Predatory debt collectors hustling on borrowed time

Debt-collecting businesses are to be banned in Vietnam as part of local government action to protect customers’ rights, with the upsurge of predatory lending services triggering heated debate and eroding public trust.

Predatory debt, debt, bad debt, COVID-19, Predatory debt, debt, bad debt, COVID-19
Aggressive debt collectors will soon have no room to operate in Vietnam

The National Assembly has approved the newly-amended Law on Investment, with a ban on the controversial debt collection business. Debt companies are those that specialise in collecting debts where the original creditors could not get arrears repaid.

There are currently 217 debt collection companies in Vietnam, mainly in Hanoi and Ho Chi Minh City, scrambling to grab their piece of the bad debt market, according to the Ministry of Planning and Investment.

Collecting debts is an important credit mechanism, but lately it has been rocked by a series of scandals, sparking public anger and warranting tighter official scrutiny.

According to Lieutenant General Doan Duy Khuong, director of Hanoi Department of Public Security, predatory loans are to blame for a rise in illegal debt collection activities. Abusive or predatory lending – whether undertaken by creditors, mortgage brokers, or home improvement contractors – may involve fraud or deception, manipulating borrowers through aggressive sales tactics, or taking unfair advantage of a borrower’s lack of understanding about loan terms.

The presence of illegal, predatory lenders hurts the legitimate lending services as a whole by eroding consumer confidence and increasing public distrust.

“Many of the tactics include threats of violence or threats against debtors’ families. In other cases, debt collectors can adopt more extreme approaches such as undue harassment, misuse of debtors’ personal data, defaming victims, or imposing extremely high rates on late payments,” said Khuong.

Senior Lieutenant Colonel Nguyen Dang Nam, head of the Criminal Police Division under Ho Chi Minh City Department of Public Security, cautioned that 99 per cent of debt collection companies in the area are allegedly showing signs of colluding with criminal gangs, using illegal tactics to collect inflated debts.

Local authorities, on the other hand, struggle in handling debt collection services, since the victims might be afraid to report issues.

“Vietnamese authorities should definitely bring a heavy regulatory hand down on so-called loan shark activities and criminal debt collectors to protect consumers’ rights,” Truong Thanh Duc, chairman at BASICO told VIR. “However, I’m afraid in case debt collection agencies are completely forbidden, it would adversely impact lenders as reclaiming debt would become a daunting task.”

“The COVID-19 pandemic has dealt a fresh blow to the whole economy. With no earnings coming in, debtors will likely default on their loans and they will turn to short-term, high interest loans. Undoubtedly, this will put many consumers at the mercy of unscrupulous lenders and debt collectors,” said Duc.

Other experts also agreed there is no need for debt collection as a kind of business, as disputes over payment should be resolved through negotiation or legal action. The state also has a full legal system, law enforcement, and enforcement agencies such as courts, prosecutors, and executors of sentences to serve such purposes.

Earlier this month, Ho Chi Minh City Department of Public Security held a probe into a string of peer-to-peer (P2P) lending firms, including two companies operated by Singapore-backed firm Cashwagon for charging at exorbitant lending rates. Dossier reviewing and loan procedures are processed and approved via its website or app, with lending rates at least double that of commercial bank rates.

The company has had more than 280,000 customers in Vietnam, and disbursed $100 million. In Indonesia, there are more than 310,000 customers with a total loan of $105 million. Cashwagon also secures a large base of customers across Southeast Asia.

Local media reported more than 7,600 loan-related crimes recorded in Vietnam in the last four years. Just over 50 were murder cases, while the others involved intentionally inflicting injury, robberies, and seizing properties and assets using force, fraud, or other scams.

Payday loans or cash loans are offered by lending platforms directly to borrowers under the name of credit loans or consumer loans. Approval times are relatively short, with simpler procedures so that debtors can expect to have their money in a short time.

Specifically, their customers tend to consist of subprime borrowers or low-income workers, who are among the most vulnerable people.

On the other hand, the collapse of a number of Chinese P2P lending services, even high-profile names, has sparked grievances not only in China but also in Vietnam.

In May, local media reported more than 60,000 people across Vietnam had to suffer cutthroat interest rates of over 1,000 per cent per year from a payday loan ring headed by Chinese nationals. The total loan amount reached VND100 billion ($4.2 million). The payday loan shark ran three companies (Vinfin, Beta, and Dai Phat) providing cash loans via apps Vaytocdo, Moreloan, and VD Online.

Besides that, a string of online lending apps such as Panda, Lightning Bolt, ATM Loans, Uvay, Bagang, and Vaydi are still catching the eyes of Vietnamese citizens.

Nguyen Hoa Binh, chairman of NextTech Group, expressed his concern that many online lending apps, which are owned by Chinese, have created unfair competition by using deceptive advertisements to lure more customers then charging them with sky-high lending rates of up to 90-100 per cent per month.

By Celine Luu

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