Chamber
Plenary, 01 Mar 2007
01 Mar 2007 · S2 · Plenary
Item of business
Illegal Moneylenders
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 Parliament should give clear, focused support to the measures that he outlined.
Like the minister, I congratulate Her Majesty's Government on its major effort to address a serious problem for individuals and society by establishing pilot projects in which regional teams, funded by the DTI, tackle the challenge of illegal moneylending. I declare an interest, as a Co-operative Party and Labour Party member of the Parliament.
Credit unions play a vital role in Scotland and I pay tribute to everyone who has struggled for their development in the UK—the struggle has not been easy. In particular, I applaud the work of credit unions in Dunfermline East, in Benarty, Cowdenbeath and Rosyth. I take issue with Colin Fox's comment about credit unions: people in my constituency are learning that credit unions can give them a sympathetic hearing and practical help. In America, Canada and elsewhere, credit unions are a major business—the White House has its own credit union.
Education and debt advice are key elements of a strategy to tackle illegal moneylending. I agree whole-heartedly with everything that Trish Godman said and particularly with her point about the need for one-stop shops. It should be an urgent priority for the Scottish Executive to establish such facilities in Scotland's most deprived areas.
Credit unions alone cannot tackle the problem, so a key issue for policy makers is how we determine the most effective form of alternative social lending. It has been suggested that, if we are to combat illegal lending and provide affordable credit on the most disadvantaged estates, the best candidates for alternative supply are, on one hand, the social fund, and, on the other, credit unions and community development fund institutions. A targeted expansion of the social fund—in partnership with a major effort by the Scottish Executive to give even more support than it has already given—might provide an effective alternative to illegal lending.
Relatively small loans with initially affordable repayments can escalate and become unmanageable, ultra-high-cost debts. Individual cases illustrate the financial cost of borrowing from an illegal lender. In a typical case in Scotland, Mrs A borrowed an average amount—£300—and was told that she would have to repay £680, in instalments of £20 per week. When she missed some repayments, the lender added £300 to her debt. From her witness statement, it appears that after paying at least £780—more than two and a half times the original loan amount—the lender told her that she still owed £220. In the event, the lender was arrested and she did not have to pay the additional amount. The total cost of the credit was £700, at a staggering APR of 1,669 per cent.
During the debate we heard about highly coercive lenders—the loan sharks of popular imagination—who exploit their victims and are often violent, as Christine May said, and whose lending operations are frequently aligned with criminal activity. We know most about that category of lenders, which suggests that their operations represent the most prevalent model of illegal lending. Although there is considerable variation in the scale of lending and in involvement in criminal activity, such lenders share a common aim: they want a regular flow of income from borrowers over as long a period as possible. They do not want loans to be repaid; they want to carry on getting £30 to £40 per week from borrowers.
Studies have shown that illegal lending is linked with drug dealing and other criminal activity. Trading standards officers report that many lenders have a criminal lifestyle and are involved in activities ranging from fraud and burglary to prostitution. Illegal lending can be a means of recycling the proceeds of criminal activity and facilitating other such activity, for example when people who are in payment difficulties are recruited into drug dealing, shoplifting and even prostitution. The extreme end of illegal lending reportedly involves organised crime or even paramilitary organisations.
We have to consider the impact of illegal lenders on the communities in which they operate. Payments to illegal lenders can hollow out already stretched budgets to the point at which essentials are forgone. The escalation of debt and of weekly payments by means of penalty charges and roll-over loans can put a severe strain on borrowers' finances, especially if the borrower has several loans that have been rolled into one or has been making payments to the lender for a considerable time. It appears that what starts as a seemingly manageable regular payment can soon escalate beyond a borrower's means. The household becomes unable to afford to pay for essentials such as food, bills or the rent because payments to the lender take priority over other spending. Moreover, it is not uncommon for both partners in a household to be repaying loans to an illegal lender. Such payments can represent a significant proportion of their household income.
