The recent news about shaming and privacy violations by some online lending apps of borrowers who missed their payment schedules unearths the ugly side of credit collection.
At least 3 lending apps are now under investigation by the National Privacy Commission (NPC) as they were allegedly able to access mobile phone features like the borrower’s phone directory, camera, location, and text messages. Some of these apps even went to great lengths to contact a borrower’s relative, friend, and other contacts, exposing the debtor to public shaming. These actions clearly were in violation of the Data Privacy Act. The Securities and Exchange Commission (SEC) to-date has barred 30 illegal online lending firms from operating due to alleged unreasonable and abusive collection practices.
Institutional borrowing usually required collateral, a good credit standing, and a lot of documentation and processing. Sometimes, people who had no collateral or credit score just wanted bridge financing – money to tide them over for some immediate family need like tuition or a family medical emergency.
Online lending apps appeared to fill this need. The requirements were so much easier than a bank’s or other lending facility. No collateral was required. There were no interviews. You just opened an account on the app, provided some identification and information, and funds were released to your bank account within a day or two after completing all requirements. The lenders behind the app assumed the risk of default on the debts. They minimized their risk through interest rates that were significantly higher than loan rates from banks or credit card companies. The interest was also deducted upfront from the loan amount. In Third World countries, where formal financing options were beyond the reach of a great majority of citizens, this type of borrowing easily caught fire.
Well-intentioned though the concept was, it soon became open to abuse. Many online lending apps suddenly appeared on the Google Play Store (getting listed on Google Play only required that one had an app developer account registered). Unlike legitimate online lending apps that were registered, licensed to lend, and were members of established financial organizations, many more were not. They operated basically unregulated.
The digital ethics of the people behind these online lending apps were questionable. Several had overstepped privacy boundaries by requiring borrowers, upon registration, to give the apps access to a lot more than normally required for a lending transaction. Examples included access to one’s camera, calendar, contacts, social media accounts, texts, and even their location. It gets worse. When a person defaulted, they resorted to person-shaming by contacting bosses, friends or family to inform them about the default. As they were granted location access, they threatened the borrower with legal action by saying they knew his every location.
Some of the borrowers reportedly went through depression and sleepless nights due to the humiliation that they suffered as well as the extreme pressure of dealing with the abuse from the collection practice of these online lending companies. While it is true that there are many Filipinos who still do not know how to manage debt, there are those who borrow with full intent to repay their debts; sometimes though, a family situation could temporarily affect their ability to do so. Imagine, these are people who would clutch at a knife (kapit sa patalim) just to find funds for their basic needs yet these lenders don’t hesitate to take advantage of them with sky-high interest rates and shame them publicly when they fail to pay.
Frankly, this abusive treatment of borrowers in default has been going on for a long time already and isn’t limited to online lending apps. Many credit collection agencies used by financial institutions also become abusive when trying to collect on a debt.
With abusive online lending apps though, the impact is magnified as the entire contact list of the borrower is brought into the credit situation, harming the reputation of the person irreparably.
(click to enlarge image) On Cashafin’s website, a P5,000 loan at 1% a day for 10 days becomes P5,500 at the end of 10 daysI am glad that the National Privacy Commission has taken an active stance regarding online lending apps. In an interview, NPC Commissioner Raymund Liboro said that consent given by the borrower to the lending app to access information does not mean the lending app is off the hook as far as privacy violations are concerned. He said the borrower, who is in dire need of money, is likely to give consent to anything just to get the funds. The NPC is looking at how these lending apps collect and use the information that they have gathered from their borrowers. Comm. Liboro also emphasized that those who feel aggrieved and harassed by these lending apps can sue, citing the Data Privacy Act.
While regulators have stepped in already to look into the errant online lending apps and hold accountable those who have violated privacy and licensing regulations, I wish there were more humane ways of collecting debts without resorting to intimidation and harassment.
Compassion and understanding should be exercised towards those who have no control over their family situations. One complainant, as reported on the news tonight, said that she missed the deadline to repay her debt BY ONLY ONE DAY because she went to a wake. Instead of following up directly with her, the people behind the online lending app immediately texted her contact list, accusing her of stealing money.
The lending institutions have a right to demand collection. Lending is not a charitable activity. On the other hand, borrowers should honor their promise to pay. No two ways about it. But win-win options have to be made available in the event some borrowers miss their repayment schedules. Debt restructuring and debt rescheduling are just some of the options. Whatever it is that a lending entity eventually chooses when a borrower defaults, it should never include debasing a person in public or disclosing their private and sensitive information. That’s foul!