Pawn shops massively 'evade the law' to become financial support companies

Black credit alarm
Talking to Nghe An Newspaper reporters, Colonel Nguyen Huu Cau - Director of the Provincial Police Department said that he had just signed an order to launch a peak period of crime suppression lasting from February 16, 2018 to February 15, 2019. According to the order, the police of units and localities in the province will mobilize maximum forces and means, apply synchronously and drastically professional measures to strongly combat and suppress all types of crimes, ensuring security and order for the people. In particular, among these are crimes related to black credit.

Nghe An Police Director warns about illegal credit. Photo: Tien Hung

“The current situation of illegal credit in Nghe An is quite complicated. Especially in localities such as Vinh City, Yen Thanh, Dien Chau… there is a potential risk of causing disorder and insecurity,” Colonel Cau said, adding that in 2018, Nghe An Police focused on investigating and clarifying 7 cases related to illegal credit crimes. Most notably, the elimination of a group of nearly 30 people specializing in loan sharking in Thai Hoa town.

Accordingly, after 6 months of establishing a special project, on the morning of November 6, nearly 100 police officers simultaneously inspected 41 financial companies and pawnshops in Thai Hoa town. During the inspection, the police seized many documents and means related to the loan sharking activities of nearly 30 subjects. For a long time, the above subjects were said to have taken advantage of individuals' urgent need for money, so they lured them to borrow money with interest rates many times higher than the interest rates prescribed by the State Bank. The monthly loan amount was up to more than 10 billion VND, of which the illegal profit was more than 1 billion VND. During the transaction with the borrowers, the subjects did not record the interest rate on the documents, and when finalizing the payment, they destroyed and burned all related documents.
It is known that the police force has encountered many difficulties in collecting documents and evidence because most of the victims are afraid to provide information to the police for fear of retaliation. On the other hand, loan sharks are often notorious criminals in the area. When the debt is overdue, they often threaten and terrorize borrowers, making them panic, sell family assets or break the law to have money to pay interest.
“In addition, there are also a number of cases related to black credit, where after lending money, the subjects went to the borrower’s family to control and extort money. Of which, the police have prosecuted 3 cases of invasion of residence and 2 cases of property extortion,” the head of Nghe An Police shared.
Legal loopholes
According to the reporter's research, in recent years, the business of financial support and consulting services has developed very rapidly. Many establishments and businesses using names such as "financial consulting", "financial support" ... have appeared more and more. In fact, most of them are hiding under the guise of businesses to lend at high interest rates. Many prominent individuals have established companies to legalize usury.

Many pawnshops have now switched to financial support. Photo: Tien Hung

“Currently, pawnshops are massively switching to this type of business to “evade” legal regulations on security and order conditions, and at the same time to deal with the management of functional forces,” said Colonel Nguyen Huu Cau. Currently, in Nghe An province, there are 559 pawnshops and 172 financial support establishments. While pawnshops are in the conditional business sector and must be licensed by the police, financial support establishments are not on this list. Therefore, combined with simple procedures, a series of pawnshops that do not meet the requirements for a certificate of security and order conditions have massively switched direction.

The first trick that loan sharks use is to establish a business to create a cover for their business activities and to gain trust from borrowers. Forms of business registration include LLCs, financial consulting companies, bank debt settlement services, etc. After establishing a business, they often expand their branches to many locations to operate.
“The operations of these establishments are very open, sometimes they do not require any documents to lend money. The tricks are very sophisticated, for example, they come to borrow 10 million VND but are cut 2 million VND, the borrower only receives 8 million VND. Meanwhile, the loan paper states 10 million VND and does not state the interest rate,” said Colonel Nguyen Huu Cau, adding that the police have verified that there are many cases where the interest rate is up to 300%. However, because this interest rate is only a verbal agreement between the two parties and is not recorded on the loan documents, it cannot be handled, even though the criminal law stipulates that an interest rate 5 times higher than the State Bank is enough to prosecute.
In addition, these establishments also have another sophisticated trick, which is the disguised pawnshop. When people want to borrow money, they just need to bring their vehicle registration and assets to the lending establishment and write a car sale paper to the owner of the establishment according to the amount of money they need to borrow. Then the borrower leaves the vehicle registration and can still use the car in the form of renting the car. Every month, the borrower must pay a certain amount of interest according to the agreement, but it is much higher than the bank's interest rate and is disguised as paying for the car rental.

A group of loan sharks were arrested in Thai Hoa town. Photo: Tien Hung

The situation of black credit is becoming more and more complicated, but currently there is no legal document to specifically regulate the business activities of consulting and financial support services. These types of businesses operate on the basis of Decision No. 337/QD-BKH in 2007 of the Ministry of Planning and Investment. Accordingly, business registration entities can carry out activities such as assisting financial intermediaries in negotiating and resolving financial transactions, consulting and brokerage of mortgages... However, with such general regulations, it is not difficult for loan sharks to find loopholes to "circumvent the law". "Before the authorities issue more specific and reasonable regulations, we need to propagate to keep people away from black credit", said the Director of Nghe An Police.