Hansard

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 interest rates, when they have no licence to do so. The law on the matter is reserved to the Westminster Parliament, because it concerns consumer credit and financial institutions, but enforcement of the law in Scotland depends on a close partnership between the Department of Trade and Industry and the devolved Administration. At the local level, it depends on close collaboration between trading standards officers, the police and the Procurator Fiscal Service.

It is in the nature of loan sharks—or illegal moneylenders—to operate secretively. They communicate their services by word of mouth and lure unwary borrowers into the trap of apparently easy credit. Victims might feel that they have nowhere else to turn because their credit history does not allow them to obtain credit from more legitimate and affordable sources. However, the outcomes of turning to a loan shark are exorbitant interest rates, demands that all too often are accompanied by threats, and a trap of growing debt from which there is often no prospect of escape. The illegal nature of the transaction means that the normal controls and safeguards are not available. Because of the secretive nature of the offence and the collusion of victims, illegal moneylending is hard to detect and the law is even harder to enforce. That is why we ask the Parliament to join us in unreservedly condemning the activities of illegal moneylenders.

We fully recognise the social problems that are faced by those who turn to illegal moneylenders. Unmanageable debt is a big problem in Scotland. In 2005-06, citizens advice bureaux in Scotland dealt with 61,587 inquiries about consumer debt—11,000 more than in 2004-05. The total recorded new client debt in 2005-06 was £212 million, which was an increase of £54 million on 2004-05.

By taking some simple steps, most people avoid allowing debt to escalate to a point at which it becomes unmanageable. The Scottish Executive has supported the development of financial education and money advice to help ordinary people to live within a limited budget. People in Scotland today have unprecedented opportunities to receive education and to find work that is appropriate to their abilities, which enables them to improve their incomes. Our economy is more buoyant than it was in the past, and we have benefited for some years from the minimum wage and from the tax credits and child care disregards that help our poorer citizens who are in work to make their income go further.

Regardless of their income, the vast majority of people obtain credit, whether it is to buy a house, a car, other goods, a holiday or whatever. Financial institutions—which are very profitable, as we saw yesterday and have seen today—offer an enormous number of consumer credit products, and many of us have mortgages, car loans, hire purchase agreements and other forms of credit. Consumer credit is at an all-time high, but most people manage to pay their debts most of the time.

Today, however, we are focusing not on those who follow legitimate routes to credit but on the plight of those who cannot, or feel that they cannot, access those routes. Women who are on welfare benefits are the most likely to fall into the hands of loan sharks. Borrowing an average sum of £250 can be the start of untold misery for such vulnerable people and their families.

We are determined to work in partnership with the United Kingdom Government to tackle illegal moneylending through enforcement and prosecution and by developing new approaches, such as the successful illegal moneylending pilots. Before talking about the pilots, however, I highlight the existing efforts by the police, the Procurator Fiscal Service and trading standards officers to enforce the law. Section 39 of the Consumer Credit Act 1974 penalises unlicensed lenders. In 2005-06, 23 reports of violations were made to the procurator fiscal, which resulted in 15 prosecutions. To date, there have been 12 trials and eight convictions. Five cases have been reported so far in 2006-07, of which three are being prosecuted and two remain under consideration.

However, new steps were needed. To provide a more intensive approach, the DTI funded two pilot enforcement projects that were run by specialist trading standards teams, one of which was based in Birmingham and covered the west midlands and the other was based in Glasgow and covered the whole of Scotland. It is to the credit of those two hard-working teams that the public profile of illegal moneylending has been raised. The teams are dependent on police capacity at all stages of their operations. The work that is required to remove even a single loan shark is resource intensive and it is possible only with the investment of significant police resources and manpower. In Scotland, the success of the approach has been demonstrated in Aberdeen, where there has been successful joint working with the police. The evaluation of the project, which was commissioned jointly by the DTI and the Scottish Executive, states that the approach should be used more widely.

The two teams found that victims' willingness to identify illegal moneylenders did not always translate into a willingness to provide evidence to support a prosecution. In Scotland, only one victim in five was willing to provide a statement and few were willing to take the matter further and go to court. That is a regrettable situation, and we should try to change it.

Illegal moneylending operations in Scotland tend to be on a smaller scale than those in other parts of the UK and they tend to be embedded in local communities. That reinforces the difficulties with persuading witnesses to come forward, because they know that they will probably be identified and that they risk being targeted. So far, the criminal justice authorities in Scotland have successfully prosecuted two cases that came out of the pilot, with another six pending. In the Birmingham operation, there was greater success with prosecuting cases and securing convictions. I am confident that the Lord Advocate and my colleagues the justice ministers will consider the findings carefully with a view to putting more pressure on illegal moneylenders.

Any changes to the law of evidence in relation to reserved offences are a matter for Westminster, but I am sure that members of the Scottish Parliament will wish to comment and give their views on what would work most effectively.

Illegal moneylenders are the most unacceptable face of today's society. They exploit poor and vulnerable people who have little or no choice in how they live their lives. Their control over their victims rests on a climate of fear that protects their revenue flow and acts against the possibility of their being reporting and convicted. They use fear and knowledge to control their victims. Sadly, there are still too many victims in Scotland.

Illegal moneylenders have perhaps been able to operate with a degree of impunity, but we intend to change that. Victims have had no recourse and little confidence in the authorities. Many of them are frightened and do not know who to trust. Illegal moneylending makes a huge hole in victims' finances, exacerbates crime and antisocial behaviour, and deepens financial exclusion. We must tackle this blight on our society.

It is clear that the removal of lenders has a positive impact on victims' finances, on their quality of life and on the health of the communities in which illegal moneylending is a problem. In the pilot projects, an estimated 1,800 victims benefited from the removal of unscrupulous moneylenders, and borrowers saved, potentially, £3.3 million. Although the removal of the moneylenders is a good thing, their victims might fear that they will return or operate in other ways.