Personal loan company uk

The loan shark remains one of the most reviled figures in urban mythology. His success depends on selling debt at extortionate rates to those unable to borrow through conventional channels. His unique selling point is his status as the lender of last resort.

The loan shark model seems to have worked. Today, the offering of high-cost credit to the eight million people known in contemporary political vernacular as the "financially excluded" is a thriving business. But it is no longer just the notorious loan shark that has a stranglehold on the poor. Indeed, the vast profits to be reaped from selling debt to those marginalised from credit cards, mortgages and personal loans has led some of the world's biggest companies to get in on the scene.

This murky, but legal, trade is known among financial service companies as "sub-prime" or "non-status" lending. It is an industry made up of companies offering credit in various guises: from the old-fashioned doorstep lenders, pawnbrokers and catalogue companies to the relatively recent arrivals of imported products such as specialist mortgages, rent-to-buy companies, cheque cashers and loans made against the security of a house or a car.

The National Association of Citizens Advice Bureaux argues that great swathes of the industry charge interest and fees that are exorbitantly high. Unsecured short-term loans sold by credit companies whose agents ply their trade on council estates across the UK, collecting their dues weekly, can easily amass interest and charges in excess of 1,000 per cent APR. Secured loans and secondary mortgages are charged at rates as high as 20 to 30 per cent.

With figures like these in mind, it is perhaps no wonder that the industry is fast gaining interest from the boards and shareholders of some major players in the world of finance. Last month, Britain's biggest bank, HSBC, announced its plan to buy the US sub-prime giant Household International, which also operates out of 200 branches in the UK under the name of HFC Bank and Beneficial.

In the US, Household International is preparing a $484m fund to compensate borrowers who fell prey to the practices of some of its 1,400 local offices across the country. Household no doubt hopes the fund will stave off outstanding litigations which, some believe, will cost the company $5bn.

Any concern that HSBC had over how the acquisition would affect its reputation as a responsible corporate citizen seems to have been outweighed by its faith in the sub-prime market to deliver a handsome return. A spokesman said: "We are confident that the company has put in place new consumer protection measures."

In the absence of any effective regulation or attempt to boost access to affordable sources of credit, the UK market is proving to be a particularly fertile feeding ground for the sub-prime lenders.

Since legislation designed to curb the worst practices in the consumer credit industry was introduced in the mid-1970s, only 29 cases pursued by borrowers have reached the courts. Of these, only two companies have been found guilty of selling extortionate credit. Perhaps most disturbingly, no reported cases during this period have involved the weekly-collected credit industry.

There are a number of reasons for this imbalance in the scales of justice. Following the introduction of the Consumer Credit Act 1974, the UK abandoned a statutory ceiling on interest rates; third parties, such as debt advisory charities, are barred from taking action on behalf of a client; and the courts will not accept applications for group actions. Thus, even where a company is found to have sold a credit agreement in breach of the law, the onus is on each borrower to seek recompense through the courts.

Paradoxically, the number of county court cases pursued by lenders has reached unprecedented levels during this time. According to Shoosmiths solicitors, a nationwide firm that has been working closely with the Department of Trade and Industry in reviewing the regulation of the consumer credit industry, county court lists are taken up by a disproportionately high number of subprime lenders applying for possession of a borrower's home.

In its 1997 manifesto, new Labour pledged that "Labour will introduce new measures to crack down on loan sharks, including consideration of statutory limits on credit interest rates". But, to date, nothing has been done to halt the huge transfer of wealth from the UK's poorest neighbourhoods into the pockets of corporate giants.

Research to be published by the trade association ACE Credit Union Services will show that in three streets of around 40 households each in Newcastle, [pounds sterling]240,000 is being paid out every year to high-cost lenders. Of this, at least [pounds sterling]120,000 is paid in interest and charges alone.

Next month, a coalition of more than 150 charities, church groups and pressure groups launches a national campaign, Debt on our Doorstep, to urge consumers to view an investment in a sub-prime lender with the same wariness that they would in an arms dealer, tobacco company or pornographer.

Predatory lending not only devastates individual families and households, it systematically strips the wealth and assets of already deprived communities. If the industry is allowed to operate unchecked, attempts to revive the fortunes of these areas will face an uphill struggle.

Henry Palmer is co-author of Profiting from Poverty: why debt is big business in Britain, to be published by the New Economics Foundation on 3 December