Universal Credit is forcing Scots into the arms of loan sharks, according to research. 

A study by the Illegal Money Lending Unit – which is funded by the UK Government – has found the biggest change over the last 10 years has been the Government’s new benefit. 

The research into unlicensed lending is the first to look specifically at Scotland since 2008. 

It found the illegal loans market is similar now to a decade ago in terms of the interest debtors are charged and the way lenders recruit them.

However researchers said aspects of Universal Credit (UC) – including the “waiting period” before payments commence and sanctions that stop the income of those deemed to have broken the rules – are among the reasons people are being driven to turn to illegal lending.

The Scottish Illegal Money Lending Unit (SIMLU) is part of Trading Standards Scotland, which is run by local authorities body Cosla. 

Researchers spoke to agencies working with customers of loan sharks and found pressures on clients caused by UC are a "major concern". 

Other reasons for using illegal money lending included addictions, sudden loss of earnings and abusive domestic situations. 

Some of those who had taken out larger payments had done so because of a temporary fall in income, or to buy Christmas presents.

Those who are most likely to turn to illegal money lenders are those in destitution or severe poverty, the report says.

Typically, once recruited, clients are charged between £3 and £5 a week in interest for every £10 borrowed. 

Many said they had been harassed or pursued for payment, often being watched or harassed in their homes, while some had experienced threats, often of serious violence, as the consequence for not paying.

Intimidation could target the debtor themselves or family members.

One woman, Samantha, told researchers she had missed payments when she had to go to hospital. Her creditors pursued her there, she said. 

“They told my brother to pass the message on to me when I was in hospital… I did think about not paying, but my brother was getting threatened too. I knew they would 
do something,” she said.

“They have put people’s windows in and have people’s doors. They have stabbed people. It’s what they do.

"These aren’t hollow threats, they are real. The people I am dealing with are serious.”

Another man, Conor, said: “‘They told me if I didn’t pay, my legs would get broken and I’d get run out of the scheme. It was intimidating, I’m not from this scheme ...  I didn’t know who the money lender knows, I thought I’d better pay him.”

Researchers found that general delays in benefit payments, payment, the fact Universal Credits are usually monthly and the fact that hardship payments for those struggling are converted by the Department for Work and Pensions into loans are all causing problems. 

Meanwhile, there is concern that some Job Centre Plus staff are advising those who are left waiting for payment, or have them suspended to turn to friends and family for help. 

Efforts to counteract illegal money lending have had limited success, the report says because those affected are not contacting advice agencies for assistance.

“Existing efforts to target the users of illegal moneylenders through the advice sector have not borne fruit,” it warns. This is partly because those affected tend not to seek help.

The report also suggests lenders could be increasingly seeking to hide their activities by shifting recruitment online.

SIMLU says the Scottish Welfare Fund is an important mechanism for helping people avoid or extricate themselves from the grip of illegal moneylending.

However some of those interviewed who had borrowed from loan sharks said they had been rejected by the SWF. 

It warns that credit unions are often not a viable alternative source of loans for those in extreme hardship and praises social lenders such as Scotcash, but says some people are on such low incomes that they can’t always make use of them. 

The report calls for the fund’s budget to be increased and a publicity drive to urge people to seek help from the fund.

It also says there should be more research into the impact of austerity policies.

“Those working in this field should work to understand the interplay between destitution, welfare reform and moneylender use,” it concludes. 

Researchers are calling for the Scottish Government to fund an awareness raising campaign to let people know about alternatives to high cost illegal credit, and to make them aware of the help advice agencies can offer. 

Councillor Kelly Parry, Chair of the Trading Standards Scotland Governance Board, said: “We welcome the independent research that was conducted by Nick Hopkins Research in association with Craigforth.

"This is the first Scottish specific research to be conducted and shows some of the reasons why people use  illegal lenders, the amounts of interest that are charged and how threats and intimidation are used to force people into paying back the loans.”