Loan sharks and illegal money lending

A loan shark is the common name for an illegal money lender: someone who lends money without being authorised by the Financial Conduct Authority (FCA) to do so¹. They are not licensed, they operate outside the law, and they typically charge very high rates of interest, sometimes backing up demands for payment with threats or violence¹. A person who is not authorised to lend money is known as a loan shark, and what they do is illegal².

The most important thing to know if you have borrowed from one is that you have done nothing wrong. It is not a crime to borrow money from someone, and you are under no legal obligation to repay the debt¹. A loan from a loan shark is not legally enforceable, so they cannot take you to court for the money, and they cannot enforce the high rates of interest they are trying to charge². This page explains how to spot an illegal lender, what your legal position is, how to check that any lender is properly authorised, and how to report a loan shark wherever you live in the UK.

Who loan sharks target

Loan sharks often target families on low incomes or those who find themselves in difficult times¹. They also often target newcomers to the UK, who may not speak much English and are more vulnerable². Support organisations that work with people in financial difficulty report that illegal money lenders are known to approach families at moments of particular strain, for example families in financial difficulty following a bereavement³.

The pattern behind this targeting is access to legal credit. Research on the effects of the cost of living crisis in Scotland found that 16 per cent of people declined for regulated credit had either used a loan shark or knew someone in their household who had, compared with 5 per cent of people who had successfully applied for mainstream credit⁷. The same research found that over a third of low income households refused regulated credit options hold loans with loan sharks, doorstep lenders, payday lenders and pawnshops, and that these households are almost four times more likely to hold each of those loan types than those who successfully applied for credit⁷. In other words, it is being shut out of ordinary lending that pushes people towards illegal lenders, not carelessness with money.

The scale of the problem is large and growing. Research by Fair4All Finance estimated that 1.08 million people are using a loan shark, which is a three-fold increase, and that the problem is UK-wide and not solely focused in urban areas⁴. Earlier official work had already put the figure at around 1.08 million people in England alone who could be borrowing from an illegal money lender⁷. Whatever the exact number, illegal lending is not a rare or purely inner-city problem, and it reaches households in every part of the country.

If you have been refused credit and are looking for alternatives, there are regulated options designed for people in exactly this position, including credit union loans, community lenders and affordable credit, the No Interest Loan Scheme, and Budgeting Loans and Budgeting Advances for people on certain benefits.

Loan sharks charge far more than legal lenders

Loan sharks charge much higher interest than high street lenders, and the rates they charge are often high and unmanageable². Because they are unlicensed, none of the rules that constrain legal lenders apply to them. Licensed moneylenders are regulated by the Financial Conduct Authority and must follow its codes of practice¹; a loan shark follows no codes at all. There can be high and unmanageable interest rates, and loan sharks are money lenders who do not have a licence, acting illegally, usually charging very high rates of interest and using violence or threats to make you pay⁸.

The contrast with the regulated market is stark. Legal lenders must be authorised by the FCA, and products in the high-cost end of that market, such as payday loans, are subject to specific cost rules; payday lenders must be authorised by the FCA, which publishes a list of licensed lenders on the FCA register⁹. A loan shark sits entirely outside this framework, so there is no cap, no affordability check and no regulator watching what they charge.

Illegal lending is not a small or tolerated corner of the market. The government has funded dedicated enforcement against it: the National Audit Office reported on a £16.5 million programme to identify and prosecute loan sharks, which had identified 600 illegal lenders, of which 100 had been prosecuted¹⁰. That enforcement effort continues today through the Illegal Money Lending Team, covered later on this page.

If you want to understand how legal loan costs are worked out, see how loan interest is calculated and loan APR explained, and for the rules on the high-cost end of the regulated market see payday lending and high-cost short-term credit.

