The financial companies will not be able to lend cash as much as it does now and cannot claim debts for organisations and individuals who have no obligation to repay debts. These are the main contents of the Draft Circular amending and supplementing the Circular No. 43/2016/ TT-NHNN of the State Bank of Vietnam (SBV) regulating consumer lending activities of financial companies.
Financial companies are boosting cash lending, especially new brands entering the market. For example, Easy Credita consumer lending brand of EVN Finance, has just launched on October 1, 2018, surprising the market with a cash loan package with maximum consumption target up to 90 million dong and tenor up to 60 months. With good customers, the interest rate applied is only 1.25 percent per month, equivalent to about 15 percent per year. Previously, another rookie, SHB Finance, also took cash loans as a competitive advantage when starting to join the market in August 2018.
According to a banking expert, competition in the consumer finance market in the form of instalment loans is becoming saturated when any financial company tries to connect with retailers to lend instalment consumption. In this context, consumer finance companies promote cash lending to attract customers, especially for new recruits.
However, the risk of bad debt for cash lending is also higher. “Although the lending interest rates of financial companies are much higher than that of banks, the borrowers still accept them for several reasons. Firstly, they are not eligible to access bank credit. Secondly, borrowers desperately need cash, maybe for the purpose of refinancing. Moreover, cash lending has no guarantee. All of these things have the same consequence that the risk of bad debt is very large, “said the expert.
That is the reason in the Draft Circular amending and supplementing Circular 43/2016/ TT-NHNN regulating consumer lending activities of financial companies, SBV adds the regulations on disbursement forms for consumer finance loans of finance companies.
Accordingly, financial companies are only allowed to disburse directly to borrowers (in cash or transfer into customers’ payment accounts) for customers who have been borrowing from such financial companies, are assessed have a good repayment schedule according to the internal regulations of the financial company and have no bad debts according to the classification results of the Vietnam National Credit Information Centre until the latest date from the time of signing consumer loan contract. In addition, financial companies must ensure that total outstanding loans for consumer loans disbursed directly to borrowers does not exceed 30 percent of the total consumer credit balance of financial companies.
“Direct loan disbursement to borrowers has a high risk, difficult to control the purpose of using loans. Therefore, in order to ensure sustainable, healthy, efficient consumer loans, they are directed to customers who have borrowed from financial companies and good repayment history”, SBV explained.
One of the issues causing much pressing in the public opinion over the past time is that many finance companies follow the style of sticking, even being gangsters. For example, Tran Van D (HCM City) did not borrow money from the finance company; he frequently received phone calls from the company’s staff to ask for money, even with threatening words. “I do not know which customers used my phone number when declaring a relative to borrow money,” he said.
Even with many people reflected that some consumer finance companies also hired gangsters to collect debts. According to the Department of Competition and Consumer Protection (Ministry of Industry and Trade), the sector and the industry that were most complained in 2018 were finance, banking and insurance. This is different from the previous years, because the industry is often in the group of complaints, most reflected in consumer goods. In particular, the subject is complained mainly focused on financial companies, the content of complaints mainly related to consumer lending services with many acts of signs of violating consumers’ interests such as: provide inaccurate, incomplete, confusing information; use contract form with small font size, do not provide contracts for consumers after signing, recovering debt is threatening, putting pressure on consumers’ reputation and psychology.
That has led many people to cooperate financial companies’ activities as a form of shadow banking, thereby losing the meaning of this model in comprehensive financial development as well as preventing shadow banking.
Therefore, one of the important amendments to Circular 43/2016/ TT-NHNN is the supplement of the regulation that financial companies are not entitled to “debt remission, debt claim for organisations and individuals without the obligation to repay debt to the financial company ” beside the regulation “The measure of urging and recovering the debt is in accordance with the characteristics of the customer and the provisions of the law, in which the time for debt reminding is agreed by the parties in the contracts but it must be between seven and 21 hours. Moreover, the contract does not include threatening measures for customers ” as currently.
