Chamber
Plenary, 01 Mar 2007
01 Mar 2007 · S2 · Plenary
Item of business
Illegal Moneylenders
I can give the member some figures in relation to the activities of the Glasgow illegal moneylending team. To date, 500 people have benefited from the prosecution of loan sharks in Scotland and loan books that were worth about £250,000 have been shut down. Counterfeit goods to the value of £5,000 have been recovered and assets valued at £500 have been reported for consideration for forfeiture under the Proceeds of Crime Act 2002.
The problem is that victims might have no other method of borrowing, so they can fall prey to these people again. The ability to strip illegal lenders of assets amassed through illegal lending is probably the most important deterrent. It certainly sits alongside the prospect of penal sentences. An early indication from the two projects taken together is that at least £2 million has been recovered.
Illegal moneylenders prey on the most financially and socially excluded groups in society. Their interest charges are not transparent, so victims usually end up paying back much more than they borrowed—multiples of 10 times more than they borrowed. That leaches more money out of already poor families and communities. Illegal moneylenders usually operate using an implied threat of violence against those who do not pay. That leads to other forms of destructive behaviour in areas where they operate, such as theft and prostitution, as people turn to desperate means to ensure they can pay back the moneylender.
We fully intend to crack down on illegal moneylenders, but that is only half the problem. Most people who borrow from illegal moneylenders do not have any other options, or at least they do not think that they have. If a moneylender is taken out of a community, the chances are that another illegal lender could just step into their shoes.
It is therefore important that, as well as enforcement action being taken against moneylenders, serious attempts are made to work with victims or potential victims to ensure that they are aware of alternative sources of credit, of which credit unions are a good example. Victims of illegal moneylenders often misunderstand their situation, and think that, because they are borrowing informally or do not have a contract, they are getting a better deal than they might do if they went to a legal lender. There is therefore a need for better financial education in communities that are targeted by illegal moneylenders, as well as a need to ensure that they are more financially included.
The Executive is striving to provide solutions for all victims, with the assistance of credit unions and money advice services, and through Citizens Advice Scotland, local authority trading standards departments and organisations that are in a position to help those with unmanageable debt.
Not all victims of illegal moneylenders present themselves to credit unions or advice services to ask for assistance, and, in some cases, credit unions might not be in a position to provide the instant access loans that people might need. Credit unions survive on their members' savings and they are required to operate under legal regulations. Although there are approximately 126 credit unions in Scotland, many are small and based in the community, and when they lend money they are lending their members' money.
Victims and potential victims of illegal moneylenders might be in their position because they have a poor credit history and are high risk. In planning for the development of services for victims within credit unions, it is important to be realistic about the different types of victim. In many cases, victims require greater and more proactive support with a greater degree of tolerance than for most current credit union borrowers. Some of those who are using illegal moneylenders are currently so high risk that they simply cannot be served on any kind of legitimate commercial basis, whether by credit unions or other lenders.
Nonetheless, the Executive can find ways of supporting credit unions to assist those who are in need. Credit unions are still an effective and safe way to borrow and save money. All that they ask is that new members save with them for a set period of time to prove their ability to repay, and that inculcates good habits. I am sure that many members will want to talk about the credit unions in their areas during the debate. I would certainly like to mention Dalmuir Credit Union in my area. Over the long period of time since its establishment, it has done a terrific job in providing helpful and inclusive support for people who are in a variety of financial circumstances to help them manage their resources.
We want to make money advice free and available to everyone. The Scottish Executive is committed to funding Money Advice Scotland: a further £2 million was allocated in 2005, in addition to the £3 million that was allocated in April 2002. In total, the Scottish Executive has supported the money advice sector through local authorities to the tune of £5 million.
Money Advice Scotland is an important part of our strategy to combat financial exclusion. We are committed to supporting an increase in the quantity and quality of money advice in Scotland to clients with debt problems.
Whatever approach we take to combat illegal lending more generally, we must consider the creation of support that is based in the local community. The victims who were reached through the pilots were adamant that intelligence and confidence need to be created at local community level. They believed that longer-term efforts to combat illegal lending and to create alternative forms of credit were more likely to be successful if they were developed within and by local communities. That takes us back to credit unions being one of the key ways forward.