I will have no hesitation in supporting today's motion from the Scottish Executive. I applaud everyone's efforts to tackle what has to be the most crucial issue that we all have to deal with in our constituencies.
Like the minister, I congratulate Her Majesty's Government on its major effort to address a serious problem for individuals and society by establishing pilot projects in which regional teams, funded by the DTI, tackle the challenge of illegal moneylending. I declare an interest, as a Co-operative Party and Labour Party member of the Parliament.
Credit unions play a vital role in Scotland and I pay tribute to everyone who has struggled for their development in the UK—the struggle has not been easy. In particular, I applaud the work of credit unions in Dunfermline East, in Benarty, Cowdenbeath and Rosyth. I take issue with Colin Fox's comment about credit unions: people in my constituency are learning that credit unions can give them a sympathetic hearing and practical help. In America, Canada and elsewhere, credit unions are a major business—the White House has its own credit union.
Education and debt advice are key elements of a strategy to tackle illegal moneylending. I agree whole-heartedly with everything that Trish Godman said and particularly with her point about the need for one-stop shops. It should be an urgent priority for the Scottish Executive to establish such facilities in Scotland's most deprived areas.
Credit unions alone cannot tackle the problem, so a key issue for policy makers is how we determine the most effective form of alternative social lending. It has been suggested that, if we are to combat illegal lending and provide affordable credit on the most disadvantaged estates, the best candidates for alternative supply are, on one hand, the social fund, and, on the other, credit unions and community development fund institutions. A targeted expansion of the social fund—in partnership with a major effort by the Scottish Executive to give even more support than it has already given—might provide an effective alternative to illegal lending.
Relatively small loans with initially affordable repayments can escalate and become unmanageable, ultra-high-cost debts. Individual cases illustrate the financial cost of borrowing from an illegal lender. In a typical case in Scotland, Mrs A borrowed an average amount—£300—and was told that she would have to repay £680, in instalments of £20 per week. When she missed some repayments, the lender added £300 to her debt. From her witness statement, it appears that after paying at least £780—more than two and a half times the original loan amount—the lender told her that she still owed £220. In the event, the lender was arrested and she did not have to pay the additional amount. The total cost of the credit was £700, at a staggering APR of 1,669 per cent.
During the debate we heard about highly coercive lenders—the loan sharks of popular imagination—who exploit their victims and are often violent, as Christine May said, and whose lending operations are frequently aligned with criminal activity. We know most about that category of lenders, which suggests that their operations represent the most prevalent model of illegal lending. Although there is considerable variation in the scale of lending and in involvement in criminal activity, such lenders share a common aim: they want a regular flow of income from borrowers over as long a period as possible. They do not want loans to be repaid; they want to carry on getting £30 to £40 per week from borrowers.
Studies have shown that illegal lending is linked with drug dealing and other criminal activity. Trading standards officers report that many lenders have a criminal lifestyle and are involved in activities ranging from fraud and burglary to prostitution. Illegal lending can be a means of recycling the proceeds of criminal activity and facilitating other such activity, for example when people who are in payment difficulties are recruited into drug dealing, shoplifting and even prostitution. The extreme end of illegal lending reportedly involves organised crime or even paramilitary organisations.
We have to consider the impact of illegal lenders on the communities in which they operate. Payments to illegal lenders can hollow out already stretched budgets to the point at which essentials are forgone. The escalation of debt and of weekly payments by means of penalty charges and roll-over loans can put a severe strain on borrowers' finances, especially if the borrower has several loans that have been rolled into one or has been making payments to the lender for a considerable time. It appears that what starts as a seemingly manageable regular payment can soon escalate beyond a borrower's means. The household becomes unable to afford to pay for essentials such as food, bills or the rent because payments to the lender take priority over other spending. Moreover, it is not uncommon for both partners in a household to be repaying loans to an illegal lender. Such payments can represent a significant proportion of their household income.
I will have no hesitation in supporting today's motion from the Scottish Executive. I applaud everyone's efforts to tackle what has to be the most crucial issue that we all have to deal with in our constituencies.
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...