Page last updated at 00:30 GMT, Monday, 25 May 2009 01:30 UK

'Loan sharking comeback' warning

Purse and money
Traditional lenders have become more guarded about their lending

A growing number of people in the UK are likely to use loan sharks during the recession, according to a local government think-tank.

An estimated 35,000 more people could turn to illegal money lenders because of the squeeze by traditional lenders.

The New Local Government Network report said Stoke, Gateshead, Lincoln and Manchester were among the places most likely to be targeted by loan sharks.

It called for councils to pump funds into credit unions.

"There is evidence to suggest that the pernicious trend of illegal unsecured lending at extremely high rates of interest, or loan sharking, is making a comeback," said the report's author, Chris Leslie.

Recession impact

The think-tank, founded in 1996 and aimed at raising the credibility of local government, said at least 165,000 people already used loan sharks in the UK.

It completely and utterly took over my life
Loan shark victim

But Mr Leslie said this number was expected to rise sharply because the global downturn had caused the regular sources of lending to dry up.

These included traditional lenders and sub-prime lenders, which had also increased the rate of refusals for those seeking loans.

"The diminished availability of regulated sub-prime credit is creating conditions where a sizable number of people have little option but to borrow from illegal sources," he said.

Other areas where loan sharks - who are unregulated and generally demand high rates of interest - were most likely to operate included Lincoln and Manchester, the think-tank said.

It wants councils to set up their own banks or to pump funds into regulated credit unions to offer affordable credit to people who cannot access High Street loans.

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