Falling into Loan Sharks’ Traps

KOMPAS/RIZA FATHONI

A number of evidences of information technology tools used by illegal online loan services were exposed during the release of the arrest of an illegal online loan network at the National Police Criminal Investigation Department Building, Jakarta, Friday (15/10/2021).

Quick fund disbursal and uncomplicated administrative paperwork for online loan applications seem to provide a way out of financial problems, but for some borrowers this turns out to be the beginning of another chapter of their ordeal, with borrower enduring terror and intimidation as a result of default loans.

I (42), a resident of Bandung, West Java, has started mingled with friends and relatives again only recently. He has also changed his mobile phone number.

Yet he is not as jovial as he used to be. I has become more introverted as he is still recovering from the impact of his bad online loan, for which he turned to friends for a bailout.

"I fell trapped into online credit. I incurred a lot [chargeable payments]. What I found most disheartening was I lost friends," he said on Tuesday (19/10/2021).

It all began a year and half ago when I needed funds for his business venture. Feeling held back by having to prepare the pile of documents required for a conventional loan proposal, he resolved to respond to a text offering online loans, which popped up on his mobile phone.

He was required only to provide an ID card. He found out later it was an illegal online lender.

Kompas/Hendra A Setyawan

Gading, not his real name, took a photo of his ID card for online loan administration purposes in Pinang, Tangerang, Banten, Wednesday (18/8/2021).

To I’s surprise, his debt of around Rp 10 million (US$709) multiplied to tens of millions of rupiah in less than a year.

As he was beginning to struggle with payments, the bill came along with unfriendly debt collectors. He endured harassment, both spoken and written, through his mobile phone.

His friends and relatives also became the target of harsh words and threats. "Some of my friends chose to stay away for fear of the impact," he said. He had to discard his phone number.

I paid his debt only after he was extended help from some of his friends, and he was forced to use his savings. The excruciating experience has left him with trauma.

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Psychological pressure has also haunted Bondan (43), a resident of Bogor, West Java. He resorted to online loans to pay for medical bills as well as for meeting other needs. In six months he had borrowed money from 30 fintech lender apps, more than half of which are known to be unlicensed or illegal.

The credit installments were payable initially. However, his habit of paying a debt with a procured loan from another lender finally put him in unsurmountable debts. His grocery store cannot be relied on to support the payments.

They spread notifications on WhatsApp broadcasts with my picture and ID card. The message was spread to hundreds of contact numbers.

His total loan of Rp 50 million has swelled to around Rp 100 million in debt. Overdue installments have resulted in intimidation by debt collectors. They tried to reach Bondan not only through his mobile phone but also his friends’ numbers from his phonebook recorded on the lender’s apps.

"They spread notifications on WhatsApp broadcasts with my picture and ID card. The message was spread to hundreds of contact numbers,” lawyer Abdul Gofar, who accompanies Bondan as legal consultant, said.

KOMPAS/ADITYA PUTRA PERDANA

The debt collector suspect (far right) was presented in the disclosure of an online loan collection case at the Central Java Police Headquarters, Semarang City, Tuesday (19/10/2021). He threatened and blackmailed by distributing photos of victims of illegal online loans.

He said both legal and illegal online loan providers ensnared borrowers with interest far heftier than the benchmark stipulated in regulations. Failing to pay debt, the debtor is not liable to legal punishment as regulated in Article 19 Paragraph (2) of Law No. 39/1999 concerning human rights.

The lenders can only put the nonperforming debtors on a banking blacklist, with the latter no longer eligible for credit proposals.

Online lenders often go over time limits in pursuing the debtor’s due payments, which is a violation of the rules. When a debtor cannot pay the debt in 90 days, the lender is not allowed to seek debt collection.

Police crackdowns

During the period between September and October, Jakarta Police have busted 40 illegal lending fintech companies. “We have taken action on ten illegal fintech companies over the last month. There were 30 companies [last month]," Jakarta Police’s director of special crimes commissioner Auliansyah said.

One of the companies was PT Indo Tekno Nusantara, which carried out its lending operation at Crown Green Lake City, Tangerang, Banten.

The company was raided on Thursday (14/10), based on reports it had used threats of violence and terror, via telephone and social media, to collect the debts (Kompas.id, October 17, 2021).

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A crackdown was also conducted by West Jakarta Police on a lending company at Sedayu Square premises in Cengkareng. Six people were named suspects with 52 computers and 56 cell phones confiscated.

Intimidation related to online loan business was also reported in Central Java, which led to a raid on a lending company by the provincial police.

Central Java Police head Inspector General Ahmad Luthfi said the case would be used as early sources to investigate other cases.

KOMPAS/ADITYA PUTRA PERDANA

Central Java Police Chief Inspector General Ahmad Luthfi gave an explanation in the disclosure of an online loan collection case at the Central Java Police Headquarters, Semarang City, Tuesday (19/10/2021).

Hamzah Ritchi, a lecturer at Padjadjaran University’s Economics and Business School, likened the lending practices of online lenders to planting a time bomb that threatens economy-driving micro and medium enterprises. He said this hampered the efforts to provide livelihood sources for low-economic community.

This is because online loan interest is higher than that charged by conventional lenders. The Financial Services Authority (OJK) has set a maximum limit of loan interest at no more than 0.8 percent per day, which is roughly 24 percent per month or 288 percent annually.

"Compare it with bank loans. If, for example, the interest for small enterprise-allocated loans is around 7 percent per year, other banks may charge the interest between 9 and 18 percent per year," Ritchi said.

The government strictly monitors and supervises online lending businesses through the OJK in cooperation with the Indonesian FinTech Association and the Indonesian Joint Funding FinTech

Association. Some 3,000 illegal loan-lending applications have been closed. As of September, the official online lending fintech amounted to 107 platforms out of the 149 platforms that existed at the end of 2020.

However, digital financing practices are rife, which, like loan sharks, pull community members from a bad situation into a worse one, as Bondan and I have gone through.

Education for the public to develop literacy on the digital lending industry is urgent in order that people do not fall prey to online loan offers, and supervision and law enforcement need to be stepped up to sanction illicit loan lenders that operate like loan sharks.

This article was translated by Musthofid.