Back in the 1920s and 1930s, one of the most lucrative jobs around for mobsters was being a loan shark. These criminal proprietors would lend you whatever amount you needed, but with a very high rate of interest. If you didn’t pay at a certain time then they’d break your legs. Done.
The Russian economy has still been unable to rebound from the collapse in oil prices and worldwide sanctions over its Crimea invasion. Therefore, the government as well as financial institutions have instituted an array of policies, reforms and rules to weather the storm. Some of these new measures have hurt the average Russian consumer in more ways than one.
Russia’s banks have imposed new borrowing rules that have limited consumers’ access to credit. In other words, consumers do not have much access to credit as they did before. And this doesn’t bode well for Russians everywhere with rising price inflation and a high unemployment rate.
Like in the United States or Canada, Russian consumers turn to other financial services alternatives. One of these unconventional options is using the payday loan industry, and by utilizing this alternative means paying exorbitant interest rates, fees and other hefty charges. Consumers are forced to use websites that give them access to cash but at what cost?
Unlike in the West, Russia has yet to implement rigorous payday loan regulations. This means many stores, entrepreneurs or lenders are running roughshod on the marketplace, and this comes with astronomical rates of interest. If you thought borrowing money in the U.S. would force you to enter into a cycle of debt then you haven’t met Moscow’s payday loan “sharks.”
According to a new report from the New York Times, payday loan businesses in Russia charge customers an interest rate of two percent per day, or 730 percent per year. Simply put: once you borrow $100 then that could immediately metastasize into thousands of dollars. Since banks have cut off consumers from borrowing, the unintended consequence is pushing these people into payday loans. Not only does this lead to financial desperation, but also to threats of violence.
In order to collect the outstanding sums, debt collection agencies have been hired by these payday loan firms. And these aren’t your average debt collection firms that simply call you at all hours of the day. The newspaper highlighted some really devastating and malicious stories.
For instance, one collection agency had robocalled each phone number at a local children’s hospital to find a certain customer. However, this had blocked the hospital’s phone service, which placed children’s lives at jeopardy. Another example involves children: an array of preschools had to be evacuated because there were bomb threats placed against the children of the debtors.
Debt collectors also bring out their juvenile behavior. They create advertisements for sexual services and place the debtor’s phone number and address on the flyer. When this fails, the debt collectors employ violence: broken windows, broken bones, super-glued door locks, kidnapping and even firebombing homes.
To rein in this type of behavior, public officials are trying to pass legislation in the Russian parliament. Some are skeptical that new laws would prevent debt collectors from employing such dastardly methods. They argue that if the police force is not enforcing current laws then why would they enforce new laws?
In the meantime, debtors will continue to experience such unscrupulous behavior from the collectors.