Hansard

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.