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Recently, the relationship between non-bank lenders and the supervisor of the industry, the Consumer Rights Protection Center (CRPC), has grown in magnitude, raising concern over negative trends in the sector. Economic operators largely reject claims.
Baiba Vitolina, the head of the CRPC, often makes ambiguous and unjustified statements expressing her opinion on the situation in the area of non-bank lending. Several times 4finance and the Latvian Alternative Financial Services Association (LAFPA) asked him to substantiate his statements with concrete facts in official letters. Until now, she has avoided a constructive dialogue with the industry. Yet, the activities of the CRPC show the use of the "right to interpret the law" and the tendency to restrict more and more the non-bank lending sector based on generalized conclusions.
It was thought that the reason could be a subjective personal opinion that service sector, which relies neither on the concerns of consumers nor on the actual contribution of the business sector and the credit industry to the business. national economy. The main function of the CRPC is consumer protection, in which case the CRPC should also protect the interests of consumers in the area of lending, in an absolute and non-discriminatory manner, and not only in the alternative financial sectors
. specific regulations. This can only be done if supervisors are ready to hear the initiatives and recommendations of the industry. Unfortunately, the current communication between industry and supervisors shows that there is an increasingly aggressive "division and governance" approach towards entrepreneurs. Thinking about new constraints, all the same, is the easiest way for public authorities to act wrong. By limiting the entire industry, some small businesses that break the law also suffer. 4finance .
One of the criticisms of CRPCs in the industry is the inadequate badessment of customer creditworthiness, which is why many fail to repay loans in a timely manner.
. In 2016, when the amendments to the Consumer Protection Act came into effect, the interest and interest ceilings were limited, a ban on lending from 23:00 to 7:00 and a limit on late interest. These changes have significantly improved the situation in the sector. In addition, most industry stakeholders supported these changes. We have also studied and compared the regulation of the sector in Latvia with other European countries, and in Latvia, this regulation is the strictest.
Since January 1, 2016, all businesses in our sector must inform the CRPC every six months about the quality of the loan portfolio. All the companies in the industry do too. Even CRC's 2017 industry survey confirms that the quality of the portfolio is continually improving and that 87.17% of borrowers fulfilling their obligations in a timely manner were included in the 2017 report. We estimate 4finance the quality of the loan portfolio – 90% of our clients will be reimbursed on the thirtieth day of delay. On the other hand, on the 90th day, 95% of our customers are fully engaged. The remaining 5% includes customers whose loan has already been considered a bad debt. Among them are people who have been the subject of fraudulent activities and people being the subject of insolvency proceedings.
The industry complains of the interpretation of inaccurate data from the CRPC. What is the basis of the difference between the point of view of industry and that of the CRPD?
The issuance of loans and, therefore, repayment throughout the year, but the report to the CRPC should be submitted once a semester. If the client borrows, for example, end of April, but end of May, he will have to repay his loan, but the repayment will be delayed from 3 to 5 days, it is logical that in the semiannual report this loan always appears as a debt. In the industry, such a slight delay in repayment is typical, as most companies do not apply a penalty yet the first days after the deadline. If these liabilities are "skipped" by June, the client will be included as a delay in the semi-annual report and, as a result, the CRPC considers this loan to be less than qualitative. In addition, the supply of data for 2017 will also reflect all the unrecovered loans that have been "fooled" since 2014, 2013, 2012. In fact, the general trend in improving the quality of the loan portfolio n & # 39; 39 is not badyzed at all. For example, if a customer uses our service several times a year and repays all of these loans in a timely manner, this will not be reflected in the information we must provide to the CRPC. However, the CRPC continues to "draw" and publicly interpret the facts according to its categorical stance against the industry, noting in particular that the early repayment of the loans is still only hampered by 13% of the borrowers , unaware that the absolute majority of 87% of loans is repayable without delay. that we have half a million customers, there will always be someone who will not be able to pay. Just as in other sectors – telecommunications, house management. Looking at this actual 5%, this equates to the quality of the bank loan portfolios. It is not clear why the non-bank lending sector is so aggressive that we are continually improving our processes, we are working to improve the badessment of solvency in order to reduce this interest. So we tried to talk with the Ministry of Economy and the CRPC. The Prime Minister set up a task force in early July, where we hope to discuss these issues and find a common denominator.
However, what is the creditworthiness of creditors? This is one of the critics.
According to CRAC data, as of 2016, data quality is steadily improving and the industry is constantly working towards self-regulation. LAFPA members have signed the Code of Good Practice, which sets out basic principles that are stricter than the sectoral operational guidelines issued by the CRPC. However, the CRPC believes that the industry is not able to provide a high quality credit check. It is for this reason that the amendments to the CRPC guidelines were later amended, lowering the income threshold from 427 to 200. The law already provides that the solvency of the consumer must be badessed as early as first euro, which we also do. In addition, we are also implementing other additional testing methods.
How does this manifest itself?
We are implementing a process based on risk badysis in badessing the solvency of clients. The fact that we are on the right track and the ability to pay is really very carefully evaluated by the data I give – 95 out of 100 are able to fulfill their obligations. In addition, we only provide loans for 30% of all new client applications. This means that 70% of candidates are still unable to qualify for our needs.
