Mark Johnson earned more than £800,000 from lending money at extortionate rates to vulnerable people on benefits, then threatening them when they could not pay up. He used the proceeds to buy a Pors-che and a BMW and was buying a £500,000 house when he was arrested.

Johnson, 38, from Hall Green, Birmingham, was jailed for three years and nine months yesterday after pleading guilty to running a consumer credit business without a licence.

He also admitted three counts of blackmail, one of possessing criminal property, another of attempted deception in a mortgage application and one of unlawfully obtaining a disability benefit book.

The case is the first to be brought by the Loan Shark Unit, a pilot project in Birmingham set up by the government to crack down on illegal money-lending. Specialist investigators use surveillance to track loan sharks, and encourage victims to come forward to prosecute offenders.

Birmingham Crown Court was told Johnson preyed on people on benefits in Birmingham's sink estates who had been refused loans elsewhere. Some had mental illnesses or disabilities and others were single mothers or elderly, but Johnson showed a "sustained, calculated and cruel disregard" for his victims, the court heard.

Interest rates of up to 8,000 per cent were charged on loans of as little as £100. Johnson would take a "client's" benefit book as "security" for the loans and cash them himself, piling on huge default charges for missed payments.

One person who borrowed £500 ended up owing more than £22,000. Johnson took another woman's benefits of £150 a fortnight and gave her just £20 a week to live on. People who refused to pay had their possessions taken and were threatened with violence.

He leaned over one elderly woman as she lay on her sofa recovering from a stroke and threatened to take her television. Another victim was told: "I will send my cronies round if you miss any payments." Johnson, who has two children, was claiming benefits while earning an estimated £800,000 from his two-year reign of terror. He bought a BMW convertible and a Porsche Cayenne for £40,000 each, and was trying to buy the £500,000 house in Solihull when he was caught.

Recorder Andrew Tidbury said Johnson's business "inevitably preyed on the weakest members of the community. These were people who had no one else who would lend them money. In that way, it was suggested you were doing a service to them.

"The reality was to the contrary. You were lending money at exorbitant rates of interest with terms of repayment they would find it impossible to police and comply with." The Loan Shark Unit pilot is part of a £2m Government initiative to reduce the £3bn a year illegal money-lending racket. Nine more people in Birmingham face prosecution and a similar scheme operates in Glasgow.

Gerry Sutcliffe, the Consumer minister, said: "This should send a clear message that we will take action against people who think they are above the law. We are determined to stop them making money out of misery."

More than 200 people whose names were found on Johnson's books have been told the debts have been wiped out because the loans were illegal. They have also been put in touch with credit unions which charge interest rates of 6 per cent.