Informal MFO groups violating consumer rights to be sanctioned
Over the course of conduct supervision, the Bank of Russia revealed informal groups of related financial organisations in the microfinance market. Their operations involve a continuation of violations and unfair practices typical of companies that were earlier excluded for such misconduct from the State Register of Microfinance Organisations (MFOs).
This is a small-scale trend, and these groups include a limited number of MFOs. Nonetheless, the regulator is determined to implement adequate measures in relation to such companies and may even expel them from the market. This was announced at the annual meeting of the Bank of Russia’s representatives with microfinance market participants where they discussed the key results of 2020 and analysed market development trends in 2021.
The participants in the meeting noted positive trends observed in the market for a few years already, first and foremost the decreasing number of consumers’ complaints about overdue debt recovery. However, being very socially important, these issues are still a core area of the supervision by the Bank of Russia. The Bank of Russia will continue to actively cooperate in this area with the self-regulatory organisations of MFOs, as well as with the Federal Bailiffs Service and law enforcement agencies of Russia.
The regulator appreciated customer-focused approaches applied by MFOs increasingly more often: organisations establish in-house financial ombudsman services and responsibly handle customers’ complaints at a much higher level. The participants in the meeting discussed individual negative cases that had caused a massive public outcry and especially emphasised the need to prevent such risks in order to promote confidence in the market.
In particular, there is still a problem of hard selling of additional services in the consumer lending market. The Bank of Russia has repeatedly demanded that MFOs avoid such practices, and the majority of lenders responded to this requirement promptly. The regulator stressed that it will apply sanctions against MFOs if their business processes are designed so as to receive revenues primarily from the sale of additional services and do not take into account customers’ intents and needs.