Bank of Russia warns of illegal microloan scheme
The Bank of Russia has detected illicit entities that, pretending to be pawnshops offering property storage services to individuals, actually issue microloans secured by customers’ possessions. Besides, these entities are not on the State Register of Pawnshops kept by the Bank of Russia, do not comply with laws on pawnshops’ activity, and are not supervised by the regulator.
This involves risks of violations of consumer rights. Instead of storage agreements, illicit entities actually sign microloan agreements with customers. Interest rates thereunder might significantly exceed the levels established for legal market participants. The possessions pawned to illicit entities are not insured, whereas insurance is a mandatory requirement for pawnshops. Moreover, there is no guarantee that an illegal entity’s customer will receive the money after the pawned item is sold, whereas pawnshops must return the difference between the sale price and the amount of the consumer’s liabilities (if the amount from the sale of the pawned item is higher than the amount of its assessment).
The Bank of Russia considers this practice unlawful and puts fake pawnshops on the List of entities with detected signs of illegal activities in the financial market, as well as informs law enforcement agencies of the cases revealed. Such entities may be subjected to administrative liability, and their executives — to criminal liability.
Not to be defrauded, please verify if an entity is on the State Register of Pawnshops and remember that the agreement concluded by a legal pawnshop with a customer shall be in the form of a pawnticket.