In Rus­sia, ow­ing money gets dan­ger­ous, fast

▶ Debtors face threats and at­tacks with lit­tle re­course ▶ “They are al­most will­ing to kill, or at least threaten”

Bloomberg Businessweek (North America) - - Contents - Carol Mat­lack and Anna An­dri­anova Edited by Christo­pher Power and Dim­i­tra Kessenides Bloomberg.com

On the night of Jan. 27, a Molo­tov cock­tail crashed through the win­dow of a house in the cen­tral Rus­sian city of Ulyanovsk, badly burn­ing a tod­dler. Pros­e­cu­tors charged a 44-year-old man with the fire­bomb­ing, say­ing he had threat­ened the child’s grand­fa­ther over past-due pay­ments on a 4,000-ru­ble ($51) loan. The ac­cused, a for­mer po­lice of­fi­cer, has de­nied the charges.

As Rus­sia’s econ­omy fal­ters, its cit­i­zens are sink­ing deeper into debt— and bill col­lec­tors are go­ing af­ter them with ve­he­mence. In re­cent months, col­lec­tion agents have been charged with as­sault­ing debtors, van­dal­iz­ing

their cars, even de­stroy­ing baby car­riages parked out­side apart­ments. A preschool in south­ern Rus­sia was evac­u­ated in De­cem­ber af­ter a caller threat­ened to at­tack the build­ing un­less an em­ployee paid a debt owed by her hus­band. In an­other case, An­ton and Anna Byskup, who live in Novosi­birsk, say that uniden­ti­fied col­lec­tors in Jan­uary sent e-mails to their friends and rel­a­tives with a fake obit­u­ary of their baby daugh­ter and put Anna’s photo and tele­phone num­ber on a web­site ad­ver­tis­ing pros­ti­tutes’ ser­vices. The cou­ple say they fell be­hind on re­pay­ing a short-term 15,000-ru­ble loan from a high-in­ter­est pay­day len­der. “I was shak­ing, I had a ner­vous break­down,” Anna said in a TV in­ter­view.

Out­rage over such tac­tics has spurred calls for tougher regulation; so­cial me­dia sites have emerged where vic­tims can post sto­ries with pho­tos and videos doc­u­ment­ing ha­rass­ment. “Peo­ple need help. They’re be­ing ter­ror­ized,” says Alexan­der Naryshkin, a pro­gram­mer in St. Peters­burg who helped set up an on­line fo­rum called STOP Col­lec­tor af­ter he was ha­rassed over a 350,000-ru­ble loan that he used to buy com­puter equip­ment.

Rus­sians went on a bor­row­ing spree as their econ­omy re­cov­ered from the 2008 global fi­nan­cial cri­sis. To­tal con­sumer debt more than dou­bled, to 10.3 tril­lion rubles, last year from 2008, ac­cord­ing to the Na­tional Bureau of Credit His­to­ries, a Moscow-based credit bureau. A steep plunge in the ru­ble since 2014 has helped fuel bor­row­ing as shop­pers, an­tic­i­pat­ing higher prices, stocked up on im­ported con­sumer elec­tron­ics and other goods. Now, with the econ­omy in re­ces­sion, about 10 per­cent of con­sumer debt is in ar­rears, in­clud­ing an over­due rate of more than 25 per­cent on debt to pay­day lenders, ac­cord­ing to the credit bureau. (Only 4 per­cent of mort­gage loans are in ar­rears.)

Pay­day lenders of­fer short-term un­se­cured loans, of­ten with in­ter­est com­pounded daily. An­ton and Anna Byskup say they bor­rowed from Do­mash­nie Dengi (Home Money), which says on its web­site that it charges 1 per­cent in­ter­est per day—365 per­cent an­nu­ally. Such lend­ing has boomed in the down­turn. The vol­ume of pay­day bor­row­ing rose nearly 17 per­cent dur­ing the fourth quar­ter of 2015, with loans av­er­ag­ing about 12,000 rubles, ac­cord­ing to the Na­tional Bureau of Credit His­to­ries. Do­mash­nie Dengi Chief Ex­ec­u­tive Of­fi­cer An­drei Bakhvalov de­clined to com­ment on the Byskups’ case but said in an e-mail that the com­pany some­times sold off delin­quent loans to out­side col­lec­tors if its own col­lec­tion ef­forts had failed. “It is a com­mon prac­tice in the fi­nan­cial mar­ket,” he wrote.

The Na­tional As­so­ci­a­tion of Pro­fes­sional Col­lec­tion Agen­cies says it rep­re­sents 90 per­cent of the coun­try’s debt col­lec­tors and that none of its mem­bers has been ac­cused of il­le­gal ac­tiv­ity. “Ba­si­cally they’re in a call cen­ter with a script. They rarely go any­where,” says Boris Voronin, the group’s di­rec­tor. The re­main­ing 10 per­cent of col­lec­tors, how­ever, “are hooli­gans,” he says. “For a few thou­sand rubles they are al­most will­ing to kill, or at least threaten.”

Debtors com­plain that au­thor­i­ties rarely in­ves­ti­gate re­ported threats from col­lec­tors. Is­mail Gu­seinov, the grand­fa­ther of the child in­jured in the Ulyanovsk fire­bomb­ing, told Rus­sian news me­dia that he had pre­vi­ously gone to the po­lice af­ter he re­ceived men­ac­ing text mes­sages and some­one threw a brick through his win­dow with a note de­mand­ing pay­ment. No ac­tion was taken, he said. Af­ter the Molo­tov at­tack, pros­e­cu­tors said they iden­ti­fied the sus­pect by trac­ing the text mes­sages to his cell phone.

Un­der a law that took ef­fect last Oc­to­ber, Rus­sians now have the right to file for per­sonal bank­ruptcy. But the law re­quires at least 500,000 rubles in over­due pay­ments, far more than many debtors owe. Rus­sia’s par­lia­ment is con­sid­er­ing leg­is­la­tion to rein in or even abol­ish the debt col­lec­tion busi­ness. But tighter con­trols could make life harder for le­git­i­mate col­lec­tion agen­cies, while un­scrupu­lous col­lec­tors would op­er­ate il­le­gally, Voronin says.

With an es­ti­mated 11.6 mil­lion Rus­sians ow­ing 1.2 tril­lion rubles in over­due loans, the is­sue isn’t go­ing away. “As long as there are debts there will be col­lec­tors,” says Alexan­der Akhlo­mov, head of prod­uct man­age­ment at the United Credit Bureau, a Moscow-based credit-mon­i­tor­ing agency. But, he says, “you need to use civ­i­lized meth­ods.”

The bot­tom line With about 10 per­cent of con­sumer debt in ar­rears, Rus­sia’s par­lia­ment is con­sid­er­ing leg­is­la­tion to reg­u­late debt col­lec­tion.

Debt col­lec­tors van­dal­ize a car and wall with the warn­ing, “Apart­ment 146

Debtor”

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