People who would have borrowed from legal sub-prime lenders are now being turned down in greater numbers.
Illegal lenders are thriving in the recession with desperate customers unable to secure credit elsewhere.
According to a report from the Local Government Network, 35,000 people could turn to "loan sharks" in the current recession, which threatens to be the worst in decades. These customers would seek help from the sharks after being turned down for legal sub-prime credit offered by so-called doorstep lenders.
Increased refusals have been experienced by customers with less-than-perfect credit records as a result of the financial crisis and economic downturn. This is because lenders' own finances have been badly affected over recent months, leading them to become less willing to accept applications from "risky" borrowers.
Chris Leslie at the Local Government Network said: "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."
He added: "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."
Recent economic output figures from the government laid bare the depth of the current recession. GDP shrank by 1.9 percent over the first three months of the year - the deepest decline since 1979.
