A trade group for licensed non-bank lenders has warned that proposed changes to Bulgaria's consumer credit law could push legal microloan firms out of the market and open the door to illegal loan sharks. The Association for Responsible Non-Bank Lending (AONK) says some of the proposals are good, but others are dangerous.
This story follows our earlier report on a bill by Progressive Bulgaria to curb abuses in fast loans. MP Konstantin Prodanov said then that the party would propose lower extra fees and tighter checks on lenders.
AONK says the dangerous clauses could in effect end legal microlending. "This will create a vacuum that loan sharks and other criminals will quickly fill," the association said. It says loan sharking is already growing across the country, and the changes would only speed that up.
AONK says more than 10,000 people work for firms that operate legally. It wants rules that do not threaten these firms. "We call for no experiments with the sector, and for expertise not to be replaced with populism," the association added.
Progressive Bulgaria's parliamentary group is tabling a bill against lures for fast loans, Prodanov told a briefing in the National Assembly on Friday. He said the bill brings a European directive into Bulgarian law and aims to give consumers the greatest possible protection.
Prodanov said the party has received reports about "garage operators" who draw people in with fast loans. Some firms work on the edge of the law, and often outside it, he said, scaring debtors and twisting their arms. He said loans are rising, more Bulgarians are forced to use such services, and the current rules are not adequate.
As an example, Prodanov cited a loan of €500 for which the borrower must repay €5,000. He said the European model behind the bill rules this out.
The Ministry of Economy has proposed extra steps to protect consumers better and bring the sector into the open. Prodanov called them a good first step, but not enough.
So between the first and second readings, the group will propose a ban on fast loans at night. The MP said many problem gamblers take out such loans in the late hours. Progressive Bulgaria will also ask that more people convicted of street crime be barred from taking part in fast-loan firms, and that the franchise model, in which a licence is passed on to others, be banned.
AONK will study all the proposed changes. It will present its analysis and conclusions at a press conference next week.