Payday loan firms and credit card companies could be charged a fee to fund the work of teams cracking down on loan sharks, the chancellor has announced.
From April 2017 the work of the Illegal Money Lending Teams in England and Wales will be funded by a levy on companies offering consumers credit, replacing the funding they currently receive from the government.
Since their launch in 2004, teams in England and Wales have prosecuted more than 300 illegal money lenders and had £50m of debt written off for consumers. But despite their success there were fears they would have their funding cut and be forced to reduce their workforce by a third.
The Treasury said the introduction of a levy would “ensure that the perimeter of the consumer credit market continues to be enforced, and vulnerable consumers remain protected from loan sharks”. Details of which firms will pay, and how much the levy will be, are to be consulted on.
In 2015-16 the government paid £3.6m towards running the teams, and it had been reported that there were plans to cut that sum by a third. The Treasury said the government would protect the team’s funding in 2016-17.
However, city regulator the Financial Conduct Authority will be given the power to introduce a new levy on consumer credit firms from 2017-18, replacing the government payment.
While the crackdown has been good news for many borrowers, in October National Trading Standards, which runs the teams, warned that alongside the roll-out of the single universal credit benefits payment it could push more people towards illegal lenders. It said loan sharks were expected to take advantage of those on a low income who may struggle to obtain credit via other means, “seeking to exploit them as they get to grips with the changes to their finances”.
Announcing the levy, the chancellor George Osborne said: “I am absolutely determined to protect customers from abuse and sharp practice in the consumer credit market.
“That is why I capped the total cost of a payday loan, it’s why we’re taking further action today to tackle illegal loan sharks by ensuring that enforcement teams have the funding, from the industry, that they need to protect consumers from those that would do them harm.”
In 2015, work by the Illegal Money Lending teams resulted in 108 arrests and charges against 43 people. In one case a carer who operated a loan shark business was jailed for two-and-a-half years after a court heard how a victim who took out a £2,000 loan to send to her son in the Philippines ended up paying back more than £11,000.