Friday, 6 July 2012

Do decent loan sharks exist?

I’m sure there are micro-lenders out there that are decent human beings. I’m prepared to be optimistic. There must be.

There is, however, no evidence of this. At Consumer Watchdog the only stories we hear are self-selecting. Consumers with good news stories about loan sharks don’t spend their time emailing us to celebrate them. We tend to hear only about the bad experiences, about the lenders who treat their customers with contempt, who charge exorbitant interest rates and who show shameless disregard for the law. We only hear the bad news.

And sometimes the news is really bad.

Recently we heard from a reader who borrowed P2,500 from a loan shark in April 2011. The agreement was that this was to be paid back over a couple of months at a monthly interest rate of 25%. Yes, that’s 25% every month. The total amount to be repaid over 2 months would be P3,750. If it had been over 3 months it would have been almost P4,000.

The problem, which will come as no surprise to anyone, is that the borrower defaulted on her repayments fairly quickly.

First things first. Clearly that she should NOT have defaulted. Despite my loathing for the loan shark industry, I believe even more strongly that people should stick to their promises. If you borrow money from someone, either a loan shark or a furniture store (yes, store credit IS a form of borrowing) then you have to stick to your promises. If you can’t be certain you’ll be able to make the payments, don’t take the loan. No matter how hard your finances are, they’ll only get worse if you piss off a loan shark.

Nevertheless none of this excuses the conduct of this particular loan shark. To begin with he took the borrower’s ATM card from her. Anyone with a brain, the ability to read and a passing relationship with newspapers like Mmegi will know that this is forbidden. The tough guys at the Non-Bank Financial Institutions Regulatory Authority, NBFIRA, put adverts in the papers months ago reminding us all, and loan sharks in particular, that this wasn’t permitted. (You can see their press release here, a 508kB Microsoft Word document).

When I spoke to the shark about this he said “but I never used it!” That turns out to have been a lie. In fact he’d used it to withdraw P1,000 from the reader’s bank account.

I only found out about this situation when the reader got in touch, a year after missing her payments, when she got a letter from the shark demanding that she settle her debt which he claimed had now reached P13,085. Regular Mmegi readers will now be muttering the words “in duplum” under their breath.

The “in duplum” rule is a very pleasing bit of common law that is respected throughout our region. According to the very learned Judge Dow:
“the in duplum rule serves to aid debtors in financial difficulties by holding that it is unlawful to recover interest equal to or more than the capital sum upon which interest had accrued” [and that] “the in duplum rule cannot be waived and circumvention of the rule cannot be tolerated by courts”.
In simple terms a loan shark cannot enforce a debt of over P13,000 for an initial loan of a mere P2,500. The court will laugh in the loan shark’s face. However many micro-lenders are relying on borrowers’ understandable fear of going to court. Nobody wants to end up in court but the irony is that that’s where the law is best applied. Outside of court the shark can demand whatever he wants. As soon as real law is applied things are more decent.

Another requirement that NBFIRA have made perfectly clear is that all loan sharks must be registered with them. They’ve got to fill in forms, disclose who owns and runs the company, where they operate from and how much cash they have in the bank to lend all that cash. You have to ask yourself where some of the more disreputable lenders get all that cash from.

Yet again this particular lender fails the test. Rather than meeting the borrower in the office most times they got together in the African Mall. If he was buying her some spicy chicken that might be fine but I think it’s safe to assume that lenders that operate from car parks are crooks.

When I asked him whether he was registered with NBFIRA I’m sure you won’t be surprised to hear that he was “in the process” of registering. As far as I can establish this is yet another “untruth”.

He also seems to have a rather poor ability to keep records. He can’t provide any written records of her repayments and couldn’t even remember all the amounts the victim, sorry I mean “borrower”, had paid him back.

I can’t actually think of a single thing that this particular loan shark has done right. He’s broken EVERY rule that NBFIRA has put in place, he has no knowledge of the law relating to debt and operates from a car park. The only thing he’s doing well is stealing money from his victims.

The good news is that NBFIRA is one of the few regulators who have a backbone. They’ve made it perfectly clear that they’re there to do a job and they’re prepared to exercise their authority. Sooner or later loan sharks like this one are going to be out of business. Some might even be in jail. That’ll be a day to celebrate.

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