Some consumer finance institutions in Vietnam have failed to fulfil their responsibilities by providing loans without vetting borrowers thoroughly, said Lieutenant General Tran Ngoc Ha, director of the Criminal Police Department.
The Ministry of Public Security and local police have been investigating and cracking down on some organizations and individuals that are acting as consumer finance providers or pawnbrokers. How is the Criminal Police Department tackling these cases?
The Ministry of Public Security identified this problem at an early stage, and following direction from ministry leaders, the police have been taking drastic measures to put an end to it. It is also a wake-up call for organizations and individuals operating in the field of consumer finance to comply with the law.
Investigations show that debt collection, smear campaigns and emotional blackmail are manifestations of this issue, and lead to property appropriation. Their methods and schemes have evolved. Traditionally, the lender and borrower needed to meet to make a transaction, but now transactions are conducted via an app. Some lenders set interest rates of a maximum of 20% per year as determined by the State Bank of Vietnam, but charge many add-on fees. They also use more sophisticated measures to collect debts, leading to property extortion.
Police have uncovered violations in consumer lending at financial institutions and pawnbrokers. What are the manifestations of these violations?
There are legal regulations covering these areas. Financial companies operate under the Law on Credit Institutions, while pawnbroking is a conditional business activity. These companies can operate providing they don't break the law and meet all business conditions. Of course, they must be responsible for their activities. We will continue to evaluate any violations, but there are potential risks in each of these areas.
Currently, there are about 28,000 pawnshops nationwide. Interest rates must not exceed 20% per year as stipulated in the Civil Code. However, some pawnbrokers introduced many additional fees, so the actual interest rates are exorbitant. The nature of pawnshop operations is not "black" credit, but usurers take advantage of these activities to operate. Furthermore, they also abuse loopholes in legal regulations, for example a regulation that to access a loan, the borrower must have collateral with or without an ownership certificate.
Some consumer finance companies offer quite reasonable interest rates and comply with rules set by the central bank, but their loan capital and debt collection show many problems.
To prevent these risks, borrowers and lenders must clearly understand and abide by their responsibilities and obligations in terms of their civil commitments.
One emerging phenomenon in recent times that has caused public outrage is debt collection, with threatening phone calls being made to debtors’ relatives. Some argue that although debt collection service is banned under the Law on Investment, it has not completely disappeared but instead been disguised in different forms. What is your opinion?
This issue has also been identified and evaluated by the Ministry of Public Security. Recent investigations show that consumer finance organizations have hired law firms to collect debts. In fact, law firms only provide legal advice, but they are directly in charge of debt collection. Thus, they take advantage of legal advice to collect debts illegally. If they use intimidation or other means to collect debts illegally, that is property expropriation.
According to many consumer finance organizations, there are specific legal provisions regarding debt collection activities. However, insufficient and weak sanctions have hindered their operations. Do you agree?
The police's main responsibility is to prevent crime and ensure social order and safety, while solving the difficulties facing enterprises is down to state management agencies. However, when a lender provides a loan, it must assess the borrower’s repayment ability. Credit institutions and banks must have lending and debt collection plans in place.
When we agree a loan, we must know the borrower’s purpose and their repayment capacity. It is impossible to lend money to a person without knowing their income or purpose.
State credit covers all people and but to get a bank loan, borrowers must meet the set criteria, standards and conditions.
Many financial organizations do not know where the borrower lives or if the documents provided are fake or real because lending procedures are conducted through an app or online. They must establish how people will be able to repay them. If finance organizations do not follow these rules, I think they fail to fulfill their responsibilities.
Do many people take out loans and then renege on them?
If a person borrows money for the right reasons such as solving economic difficulties over a certain period, they have an obligation to repay the debt. If not, the civil dispute can be resolved in court. If they intentionally evades the debt, that violates the law. In this sense, lending institutions also have a responsibility to prevent this from happening.
Police are the main force behind detecting black credit-related cases. What do you think the shortcomings and limitations are in the field of consumer lending that may hinder competent forces from ensuring social order and safety?
In my opinion, there are two problems. The first is lending interest rates. The Civil Code stipulates that loan interest rates should not exceed 20% per year. However, the rate to be criminally prosecuted for loansharking is 100% per year, five times higher than the permitted level. It is a loophole, and competent authorities should consider amending this regulation.
Second, Vietnam needs stricter regulations to deal with civil issues related to borrowing and lending activities. In some countries, borrowers are required to show collateral to guarantee debt repayments. For example, pawnbrokers should ask borrowers to prove assets as collateral before they agree a loan. As for unsecured loans, the lender has the right to issue or not. Lending institutions cannot provide loans without vetting borrowers, and then use illegal measures to force them to repay debts.
Since November 2022, the Ministry of Public Security has directed Ho Chi Minh City police to crack down on six asset expropriation groups in the shadow of financial companies. The Ho Chi Minh City investigation agency has initiated legal proceedings against 64 people for appropriating property, as well as conducted administrative inspections on other companies.
In mid-February 2023, police in Tien Giang province in the Mekong Delta arrested 60 individuals from the Viet Law firm for asset expropriation through illegal debt collection. They included two deputy directors, 20 division heads, one secretary and 31 employees.