If we form the next Administration—
The problem is that victims might have no other method of borrowing, so they can fall prey to these people again. The ability to strip illegal lenders of assets amassed through illegal lending is probably the most important deterrent. It certainly sits alongside the prospect of penal sentences. An early indication from the two projects taken together is that at least £2 million has been recovered.
Illegal moneylenders prey on the most financially and socially excluded groups in society. Their interest charges are not transparent, so victims usually end up paying back much more than they borrowed—multiples of 10 times more than they borrowed. That leaches more money out of already poor families and communities. Illegal moneylenders usually operate using an implied threat of violence against those who do not pay. That leads to other forms of destructive behaviour in areas where they operate, such as theft and prostitution, as people turn to desperate means to ensure they can pay back the moneylender.
We fully intend to crack down on illegal moneylenders, but that is only half the problem. Most people who borrow from illegal moneylenders do not have any other options, or at least they do not think that they have. If a moneylender is taken out of a community, the chances are that another illegal lender could just step into their shoes.
It is therefore important that, as well as enforcement action being taken against moneylenders, serious attempts are made to work with victims or potential victims to ensure that they are aware of alternative sources of credit, of which credit unions are a good example. Victims of illegal moneylenders often misunderstand their situation, and think that, because they are borrowing informally or do not have a contract, they are getting a better deal than they might do if they went to a legal lender. There is therefore a need for better financial education in communities that are targeted by illegal moneylenders, as well as a need to ensure that they are more financially included.
The Executive is striving to provide solutions for all victims, with the assistance of credit unions and money advice services, and through Citizens Advice Scotland, local authority trading standards departments and organisations that are in a position to help those with unmanageable debt.
Not all victims of illegal moneylenders present themselves to credit unions or advice services to ask for assistance, and, in some cases, credit unions might not be in a position to provide the instant access loans that people might need. Credit unions survive on their members' savings and they are required to operate under legal regulations. Although there are approximately 126 credit unions in Scotland, many are small and based in the community, and when they lend money they are lending their members' money.
Victims and potential victims of illegal moneylenders might be in their position because they have a poor credit history and are high risk. In planning for the development of services for victims within credit unions, it is important to be realistic about the different types of victim. In many cases, victims require greater and more proactive support with a greater degree of tolerance than for most current credit union borrowers. Some of those who are using illegal moneylenders are currently so high risk that they simply cannot be served on any kind of legitimate commercial basis, whether by credit unions or other lenders.
Nonetheless, the Executive can find ways of supporting credit unions to assist those who are in need. Credit unions are still an effective and safe way to borrow and save money. All that they ask is that new members save with them for a set period of time to prove their ability to repay, and that inculcates good habits. I am sure that many members will want to talk about the credit unions in their areas during the debate. I would certainly like to mention Dalmuir Credit Union in my area. Over the long period of time since its establishment, it has done a terrific job in providing helpful and inclusive support for people who are in a variety of financial circumstances to help them manage their resources.
We want to make money advice free and available to everyone. The Scottish Executive is committed to funding Money Advice Scotland: a further £2 million was allocated in 2005, in addition to the £3 million that was allocated in April 2002. In total, the Scottish Executive has supported the money advice sector through local authorities to the tune of £5 million.
Money Advice Scotland is an important part of our strategy to combat financial exclusion. We are committed to supporting an increase in the quantity and quality of money advice in Scotland to clients with debt problems.
Whatever approach we take to combat illegal lending more generally, we must consider the creation of support that is based in the local community. The victims who were reached through the pilots were adamant that intelligence and confidence need to be created at local community level. They believed that longer-term efforts to combat illegal lending and to create alternative forms of credit were more likely to be successful if they were developed within and by local communities. That takes us back to credit unions being one of the key ways forward.
If we form the next Administration—
In the same item of business
The Presiding Officer (Mr George Reid):
NPA
Good morning. The first item of business is a debate on motion S2M-5669, in the name of Des McNulty, on dealing with illegal moneylenders.
The Deputy Minister for Communities (Des McNulty):
Lab
We are here this morning to discuss the problem of loan sharks. By "loan sharks" I mean those who break the law by lending money, often at extortionate inter...
Stewart Stevenson (Banff and Buchan) (SNP):
SNP
I join the minister in unreservedly condemning the actions of illegal moneylenders. How successful have we been, under the Proceeds of Crime Act 2002 or othe...
