Friend or Foe?

Think tank: Centre for Social Justice

Author(s): Matthew Greenwood

April 3, 2023

This report from UK think tank the Centre for Social Justice looks at equipping debt advisors to tackle illegal money.

On the front lines, Britain’s debt advisers are facing an increased demand. Debt advice agencies across the board are witnessing steep rises in the need for debt advice and Citizens Advice, StepChange, and Christians Against Poverty have all reported record requests for help. At the sharpest edges of the cost-of-living crisis are the up to 1 million vulnerable people forced to borrow from illegal money lenders otherwise known as loan sharks, and debt advisers know it. 7 in 10 debt advisers who responded to our survey told us that illegal lending is a growing problem in the UK and over half have been told about a loan shark by a client. Yet vulnerable people are still falling through the cracks. New evidence presented in this report using an unpublished dataset of over 700 illegal lending victims shows that over a third of people who seek debt advice and have used a loan shark do not tell their adviser about it – often citing that they didn’t ask.

Throughout this report, we have worked with a steering board comprised of the Money and Pensions Service, major debt adviser agencies, and the Illegal Money Lending Team England to survey advisers. We show that while debt advisers are often knowledgeable about the basic concepts around illegal lending, some lack an arsenal of questions to investigate an illegal lender and the confidence to directly ask a client if they have borrowed from a loan shark. This gap appears to explain why debt advisers say they investigate an illegal lender while some clients say that they don’t ask. We also show that many debt advisers lack training on illegal money lending and this appears to be because training sessions are not part of mandatory introductory training but stand alone sessions. This sees some advisers miss out on much needed information. If clients are to be effectively supported to report an illegal lender and navigate a path out of problem debt, these issues need to be addressed and standards driven up. Without identification, the victims of illegal lenders cannot reach long-term debt solutions and are instead at risk of finding themselves in a continuous debt and debt advice loop because of an illegal lender.

In this report, we set out six recommendations for the Government, Money and Pensions Service and debt advice agencies to:

  1. Improve consumer awareness of illegal lending
  2. Implement training on illegal lending as part of an adviser’s introductory training
  3. Focus on confidence as well as knowledge so advisers can discuss an illegal lender
  4. Commit to directly transferring clients to the illegal lending teams over signposting
  5. Add debts to an illegal lender and a seeking support box to the Standard Financial Statement
  6. Implement a new framework for investigating an illegal lender

These targeted recommendations can improve adviser’s ability to identify and support the victims of illegal money lenders who so often struggle to speak out and set out a new best practice.