On the wall


“A loan shark” – this definition is from Wikipedia, the fount of all knowledge in the 21st century — “is a person or body who offers loans at extremely high interest rates. The term usually refers to illegal activity, but may also refer to predatory lending with extremely high interest rates such as payday or title loans.”

A ‘payday loan’ is “a small, short-term unsecured loan, which relies on the borrower having previous payroll and employment records” – hence the name. However, Wikipedia further informs us (q.v. payday loans) that “to prevent usury , some jurisdictions limit the annual percentage rate (APR) that any lender, including payday lenders, can charge…in the US the rates of these loans were formerly restricted in most states…with 36-40% APR generally the norm.”

Note those facts – rates of 36-40% being the norm, formerly. For further research, Google some articles on payday loans in the US, their scope and scale nowadays, and whether they are still interest-rate-capped, or even legal.

All that is by way of background. Now chew over this — an ad in a very public setting offering the following: “£240 borrowed, 3 instalments, annual interest rate 233.6% (fixed), total repayable £319.95, three equal payments of £106.65”

This ad clearly corresponds to all the criteria noted for a ‘payday loan’, in that it is small, short-term and unsecured. However, the rate of interest built into the repayment schedule, announced to be 233.6% per annum, would seem to be way beyond the rates that formerly were considered the norm in most states in the US. Indeed, most people would have no hesitation in labeling this offer as loan sharking, since it is made at “extremely high interest rates”.

We already know (see above) that loan sharking usually refers to illegal activity, but it may also refer to predatory lending with extremely high interest rates. In this case, which is it?

Is it illegal?

The sharp-eyed will have noticed that the offer is denominated in pounds sterling, so that we are dealing with a UK-based operation. What is the legal position there? You could ask a lawyer, but that would be expensive, so let’s just Google it instead and, via https://www.gov.uk/report-loan-shark we discover that, under the headline “Report a loan shark”, Her Majesty’s Government informs the public that Loan sharks are illegal moneylenders who often charge very high interest rates. You can check if a company is authorised to lend money and report loan sharks anonymously. Indeed, the law-abiding citizen is further exhorted  If you spot a loan shark or you’ve borrowed money from one you can report them anonymously. –  phone and email details provided.

So if you saw the ad cited above, presumably because you were in a sleazy, unsalubrious, run-down, dead-end, crime-infested, poverty-stricken, etc. etc. town or part of town, you would know what to do – and what you should do.

But the ad above, posted by an outfit called The Money Shop, appears on trains of the London Underground and is therefore accessible to vast numbers of people on a daily basis. Do any of them report it? Maybe, because the Financial Services register of the Bank of England’s Prudential Regulation Authority has identified several versions of The Money Shop and classified them as “No Longer Authorised” or similar – except for one in Cornwall.

More interestingly, do any of the passengers who read the ad contact the Money Shop for a loan? One suspects they do, otherwise the ad would not appear. And most interestingly, does Transport for London or any other entity supposedly in charge of the Underground pay any attention to the ads that appear? Or is their response confined to the shrug-of-the-shoulders and “Whatever” comment that is the now the accepted way of saying “it’s none of my business, I don’t care and I really don’t want to know”?

I’m pretty certain that the ad and the offer in it are within the bounds of whatever passes for the law in the UK today – which means that the people in Transport for London have their backsides fully covered. I say that because there is another line on the ad which I have not yet quoted.

The end is nigh

It will be recalled that the offer was at an “annual interest rate of 233.6%”, which sounds pretty usurious. However, the UK law requires all financial service companies to define their loan offers in terms of ‘APR’, which is the ‘annual percentage rate of charge’ and “describes the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan” (Wikipedia again).

The Money Shop very kindly – and clearly not voluntarily – supplies the APR, which is nowhere near as usurious as 233.6%. Rather, it is 753%. That is seven hundred and fifty three percent, per annum.

Just to recap: inflation in the UK is in very low single digits. Official interest rates are 0.5% and normal loan rates are in single digits. Credit card APRs are between 20% and 30% (yes, really). But you can borrow a coupla hundred quid from outfits like The Money Shop for a mere 753%.

Simon and Garfunkel taught us long ago that “The words of the prophets are written on the subway walls”. The old words were “The end is nigh”, but the new ones are “753% representative rate”.


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