SINGAPORE: Hiệp* is a 46-year-old courier and father of two living in Hanoi, Vietnam.
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Worse, to fund his small business, he took out a US$1,520 loan from FE Credit, a major financial firm, but found himself at odds with vicious debt collection agencies in Vietnam.
His predicament started when he was less than a week short of payments. First, he received a call from FE Credit warning that he would become a “nationally wanted criminal” for “fraudulent crimes and appropriation of state property” if he did not pay his dues in full and on time.
Eventually, with reminders about refunds, his wife and brother-in-law began receiving calls from hired debt collectors more than 30 times a day. Most were framed as urgent requests for repayment, while a handful not only expressed intimidation, but sometimes took the form of outright threats.
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These collectors then also uploaded manipulated images of his wife, who acted as his referee and de facto guarantor, on his social media, with captions suggesting she was performing sexual favors to help her husband pay his debt.
“Family is the most important thing,” Hiệp told us. The incident was the last straw that broke the camel’s back and forced him to close his business to pay them off.
VICTIMS OF BAD DEBT
Unfortunately, Hiệp is not the only person to fall victim to such loans. Since the outbreak of COVID-19, millions of Vietnamese workers have faced unemployment, leave or declining incomes.
Job instability and falling incomes have benefited both legal and illegal loans. While financial companies such as FE Credit have experienced a rising demand for cash loans, many borrowers have fallen into debt.
Despite investments in artificial intelligence-based credit risk assessment tools, FE Credit has struggled to secure repayments. Non-performing loans rose to 6.6 percent in 2020, along with most financial institutions reporting similar gains across the board, explaining to some extent the growth in aggressive debt collection efforts.
FE Credit should have had a strong foundation as it is a branch of the credible Vietnam Prosperity Joint-Stock Commercial Bank which is a leader in the Vietnamese consumer finance market and has built a base of 14 million aspiring borrowers with since its inception in 2015. low income and no bank account.
But lending to millions of unknown customers carries an inherent risk that the most advanced risk analysis tools cannot tame. Consumer finance companies operate in an unfavorable environment where 70 percent of the population has no bank account and credit history, the World Bank said.
Vietnam news reports in 2020 include FE Credit’s clarification that they are taking strict action against partners who break the rules, including handing over law-breaking cases to authorities.
Public concerns have been raised online with hundreds of YouTube videos showing brawls between mafia-style collectors and ailing borrowers, and Facebook groups hosting harassed and vengeful borrowers.
Members of groups such as Exposing FE Credit/VPBank express frustration at abusive debt collection practices and share practical knowledge on how to manage loan repayments.
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Ngân*, a former employee of FE Credit’s headquarters in Ho Chi Minh City, explained to us that customers have to pay a fixed day each month, failing which a significant fine is imposed if nothing is paid on the fourth day.
After the first week, FE Credit inundates the customer and their references – relatives, friends, employees – with reminders, including dozens of text messages and phone calls a day.
If payments are still not made after the first month, borrowers fall into the “bad debt” category. FE Credit collection agencies would be sent to the borrower’s home to investigate and pursue payment.
After two months, depending on the amount of the debt, FE Credit will continue legal proceedings or call on third parties to recover arrears.
This is the core of the collection. Consumer finance companies such as FE Credit may instruct third parties to recover bad debt portfolios at a margin of profit, or sell them entirely at a low price.
Ngân explained that at this point FE is no longer responsible for the loan and would have nothing to do with the recovery methods used.
FE has refuted claims that it allows the use of such measures to intimidate borrowers. But FE Credit’s stance is also that third-party payees are legitimate companies that operate under a business registration certificate for collections, which until recently was a legal regime when debts could be sold to third parties.
Never mind that those same laws also provide that collectors must refrain from “infringing the health, dignity, honour, personal liberty, property rights and other civil rights” of debtors and related persons.
Working gangs sometimes use even more powerful methods of recovery, such as charging fines, sending a torrent of insults and threats, harassing family members and publicly disclosing the debt status of borrowers.
Violent debt collection practices regularly make headlines in Vietnam. FE Credit is just the eye of the storm.
Fortunately, there has been a strong backlash calling for regulation of unsecured debt collection practices, with positive developments towards better consumer protection.
Vietnam recently imposed legal restrictions on personal loans to consumers to limit the exposure of financial institutions.
Aside from limits on personal loan-to-total consumer loans, the State Bank of Vietnam has imposed restrictions that only allow financial companies to contact debtors no more than five times a day from 7 a.m. to 9 p.m. Collections activities must now exclude the involvement of entities that have no debt repayment obligations to the financial institution.
The recent investment law passed by the National Assembly of Vietnam has also banned debt collection services since January. According to the law, financial companies are no longer allowed to litigate or sell bad debts to third parties.
Still, debt collection practices in Vietnam could be more tightly regulated and enforced if anecdotal reports suggest that consumer finance companies continue to engage such debt collection agencies through alternative arrangements such as debt-trading agreements.
Regulators should also encourage Vietnamese consumer finance companies to look at more helpful practices that can help consumers pay off. Data obtained from consumer banking patterns can help companies adapt a flexible and automated recovery strategy based on online payment options and self-service portals. To some extent, FE Credit is already experimenting with these collection technologies.
The ban on debt collection remains a mystery to many. Consumer finance cannot thrive without a debt collection industry.
We can only hope that such practices, as outlined by Hiệp, the ailing borrower and Ngân, the former debt collector, will disappear and remain in the past, where they belong.
* Pseudonyms have been used in this commentary.
Nicolas Lainez is a Visiting Fellow at ISEAS–Yusof Ishak Institute.
Bui Thi Thu Doai lives in Hanoi. She studies Development and Economics at the University of London, London School of Economics.
Trinh Phan Khanh recently graduated in political science, specializing in international relations at Leiden University.
Le To Linh studies International Studies at Hollins University.
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