End of play for loan sharks (main) Consumer watchdog gets more complaints against micro lenders
The Consumer Affairs Commission (CAC) says there has been a disturbing increase in complaints against microlenders, and that more than 20 have been lodged against operators in the sector this year.
In addition, the CAC said the nature of the complaints has also sparked concern.
Buoyed by concerns for the reputation of the sector, the Jamaica Association of Micro-Financing (JAMFIN) has also called for the advancement of the Micro Credit Act, which should lead to greater scrutiny and regulation of the sector.
JAMFIN chairman Blossom O'Meally-Nelson said reports about complaints of draconian practices on the part of some microfinancing entities persist. She added that some customers are said to complain of being threatened or having their assets seized and sold without appropriate negotiation, and that some of those assets are discounted drastically with customers not receiving the best value.
Cheryl Martin-Tracey, director of field operations at the CAC, told Sunday Business that while the numbers did not currently represent a large complaint category, the nature of the complaints being received was cause for concern.
She said the agency has received complaints regarding lenders debiting the accounts of guarantors despite the applicants closing the loans, as well as "onerous contract terms".
The CAC said applicants also complained of paying processing fees ranging from $2,500 to as much as $4,500 per transaction and thereafter declined loans, as well as applicants being declined loans without the lenders providing reasons for the decision.
There are now about 120 registered microlenders locally, the sector having blossomed over the years, allowing greater numbers of previously unattractive clients of commercial banks to access financing for projects, from deposits to buy houses to seed money to capitalise businesses.
While JAMFIN said it has
not received any complaints, O'Meally-Nelson told Sunday Business that it stands ready to accept complaints against offending companies to push scrutiny of the sector and stave off what now harks back to the days of the loan sharks.
"How a lender manages bad debt is an indication of its lending culture and says whether that lender respects best practices or not," said O'Meally-Nelson.
"For the microlending sector to be dogged by negative consumer reports on practices that are injurious to customers is damaging to the sector. It only takes one lender who behaves in this manner to poison the reputation of the entire microlending sector and to deter customers from accessing much-needed financing," she said.
In 2013, the Ministry of Finance and Planning outlined plans to step up the regulation of the sector through the Micro Credit Act, but to date this has not been brought to fruition.
The sector is still monitored by the Moneylending Act under which some microlenders gain exemptions from the Ministry of Finance that allow them to retail short-term loans, also referred to as payday loans in some jurisdictions, at high interest rates.
The proposed Micro Credit Act would make it mandatory for microlenders to register, establish the qualifying criteria for registration and create
a regulatory authority for the sector.
Under the new act, the regulator will be granted powers to issue directions or standards on transparent lending practices, credit administration and other matters relating to operational issues, and will determine whether to accept or reject and revoke registrations. It will also publish the registry of approved lenders.
But the regulators have "gone strangely silent", O'Meally-Nelson charged, adding that JAMFIN is yet to see a draft of the proposal.
"The problem is the whole variation (in the sector) like in capitalisation and in practices. Those need to be standardised," she said.
The Micro Credit Bill proposes to raise the standard of business practices by incorporating new provisions to deal with full disclosure of all rates, fees and charges on the principal debt.
"As the microlending sector matures and becomes more organised customers will seek out those institutions that have a reputation for treating customers fairly. For example, no longer will they accept having to pay exorbitant fees with no guarantee of getting services in return," O'Meally-Nelson said.
"All this is an indication of the end of play for the proverbial loan shark," she added.