Loan shark teams to hunt down illegal lenders in credit shake-up

Teams of loan shark "hunters" will be dispatched to deprived communities to bring to book illegal money lenders as part of a shake-up of credit laws, the government said yesterday.

The undercover officers will tackle unscrupulous lenders who prey on vulnerable people, charging extortionate interest rates and often threatening violence.

The blitz on loan sharks is a key plank of draft legislation unveiled by the Department of Trade and Industry which amounts to the biggest overhaul of consumer credit laws for 30 years. The white paper comes amid growing concern about record levels of consumer debt, and coincides with many people ratcheting up their borrowing in the run-up to Christmas.

The DTI is to spend £2m on funding two pilot programmes in Birmingham and Glasgow, which will see specialist un dercover teams formed to pursue illegal money lenders.

Each team will be made up of a mixture of experienced trading standards officers and enforcement officers with a suitable background, such as recently retired police officers.

Using undercover surveillance and other methods, the teams will aim to gather the evidence necessary for the Proceeds of Crime Act to be used to recover the illegal profits of lenders.

The two pilot programmes will begin in April and run for two years. As well as bringing cases to court, the aim will be to create a climate where people can come forward with evidence without fear of reprisals.

Patricia Hewitt, the trade and industry secretary, said: "It is more often than not the most vulnerable who are preyed on by loan sharks. It is simply not possible to escape from poverty if what little you have is asset-stripped by predators."

Responsibility for cracking down on loan sharks rests mainly with local trading standards departments, but investigations and prosecutions are rare as it tends to be a difficult offence to prove, said the DTI. It requires extensive undercover surveillance and most trading standards departments do not have the resources.

As a result, statistical information on illegal money lending is hard to come by, but an initiative that ran in Strathclyde during the late 1980s and early 1990s uncovered about 60 rings of illegal lenders operating in that area alone.

Where financial records were found, the annual income of each individual or group was estimated at close to £100,000.

One resident of a hostel for the homeless was being charged 1.3m%. Gang members were charged with a number of offences and were jailed for a total of 12 months for illegal money lending, because it was impossible to get witnesses to provide evidence on the other allegations.

The DTI yesterday gave a more recent example of a victim of loan sharks - a single man living in a suburb of Birmingham who responded to an advert in a newsagent's window offering "cash loans". He borrowed £100 and was told that £50 interest would be charged.

When he later missed one payment he had a death threat left on his telephone answer machine and a visit from two men, who increased his payments because of the "trouble he had caused".

Under the new initiative, local authorities will be encouraged to be ready to act so that as soon as the illegal lenders are arrested, they and organisations in the voluntary sector can move into the area with money advice and support before a new set of rogue lenders exploit the gap in the market.