Warning signs of an illegal lender

The clearest warning signs of a loan shark, as set out by organisations working directly with affected borrowers, are these¹¹:

• They offer cash quickly without proper checks
• They give you no loan agreement or paperwork
• They will not say how much you owe
• They keep adding extra charges or interest
• They ask to keep your bank card, benefit card, passport, watch or other valuables
• They pressure you into borrowing more
• They use threats or intimidation
• They tell you to keep the loan secret

A support organisation for people who have borrowed from loan sharks frames the same signs as direct questions you can ask yourself⁶:

• Did they offer you a cash loan?
• Did they not give you paperwork?
• Did they add huge amounts of interest or APR to your loan?
• Have they threatened you?
• Are you scared of people finding out?
• Have they taken your bank card, benefit card, passport, watch, or other valuables from you?

Two of these signs deserve particular weight. The absence of paperwork matters because every authorised lender must give you a proper agreement, and the secrecy matters because loan sharks rely on borrowers feeling too ashamed or frightened to tell anyone. If a lender asks you to keep a loan secret, that is in itself a strong sign that something is wrong. The same guidance notes that all lenders have to be authorised by the FCA to lend money, so a lender who cannot show proof of authorisation is likely to be a loan shark⁶.

If several of these signs are familiar from a loan you already have, the sections below set out your legal position and how to report the lender.

You have not broken the law by borrowing

What loan sharks do is illegal, but you have done nothing wrong². It is not a crime to borrow money from someone². If you have borrowed money from a loan shark, you have not broken the law⁶. Official guidance is explicit that it is the lender, not the borrower, who has acted illegally¹².

This point matters because loan sharks use fear of the law as a weapon. Official guidance states plainly that threats of prosecution and prison cannot happen, because not repaying a loan from an unlicensed lender is not a crime¹. It is not a criminal offence to fail to repay a debt, so the loan shark cannot bring you to a criminal court about your arrears¹³. You cannot be legally made to pay back the money, and you have not broken the law if you do not pay it back⁸.

The practical effect is that the fear of "getting into trouble" should not stop you from seeking help or reporting the lender. Free, confidential support is available: the Illegal Money Lending Team supports people who have borrowed from loan sharks as well as investigating the lenders themselves⁶, and free debt advice charities can help you sort out your wider finances. See what to do if you can't repay a loan and the debt guide for where to start.

A loan shark cannot take you to court

A loan shark has no legal route to make you pay. Loan sharks cannot take you to court for money, because it was illegal for them to lend it to you². Official guidance adds that it is very unlikely they would take you to a civil court at all, as a loan from a loan shark is not legally enforceable¹³. Even the interest is beyond their reach: they cannot enforce the high rates of interest they are trying to charge⁸.

This is the mirror image of how a regulated loan works. When you borrow from an authorised lender, the agreement is legally binding and the lender can, if you default, pursue the debt through the courts. With an illegal lender, the loan itself has no legal standing, so neither the original sum nor the interest can be enforced against you. You do not have to pay the money back², and you are under no legal obligation to repay the debt¹.

One further point on enforcement: the police have no power to prosecute loan sharks⁶. That is not a statement about your position as a borrower, but about who deals with illegal lending. Specialist teams, not the ordinary police, investigate and prosecute illegal money lenders, which is why the reporting routes in the next sections matter. If a loan shark threatens you with the police or the courts, neither threat has any legal basis.

How to check a lender is authorised by the FCA

Every legal lender in the UK must be authorised by the Financial Conduct Authority before it can lend money⁶. The FCA provides a tool, the FCA Firm Checker, to help consumers check whether financial services firms are authorised and have permission to sell products and services¹⁴. The FCA register, at register.fca.org.uk, is where you can check whether a provider is authorised by the PRA or FCA¹⁵.

To check a lender specifically, the FCA's guidance is to search the firm by name, select "Borrowing money, including credit card lending and credit information", and check that the firm is "Authorised" with permission to "Lend you money on an unsecured basis"¹⁶. The scale of the authorised market gives a sense of how normal this check is: around 36,000 firms are authorised by the FCA with credit permissions, the bulk of which are credit brokers¹⁷.

