Bloomberg Businessweek (North America)
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”
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.