worth noting that more than 150 credit unions and community financial institutions have benefited from the Department for Work and Pensions growth fund and that more than 306,000 loans have been made to financially excluded people, with an estimated total value of £133 million. Given the Department’s budgetary constraints, will its growth fund continue to be fully resourced to sustain these worthwhile contributions?

The ability to access good-quality money advice and debt counselling services is an essential weapon in combating illegal moneylending and debt. With the onset of the financial crisis, the previous Labour Government recognised this and provided additional funds for money advice and debt counselling services. I pay particular tribute to the work done in this regard by Halton citizens advice bureau and Halton borough council in my constituency. What are the Government doing to strengthen debt and money advice services?

One final thought is whether the practice of illegal moneylending is treated too much like a consumer trading offence instead of a crime under the Theft Act 1968. According to the illegal moneylending teams, prosecutions take place under the Consumer Credit Act 2006, not the Theft Act, even though the dealers are no longer licensed.

I would very much welcome the Minister’s views on these matters.