Des McNulty:
Lab
I can give the member some figures in relation to the activities of the Glasgow illegal moneylending team. To date, 500 people have benefited from the prosec...
Christine Grahame (South of Scotland) (SNP):
SNP
Now there is an admission.
Des McNulty:
Lab
I hope that the SNP will support us in opposition. We will invite our partners, such as Citizens Advice Scotland, Money Advice Scotland and local authorities...
Mr Kenny MacAskill (Lothians) (SNP):
SNP
In moving the amendment in my name, I say that we do not disagree with anything that the minister said. Clearly, the Executive is flagging up an issue that h...
Margaret Mitchell (Central Scotland) (Con):
Con
I very much welcome this important debate, which focuses on what has become a huge problem throughout the UK—namely, consumer debt and the activities of ille...
Mr Jamie Stone (Caithness, Sutherland and Easter Ross) (LD):
LD
The debate is a worthwhile one. I am indebted to the Rev Graham Blount for all his work on the issue. He is known to all of us, and is the secretary of the c...
Bill Aitken (Glasgow) (Con):
Con
Is Mr Stone aware that much of the collection, intimidation and threatening behaviour that illegal moneylenders carry out is done on the streets and street c...
Mr Stone:
LD
I take that point, but my point is that those activities are not overt, but covert. The police work that is involved has to be much more detailed and clever ...
Christine Grahame:
SNP
From the member's comments, it seems that he supports the statement in the SNP amendment about the burden that legal moneylending puts on people. Is that the...
Mr Stone:
LD
I am attracted to the SNP amendment, but the trouble is that I do not support separation, as I have said elsewhere. The motion and both amendments have merit...
Trish Godman (West Renfrewshire) (Lab):
Lab
Some time ago—in 2002, I think—I was fortunate enough to secure a members' business debate on loan sharks. The Daily Record was running a campaign to expose ...
Ms Sandra White (Glasgow) (SNP):
SNP
The minister said that the debate is about loan sharks—illegal moneylenders who do not have a licence to lend money. However, does he believe that it is okay...
Members:
Oh, come on!
Ms White:
SNP
Members can intervene if they wish.
Cathie Craigie (Cumbernauld and Kilsyth) (Lab):
Lab
If we take the member's argument to its logical conclusion, is the SNP saying that it would make tenants pay for repairs to owner-occupiers' houses? Does she...
Ms White:
SNP
Owner-occupiers are quite happy to pay for repairs to their homes, but they simply cannot afford to pay £7,000 within a year. I want the minister to clarify ...
Patrick Harvie (Glasgow) (Green):
Green
I welcome the opportunity to debate this issue. However, I struggled to find any information about issues such as credit unions and the debt arrangement sche...
Christine May (Central Fife) (Lab):
Lab
Members have made some very good speeches on an issue that we are all concerned about, even if we have slightly different views on how to solve it.Unlike Pat...
Colin Fox (Lothians) (SSP):
SSP
I wonder whether the minister is familiar with the lines that Woody Guthrie sang:"Some will rob you with a six-gunAnd some with a fountain pen."In the motion...
Mr Stone:
LD
I mentioned it.
Colin Fox:
SSP
Mr Stone also mentioned it, but he underplayed it, too. I will tell members why.Today, the Royal Bank of Scotland declared profits of £9.7 billion and, yeste...
Helen Eadie (Dunfermline East) (Lab):
Lab
I join the minister in condemning illegal moneylenders unreservedly. He was right to say that there are many threads in the strategy to tackle the issue. The...
Bill Aitken (Glasgow) (Con):
Con
Despite there being two amendments to the Executive's motion, the debate so far has been largely consensual. The Conservatives acknowledge the efforts that t...
Christine Grahame:
SNP
I am interested to know how we can interfere with interest rates when we do not have the powers to do so in this Parliament. Is Mr Aitken suggesting that we ...
Bill Aitken:
Con
No—that is not what I am suggesting. I was careful in what I said so that no one would think that I was suggesting that. I was simply pointing out arguments ...
Colin Fox:
SSP
Perhaps Bill Aitken will unravel the great 21st century mystery of how the banks make their money. They lend at one rate and borrow at another. Is not that w...
Bill Aitken:
Con
That was a rather simplistic argument. On the basis of the equation that Colin Fox advances, the money that the banks make has not been made, to any great ex...