Romances for finance: Russia wants to toughen penalties for MFIs

It is proposed to introduce negotiable fines for microfinance organizations and to exclude them from the State Register for deceiving, threatening and misleading clients. This proposal was submitted to the government, the Ministry of Finance, the Central Bank and the State Duma by public activists. As a result of a joint study with the Financial University under the government, they found that since the beginning of the year, MFIs have received four times as many cautions as in 2023. The tightening of responsibility is supported in the committees of the State Duma on the financial market and economic policy.

What illegal measures MFIs use against citizens

For massive violations by microfinance organizations (MFOs) of borrowers' rights and the use of illegal methods of "beating" money out of them (deception, threats, misleading, psychological pressure, slander, etc.), it is proposed to introduce negotiable fines, as well as to exclude such organizations from the state register of the Central Bank. Oleg Pavlov, head of the Public Consumer Initiative (PCI), addressed the Cabinet of Ministers, the Ministry of Finance, the Central Bank and the State Duma with such an initiative. The reason for this was the results of a joint study of the public and the Financial University under the Government of the Russian Federation of the activities of MFIs.

According to its data (available from Izvestia), the microfinance sector in Russia continues to make extensive use of various illegal, including criminally punishable techniques that are used to induce citizens to pay their debts. These include hacking into debtors' accounts, death threats, slander and others.

As noted in the study, the number of such violations and their signs is growing annually, and this year the pace has increased manifold. Thus, for the entire 2023 MFIs, according to the register of inspections, the operator of which is the Prosecutor General's Office, was announced 26% more warnings than for the entire 2022, and for the three quarters of 2024 - 368.5% more than for the same period in 2023.

At the same time, an even greater increase in violations was recorded when examining the top 50 Russian MFIs. If in 2023 compared to the previous year the frequency of warning notices to them increased by 38.6%, in the first half of 2024 their number increased by 447.7% compared to the same period of 2023.

- The study shows that the growth of violations does not always correlate with the growth of MFI turnover and the number of attracted clients, which in some cases could be statistically justified," Gulnara Ruchkina, Dean of the Law Faculty of the Financial University under the Government of the Russian Federation, Doctor of Law, explained to Izvestia.

According to her, under the moratorium on inspections, a warning from supervisory authorities is one of the few available measures to respond to violations and signs of such violations committed by businesses. The increase in their number may indicate that unfair practices are becoming an integral part of some companies' activities, she said.

- This certainly deserves the regulators' attention as to whether the necessary measures should be taken, up to and including the introduction of negotiable fines and exclusion from the official register. Such sanctions will play a preventive role, encouraging MFIs to reduce the number of violations," the expert believes.

At the same time, according to her, it is also advisable to consider measures to encourage companies that do not commit violations or commit them to a minimum extent. One such measure could be a public assessment of integrity and its official promotion in various communication channels.

- Of course, there are also law-abiding companies in the market, but the overall dynamics of violations is extremely alarming and requires appropriate measures," believes Oleg Pavlov, head of OPI.

According to him, such a sanction as "exclusion from the state register" is already applied for a number of violations of the legislation on microfinance activities. However, the list of grounds for its application should be expanded and related to various unfair practices of MFIs in relation to citizens, the public activist is convinced.

"Izvestia" sent requests to the Cabinet of Ministers, the Ministry of Finance, the Central Bank to comment on the prospects of supporting the initiative of the public.

The press service of the Central Bank said that it had received the OPI's appeal and that it would be considered in due course.

How citizens can protect themselves from illegal actions of debt collectors

The initiative to toughen penalties for MFIs is supported in the State Duma.

- The punishment should be such that collection firms realize that violation of citizens' rights threatens them with termination of their work. At one time we proposed to close such companies completely, as their work can be carried out by bailiffs," Nikolai Arefiev, the first deputy chairman of the Committee on Economic Policy, told Izvestia.

The deputy called the increase in the number of warnings to MFIs logical, linking it to the growth of debts of citizens who can not always pay them back. Thus, according to the official statistics of the Federal Bailiff Service (FSSP), in the first nine months of 2024, 10.9 million enforcement proceedings were initiated to recover from citizens debts on loans and credits for Br1.44 trillion.

- I admit that we will need to toughen penalties to protect citizens. It would be possible to introduce not only negotiable fines, but also to increase criminal liability," agrees with Nikolai Arefiev, head of the State Duma Committee on Financial Market Anatoly Aksakov.

However, in SRO "MIR", which unites 80% of the MFI market, the statistics of the public do not confirm the statistics of the public, and say, on the contrary, about the opposite situation.

- This completely contradicts what we see in the statistics of self-regulating organizations, the Bank of Russia, and Rospotrebnadzor. For example, the latest statistics of the Central Bank says that the number of complaints against MFIs for January - September 2024 decreased by 29.8% compared to the same period in 2023, - said "Izvestia" in the press service of the organization.

According to the head of the People's Front project "For the rights of borrowers" Evgenia Lazareva, according to the regulator's data on the results of the first half of the year, the portfolio of the microfinance market amounted to 505 billion rubles, which is 27% more than in the same period a year earlier. The growth is explained by an increase in the number of borrowers, who are denied credit by banks.

According to her, the number of citizens, whose credit history, solvency and the level of the existing debt load do not allow to get approval in banks, is increasing due to tighter regulation, introduction of limits and measures aimed at reducing the level of borrowing.

- Along with the growth in lending, delinquency rates in the microfinance market are also increasing. According to the National Association of Collection Agencies, in the first six months of 2024, MFIs offered for sale a record amount of debts - a total of 58.6 billion rubles. Delinquency records are explained by records in issuance - everything is natural here," she said.

The expert noted that now the microfinance market is already undergoing a tightening of regulation: limits and restrictions are introduced, new regulations are coming into force. However, not all MFIs have adapted to the new requirements and rules, were able to restructure their business models and strategy of interaction with the client, emphasized Eugenia Lazareva.

- In fact, this explains such an increase in the number of violations - what was not considered a violation before has become a reason for supervisory response in the current situation. In fact, such trends are observed with every change in regulation in the market and with every strengthening of behavioral supervision," the expert explained.

At the same time, she noted that any new tightening for MFIs should be very balanced and well thought out, rather than pushing borrowers into an illegal gray area of the market, where no one will respect their rights.