The State Bank of Vietnam (SBV) has sent official documents requesting credit institutions (CIs) and foreign bank branches to rectify their consumer lending activities.
In Vietnam, consumer lending sector has continuously recorded high growth over the past few years, reaching an average rate of 20 percent per annum. However, the infringement of consumer rights tends to increase and seriously affect consumers.
“Exorbitant” lending rates
According to the Department of Competition and Consumer Protection (Ministry of Industry and Trade), complaints of consumers revolve around the fact that consultants often provide inadequate or misleading information to confuse consumers. For example, when consulting, the staff committed interest rate of 1 percent-2 percent per month, but on the contract it was actually 6 percent per month. In addition, borrowers, and even relatives or friends of the borrowers often receive phone calls and messages regarding debt collection from some finance companies, such as the case of P.A.Q (Hoang Mai district, Hanoi) who continuously received messages on collecting debts from staff of Prudential Finance Company although he did not borrow money from the company.
The Department of Competition and Consumer Protection stated that the aforementioned behaviours are signs of violating the law on protection of consumer rights. When detecting or encountering similar situations, consumers should be alert and at the same time actively report to the state agencies to get advised and support on handling.
The lending rate of finance companies is also an outstanding issue in the recent time. Currently, banks mainly provide consumer loans at lower interest rates but the procedures and approval time are often more complicated and longer than consumer finance companies. Meanwhile, consumer finance companies offer faster and simpler borrowing procedures and time but their lending rates are much higher than banks’.
While the consumer lending rates of banks are ranging from 10-25 percent per annum, that of consumer finance companies are popular at 36-70 percent per annum. The lending rates of finance companies are against the law, because according to Article 476 of the Civil Code, the monthly lending rate is agreed between the two parties but cannot exceed 150 percent of the basic interest rate announced by the SBV for the corresponding type of loan.
The overly high lending rate has posed numerous potential risks for both consumer finance companies and customers. Most of the consumer loans of consumer finance companies are unsecured and if customers cannot repay the debts, finance companies are unlikely to recover the debts.
Tightening lending rate level
To rectify the consumer lending activities in order to protect the interests of consumers, the SBV has requested Cis and finance companies to review their internal regulations on consumer loans, list the forms of contracts and general conditions of transaction, ensure that the staff will follow the process, improve the quality of recruitment and staff evaluation process, and limit the moral risks which can occur.
Specifically, CIs and finance companies must comply with the regulations on interest rates and fees related to the lending activities stipulated in Circular 39/2016/TT-NHNN. For finance companies, an interest rate frame should be issued in each period. Experts believed that this regulation will force CIs and finance companies to not lend out at interest rates higher than 150 percent of the SBV’s basic rate, contributing to eliminate the problem of usury of finance companies as reported by consumers in the recent time.
In addition, CIs and finance companies must strictly comply with regulations on debt collection in accordance with the provision of Circular 43/2016/TT-NHNN and other relevant laws. This regulation aims to prevent “terror” debt collection forms that threaten customers by text messages or phone calls as occurred recently.
Dr Le Dang Doanh said that this regulation of SBV is very timely, in order to avoid black credit hidden in consumer lending activities. “In order for the consumer lending market to develop healthily, the State needs to have clearer and stricter regulations on legal corridor. Particularly, there should be close monitoring on this market by SBV and relevant agencies”, Dr Doanh emphasized.
