Hard-up Scots are being targeted to an unprecedented level by unregulated and often fraudulent websites promoting festive season loans.
Borrowers looking for short-term credit to get them through Christmas are at risk of falling victim to a growing pool of online loan sharks who often charge upfront fees without lending any money.
This is a difficult and expensive time of year for many families and the people behind these websites know thatJoanna Elson
Christmas loan websites have proliferated in recent years as welfare cuts and squeezed incomes have stretched household finances. More than a third of people surveyed by National Debtline expect to borrow to pay for Christmas presents this year, while 23 per cent said they would need a loan to ensure there would be food on the table.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “These unscrupulous Christmas loan websites are exploiting people in financial difficulty in the very worst way possible. This is a difficult and expensive time of year for many families and the people behind these websites know that.”
Payday lenders are these days regulated by the Financial Conduct Authority (FCA) and must display that information on their website. But one prominent Christmas loans website aimed at borrowers with poor credit histories declares that it is “regulated by Santa Claus way up in the North Pole”.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said the sites it reported last Christmas were taken down.
“But the problem has not gone away and a new wave of risky Christmas-themed websites has appeared this year,” he said. “These dodgy sites offer no protection to borrowers, but they can be enticing to unsuspecting borrowers, particularly those with poor credit histories who are tempted to take loans that they may not be able to afford.”
The FCA’s crackdown on payday lenders drove many of the more unscrupulous operators out of business. Those that remain are expected to carry out robust affordability checks on loan applicants, while fees and daily charges for interest have since January been capped at 0.8 per cent of the loan amount. Default charges are capped at £15 and borrowers shouldn’t have to pay back more in fees and interest than the value of the loan.
The number of people raising payday loan issues with Citizens Advice Scotland has fallen sharply over the past year. That partly reflects a decline in the number of people taking out payday loans, but there are concerns that many people have turned to even riskier sources of finance, including Christmas loan firms.
Anyone who really needs a loan this Christmas should borrow “only what they absolutely need and from a source which has sensible rates of interest and will allow you to repay the debt at a rate you can afford”, advised Fraser Sutherland, policy officer at CAS.
“It is really important that people avoid unlicensed lenders that are appearing online as we know these digital loan sharks can make people’s lives a misery,” he added. “We know that a number of unlicensed lenders have links to organised criminal gangs and by using them you could unknowingly be funding people trafficking, drugs trade or paramilitary activity.”
Dodgy loan websites invariably offer a clue or two as to their status. Spelling and grammar mistakes are commonplace and contact details, such as a postal address or phone number, are usually conspicuous only by their absence.
Borrowers should also check they have an FCA authorisation number on the website. If you’re not sure, you can search for the firm on the FCA register (at https://register.fca.org.uk/). If it’s promoting loans but it doesn’t appear to be regulated, report it to the FCA and steer clear.
As ever, if it looks too good to be true, it probably is.