New Forms of “Shadow Banking” or “Loan Sharks”?
The bank accounts of people who are trying to get a bank loan on the internet are being accessed by loan sharks, and by companies who will search for loan sharks. This scam works by asking loan applicants on the internet for their bank details. The reason given is these details are necessary in order to facilitate the loan. Then these details are shared with about 200 other loan sharks who take sums of £50 to£75 from the account at frequent intervals between midnight and 3 a.m.. This is the time when welfare benefits are loaded into bank accounts. Enough raids on an account may remove all the money in the account.
A quick search on the internet revealed over 20 companies who will search a loan for you in the UK alone. They mostly reveal that they will “pass on” your details, but do not specify which details these are. Some customers may think it is only name and address. Indeed that is all that is required on the first page. Later pages require sort code and account number!
The phrase “Shadow Banking” mostly refers to hedge funds and sovereign funds. These companies are harder to regulate than high street banks. However, the scams described above have produced over 600 complaints a day at the Royal Bank of Scotland alone. This is an indication of the large number of customers affected. The sums of money are much smaller than in hedge funds, but the direct effect on large numbers of people can leave them without any money at all.
This is a form of banking seemingly permitted in the UK by the Financial Conduct Authority, and charging exorbitant interest rates, and raiding bank accounts at midnight! Surely this is another form of shadow banking. The official estimate from the FCA for payday loans in 2013 was £2.5 Billion for 1.6 million consumers. This is big business. There is no comment from the FCA on the current scam. However one company called “My Loan Now” is no longer taking on new customers, as of today.
What is to be done?
Retail Banks have a responsibility for informing their customers about revealing their bank details. Most banks give this advice on their web sites, and in person if asked. But finding advice about payday loans outside the individual bank’s own loans is difficult to find on their websites. And indeed there may be no advice for payday loans.
Given that all payday loan companies cannot be closed down, and only limits on interest rates, and caps on charges are proposed: why not make retail banks offer loans at normal terms and conditions that already govern their personal loans?
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