The check matters most at the moment you are offered a loan, especially by someone you have not dealt with before:

• Doorstep lenders must be authorised by the FCA. If the lender cannot show proof of FCA authorisation, it is likely they are a loan shark, and a loan shark is a money lender who has not been authorised by the FCA¹⁸.
• Payday lenders must be authorised by the FCA, which publishes a list of licensed lenders on the FCA register⁹.
• Anyone offering a loan out of the blue can be checked the same way. MoneyHelper's guidance on loan fee fraud is to check a loan provider is legitimate by searching the FCA Firm Checker and using the contact details listed there, not the ones given by the caller¹⁹.

The Financial Ombudsman Service also points consumers to the FCA's Firm Checker to confirm a firm is authorised and help avoid scams²⁰. Checking takes only a few minutes and is the single most reliable way to tell a legal lender from a loan shark before you borrow. For more on the checks legal lenders make of you, see loan affordability checks, and for the difference between lenders and brokers, who also must be on the FCA's Financial Services Register, see direct lenders and loan brokers.

Reporting a loan shark: the Illegal Money Lending Team

In England, you can contact the Illegal Money Lending Team (IMLT)⁶. The IMLT investigates and prosecutes illegal money lenders while supporting those who have borrowed money from a loan shark⁶. It is part of National Trading Standards⁶. Stop Loan Sharks investigates illegal lenders across England and supports people affected by loan sharks¹¹.

The reporting routes are:

• Phone: 0300 555 2222 if you live in England, or 0300 123 3311 if you live in Wales⁵
• Text: a report to 07860 022 116⁶
• Online: www.stoploansharks.co.uk and www.gov.uk/report-loan-shark⁶

You can report a loan shark anonymously if you want to⁶. Stop Loan Sharks materials are available in over 20 languages, including Polish, Romanian, Punjabi and Urdu⁶, so language need not be a barrier to reporting. If you think you have borrowed money from an illegal money lender, contact Stop Loan Sharks³.

In Northern Ireland, reporting works differently. The PSNI's predatory lending team can be contacted by email, by telephoning 101 and asking for the illegal money lending team, or by reporting online through the PSNI's website. The name of both the borrower and the lender can remain anonymous, and there is no obligation to make a report¹². In Scotland, the reporting routes on GOV.UK cover the whole of Great Britain, and the problem is UK-wide rather than confined to any one nation⁴.

Reporting is not just about prosecution. Because the IMLT supports borrowers as well as investigating lenders, a report can be the doorway to practical help with the situation the loan shark has put you in⁶. Free debt advice is also available alongside: see what to do if you can't repay a loan and the debt guide.

If you are threatened or at risk of harm

Threats and intimidation are part of how loan sharks operate: they are illegal moneylenders who charge very high interest rates and sometimes use threats and violence to frighten people into paying¹. If a loan shark has threatened you, that is one of the recognised warning signs, and it is a reason to report them⁶.

On involving the police, the guidance is specific: the police might get involved if a loan shark has committed other crimes like assault, but it is best to contact the IMLT first⁶. The police have no power to prosecute loan sharks⁶, so the IMLT is the route that can actually act against the lender, and it can involve the police where other crimes have been committed.

Harassment by any creditor is something the law recognises. Guidance on harassment by creditors covers what counts as harassment and what you can do about it, and loan sharks, as unlicensed lenders using threats, fall at the extreme end of that behaviour⁸. Citizens Advice makes the point directly in the loan shark context: they cannot enforce the high rates of interest they are trying to charge, and you cannot be legally made to pay back the money⁸.

Being scared of people finding out is itself one of the warning signs of illegal lending⁶, and loan sharks rely on that fear to keep borrowers silent. Reporting can be anonymous, in more than 20 languages, and with no obligation attached⁶. If you have been threatened, the support side of the IMLT's work exists for exactly your situation.