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With the recession cutting off people's credit lines, as many as two hundred thousand Britons are at risk of having their finances put in jeopardy by predatory lenders, a new report has warned.

According to low-end estimates from the New Local Government Network (NLNG), the number of people who approach a shark for a quick cash loan during the recession is likely to be at least 35,000, although the group warns that this figure may rise considerably higher.

As such, the NLNG is warning Britons to make sure they are aware of the risks posed by loan sharks, while the group is also calling on banks to loosen their credit lines to the most vulnerable sections of society.

The rise of the shark

In its wide-ranging report, the NLNG warns that the rise in loan-shark lending has been brought about by a combination of factors, with the credit crunch a leading cause. Specifically, the group warns that it is the lack of regulated sub-prime lending that is causing cash-strapped Britons to turn elsewhere for credit, with predatory lenders often exploiting their vulnerable position and leaving them exposed to extortionate interest repayments.

The term 'sub-prime lending' covers the types of loans that are offered to people who have a poor credit rating, considerable debts or other problems that lead banks to view them as likely to experience problems in repaying loans.

Sub-prime became particularly popular in the US and many consumers were offered loans for purchases such as cars or houses, creating a multibillion dollar market in the process.

However, that market came close to imploding when major mortgage providers realised that their customers would be unable to pay their debts and financial institutions around the world are still trying to work out just how much money they lost because of these sub prime loans.

Now, with the US and many other countries in the grips of recession, banks have become very cautious of offering sub-prime loans, even for smaller purchases. This, the NLNG points out, is the major cause of the rise of the loan shark.

"As a result of the scaling back of sub-prime lending because of the credit crunch, estimates suggest a further 600,000 to 850,000 will lose access to a line of non-standard, mainly door-step, credit in the coming year," the report warns.

Setting up the shark nets

In a bid to protect vulnerable Britons from the circling loan sharks looking to cash in on this credit shortfall, the group urges local councils to plough money into credit unions that will be able to provide a fully regulated source of funding to hard-up consumers.

The NLNG warned that the need for such funding will be particularly acute in at-risk areas such as Stoke, Manchester, Lincoln and Gateshead, where a large number of people are currently finding it difficult to access credit from banks or other regulated lenders.

Report author Chris Leslie commented: "Further intervention from local government is a crucial next step and we look forward to strong leadership from the sector at a time of great urgency."

On a national scale, the report also calls for an investment in financial literacy and public awareness programmes that will alert vulnerable people to the danger of illegal predatory lending.

And the credit union has a role to play here too, the NLNG points out, with national laws introduced in 1979 setting out responsibilities for unions to help people to learn how to manage their money wisely.

Meanwhile, for those who feel they are being pressured by a loan shark, Directgov offers a confidential hotline to allow Brits to report dodgy lenders. More information can be found on the Directgov website, which also offers advice on identifying illegal lenders.

If you are having difficulty obtaining credit in the current economic climate, the government also recommends finding out about Moneylines, which are community funding groups that are set up to provide loans to those who cannot access mainstream finance.

The schemes provide loans for a number of purposes, including making home improvements, purchasing property or equipment or covering costs while out of work.

Whatever your financial circumstances, Directgov urges consumers to check out all the lending options available before making a decision, in addition to ensuring that you can keep up with the repayments.

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