Experts: Debt Collection Mechanisms in Russia Need Legislative Adjustments
Experts and representatives of federal agencies and the banking sector said during the session ‘Activities of Professional Plaintiffs: Current State and Future Development’, which was held during the 11th St. Petersburg International Legal Forum (SPILF), that Federal Law No. 230-FZ dated 3 July 2016 “On the Protection of the Rights and Legitimate Interests of Individuals in Activities To Recover Overdue Debts and on Amendments to the Federal Law “On Microfinance Activities and Microfinance Organizations””, which contains regulatory mechanisms for the recovery of overdue debts, has helped achieve some positive changes, however further adjustments to the law are needed in the future, particularly expanded monitoring measures.
The federal law adopted in 2016 regulating the recovery of overdue debts has produced positive results
“The federal law adopted in 2016 [Federal Law No. 230-FZ dated 3 July 2016 “On the Protection of the Rights and Legitimate Interests of Individuals in Activities To Recover Overdue Debts and on Amendments to the Federal Law “On Microfinance Activities and Microfinance Organizations””] partially solved the problems that existed and planted the seedlings for the civilized activities of professional collection organizations and state control,” First Deputy Minister of Justice of the Russian Federation Evgeny Zabarchuk said.
“The adoption of the law in 2016 had a positive effect on the market. We can see that the second most popular reply [among the survey respondents was that] collectors began to work in a more civilized manner, as 25% of our citizens say. At the same time, there is still a fairly large number of citizens who say that nothing has changed – 18%. But only 4% say that collectors have begun working in a less civilized manner today,” Chairman of the Public Council under the Ministry of Labour and Social Protection of the Russian Federation Konstantin Abramov said.
“Overall, the law worked […] Violations by professional collectors are decreasing each year […] For example, if we take the proportion of complaints about illegal actions in 2022, they account for 14% in total, while in 2017 it was 35%, so that is an almost 60% decrease,” said Dmitry Aristov, Director of Federal Bailiffs Service – Chief Bailiff of the Russian Federation.
The debt burden of citizens is growing, overdue debts are increasing, and existing tools for their return are not being utilized
“Lending to individuals is on the rise, and risks associated with an increased debt burden on our citizens are increasing. Of course, this is all being supported by […] the optimization of lending processes,” Zabarchuk said.
“The Central Bank of Russia states that […] the loan portfolio of microfinance organizations amounted to RUB 364 billion and 35% of these loans are overdue by more than 90 days,” Aristov said.
“According to our latest data, roughly 50% of borrowers have more than one loan [...] I would say we are also seeing extreme growth in the segment of mortgages, long-term loans, and thirty-year loans [...] We consider this to be very risky and are combatting such practices,” said Mikhail Mamuta, Head of Service for Protection of Consumer Rights and Ensuring the Availability of Financial Services, Member of the Board of Directors, The Central Bank of the Russian Federation (Bank of Russia).
Legislation on debt recovery needs to be adjusted and supervisory powers need to be expanded
“The institution of professional recovery is in the process of being formed today taking into account the development of the banking market [...] The State Duma is currently considering a draft federal law that targets several aspects of these activities. First is limitations on activities for the return of overdue debts in the new constituent entities of the Russian Federation [...] The second aspect, which is extremely important for the work of the Federal Bailiff Service, is an increase in the number of entities controlled by the federal service in charge of returning overdue debts [...] [The initiatives] are associated with the need for a significant reform of control over the activities for the return of overdue debts and propose that the control oversight powers of the Federal Bailiffs Service will be extended to the activities of microfinance and credit organizations,” Zabarchuk said.
“Obviously, the issue of expanding the scope of control and supervision that is entrusted to the Federal Bailiff Service is an urgent one […] In addition, we are in favour of a bill […] to strengthen criminal liability for illegal entrepreneurial activities related to the return of overdue debts,” Aristov said.
“It’s time to slightly tweak the law that was [adopted] in 2016 […] Changes are definitely overdue,” said Alexander Morozov, Member of the Council of the National Association of Professional Collection Agencies (NAPCA).