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21 march 2024, 12:58
A Financial Ombudsman while considering appeals of consumers of financial services has identified unfair practices of misleading clients about financial products by microfinance institutions (MFIs), said Financial Ombudsman Svetlana Maximova at the All-Russian MFI Practical Conference “MFI Market in 2023: Results and Trends”.
“The idea behind this unfair practice is that a consumer fills in a loan application on an MFI’s website. The MFI, after reviewing the application and scoring, rejects the applicant. On the loan rejection page, the MFI offers the consumer fee-based services: purchasing the service of automatic transfers of funds from the consumer’s card to fulfil the loan agreement and paying for the services of this individual entrepreneur. It is also offered to conclude a legal services contract with this individual entrepreneur and sign an act with it, stating that part of the services under the contract has been fulfilled,” Svetlana Maximova commented.
The crux of these services is allegedly to “prepare and send to the customer written explanations and recommendations on interaction with creditors, bailiffs and other persons taking actions to recover overdue debts on loans and credits,” the Financial Ombudsman added.
By such actions, MFIs mislead consumers: consumers believe that by agreeing to such services, they continue to fill in loan applications. In fact, they are rejected and still have to pay for these services.
“I hope that such practices are individual kinks in local areas and are not of a mass nature,” Svetlana Maximova added.
She also told about other unfair actions of microfinance institutions. For example, when receiving a loan, a consumer is offered an additional insurance service, which is legal in itself. The client pays for the service of connection to a collective insurance programme, but the actual insurance premium under the insurance contract is multiple times less than the cost of the service of connection to that programme. For example, the insurance premium, i.e. the cost of insurance, is 90 roubles, while the act of connection to that insurance is 11,700 roubles.
Another common type of improper conduct on the part of MFIs is the actual failure to provide customers an opportunity to use a free method of loan repayment. Thus, the contract provides for it: one can make a payment at any branch of the lender in cash. However, the nearest branch of the lender (Ufa) is located more than 400 kilometres away from the consumer’s place of residence (Chelyabinsk). “The MFI has not actually ensured the availability of a free way for the applicant to fulfil his/her obligations under the loan agreement at the applicant’s location specified in the agreement itself,” Svetlana Maximova pointed out.