The CRPC asks us, from 200 €, to ask our customers for information on their income. Such a linear approach means that we have to evaluate our customers very categorically. We do not consider it correct because income is only one of the criteria we take into account when evaluating a customer. Regardless of whether the customer borrows the minimum or maximum amount, we evaluate all the same – up to 4500 criteria. Insurers and banks also use this risk-based approach, called scoring, or the in-depth research model of a client. For each item for which we receive customer information, we badign a number of points – for both revenue and expenses, for commitments, for late payments, for debts, and for late payments. other types of data. There is also the term "digital printing" – there is a lot of different information that can be obtained from the IP address or the terminal equipment from which the loan application is submitted. For example – has not previously asked people from a particular institution who have not fulfilled their obligations. Also, the time of day, bad, the address of the declared place of residence, we look at. These 4500 positions form the total score by determining the risk profile of the borrower, taking into account the decision taken on the loan application.
Lately, more and more politicians are emerging as very active industry critics. How do you evaluate this trend?
In the run-up to the Saeima elections, many officials shook their pre-election campaigns, which have remained silent for the past four years. In public communication, which often goes from state institutions to decision-making in various sectors, there is a one-sided position based on a categorical and emotional reflection of the industry, sometimes a condemnation, and populist slogans. Until now, no argument from politicians about the performance of the industry or the need for stricter regulation based on facts or real research has been heard.
The public rhetoric of the European Parliament, Ines Wider, strongly criticized non-bank lenders. She compared her business successfully and expressed suspicions of money laundering in this case … Vaidere stresses that this position is not related to the pre-election campaign, indicating that the EP elections will not take place until next year
. there must be a number of features to be clbadified as a criminal offense. Already from 2013, in order to operate in the relevant industry, the company must obtain a license, undergo a complex licensing process, pay close to half a million dollars. EUR equity, send operational descriptions of the supervisory institutions, credit policy. EM acknowledged that both the 2013 licenses and the PTAL amendments, which came into force in 2016, eliminated potential cases of malnutrition. The Office of the Attorney General also acknowledged that it was a legitimate case
About the alleged suspicion of money laundering on the part of Wider – I can speak here of finance in particular. First of all, there is a licensing process that we have put in place to enable the industry to function. Secondly, 4finance is currently the only non-bank lender that has introduced AML into its business, which includes a set of measures to prevent the use of the domestic financial system for money laundering or terrorist financing – red.) requirements. We regularly meet with the EM, the CRPC and are looking for solutions to implement the AML requirements throughout our industry.
So critics are pre-election populism and if the EP elections next year, it's the beginning of the campaign. Vaidere also talks about the fact that the fast lending sector is investing residents in indebted debts, favors emigration. In December 2017, LAFPA, in collaboration with SKDS, conducted a study in which the main question was whether non-bank loans were the reason people left Latvia. The study did not confirm this fact. Therefore, we wanted to further verify the quality of the results of this research and, three months ago, we conducted a search among our clients, selecting respondents only for clients who live abroad. The data from both studies came together. The results show that the main reason for the abandonment of Latvia is the dissatisfaction with the quality of life in his country of origin – the low level of wages and difficulties to find a job. 6% of respondents mentioned the reason for leaving for a bank, and only 2% mentioned their obligations to non-bank lenders as the reason for leaving. Asserting that people emigrate because they have debts to a non-bank borrower is a populist statement and absolutely out of the question.
Amendments to the PTAL, which provide for a ceiling on the interest rate on loans of up to 25% per annum, are currently proposed. How do you evaluate it?
We studied the market and compared this rate with that of banks. If such changes are approved, most people, including bank customers, will not be able to receive loan services. We have half a million customers, about half of Latvia's economically active population, and so many people will be denied the opportunity to receive a legal loan.
Why?
To qualitatively evaluate solvency, we spend a lot of money to check the individual, and getting all this information costs money. For example, regarding the verification of personal data at the Office of Citizenship and Migration Affairs – whether the person is alive as a declared place of residence of the person or is located in Latvia or at the same time. foreign. c., we pay two euros. This means that if a customer borrows 100 euros, then 25% per year will be determined by the fact that this service will be paid to the euro in euros for a period of 30 days. As a result, after a month, the customer will have to give back 102 euros, and we will give those two euros to the OCMA for data verification. There must be a very good banking customer to get a rate of 25% or less. This means that everyone will have very favorable credit rates or that no one will deal with this type of lending activity in Latvia.
The leader of the CRPC also disagreed with such amendments.
We are satisfied with this vision of the CRPD. We hope that the sectoral working group will evaluate this proposal impartially and that it will understand that it is an absurd proposition. We are open to discussing both the badessment of creditworthiness of borrowers and the improvement of information exchange between market participants and regulators. We agree with the idea of reducing the threshold from 5,000 to 2,000, from which it is possible to propose an insolvency process for individuals. These are all questionable and soluble questions. However, with the suggestion of lowering interest rates, there are no such conditions anywhere in the world. In addition, I can really call it pre-election populism, the Association of Latvian Regions has remained silent for four years, and it is abrupt that it suddenly proposes such a suggestion just before the election.
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