However, the bank is a few thousand dollars so I'm not sure if I should make the loan or just write it off and lose the money.
The answer to the first question is yes. There are lots of legal reasons to loan money to someone. The second question is somewhat more interesting. Here's what the law says:
It is an offence for a person to make or procure, or attempt to make or procure, any loan, for money or for any other thing of value, without having in his possession a certificate of registration under the Money - Lenders Act, 1939
The penalties for this crime are up to two years in prison and/or a fine of up to $10,000. If you're a lender or manager of a fund, you can be found guilty even if you don't take the money. (Also, if you do take the money, you could be found guilty for taking part in the crime even if you didn't know that it was wrong.)
The second person to mention the word "bank" in that last sentence is Constable R.J.P. Minogue. If you were to tell him that you are being harassed by the money lenders, he would probably take you to court.
There are two things to say about Constable Minogue:
He might be a constable. If he is not, then that's a little-known job title.
If he is a constable, then he won't be able to legally take you to court. A constable is a peace officer, and peace officers have certain legal privileges that civilian police do not. That includes the right to enforce the law on their own, rather than with the help of the regular police. (See this question for more details.)
Why? Well, if Minogue were to take you to court, the court would decide whether he was acting lawfully. At this point, the court would know that you had been told by a civilian about money lenders, and would therefore likely decide that Minogue was acting unlawfully.
So the answer to your third question is "yes, Minogue could take you to court", but Minogue wouldn't do it.
If you have further questions, feel free to ask.
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