“Over the past few years, the mortgage has become the most popular loan product. We have seen a steady growth in the mortgage market and increasing the share of it in the loan portfolio of banks”, – said Fedor Vahata, CEO of M.B.A. Finance.

According to the NAPCA’s study, the average client pays 45-50% of his income to fulfill his obligations. However, analysts pay attention that mortgage is better to say, a family product. This means that in the context of a family and in the condition that it consists of two workers, this turns out that repayment of the loan takes up to 25% of the family’s income. And this is certainly a more feasible task. Nevertheless, if we consider that the average loan term only for the last 4 months increased by 3% and reached 17.8 years, “it is practically impossible to foresee all risks for such a long period. It is for this reason that clients become late in their repayments,” – pointed out the experts of the Association. 

As Boris Voronin, the Director of the self-regulated organization (SRO) “NAPKA”, told to the “Financial newspaper”, at the end of 5 months of this year, the amount of overdue mortgage debt in Russia reached 73 billion rubles. “At the moment it is about 1% of the mortgage loan portfolio. And a year earlier, the amount of overdue debt was at the level of 71.9 billion rubles,” -he explained. Thus, according to the expert, despite the growth of 1.5%, “the share of overdue debt is at the same level, which indicates a stable situation in this segment of lending.” Obviously, mortgage lending has its own specifics: unlike those Russians who are gaining consumer unsecured loans, a mortgage client is interested in preserving their real estate. So he rarely hides from the lender, trying to do everything to the apartment was not seized by the Bank for regular skips payments.

Nevertheless, as Yuriy Kudryakov, the General Director of the financial market “Unicom24”, points out, there are still risks that some citizens will not be able to cope with the payment burden. “For now, about 65 thousand mortgage clients are in deep delay. That is, they are those who did not make payments on the loan for more than 90 days. It means that this delay can no longer be considered technical,” – said Kudryakov.

Realizing that the number of such debtors may grow in the future, the Government has developed a number of supporting measures. One of them is “mortgage holidays”, which will take effect on July 31. According to the law, borrowers who find themselves in a difficult situation will be able to count on exemption from loan payments for up to 6 months. But only those who have not previously got out a “mortgage holidays” will be able to use the opportunity. This means that such a “lifeline” can be used only once in all 15-20 years.

As pointed out by Mr. Vahata, mortgage loans are recoverable as are secured by real estate. Therefore, banks are solved to sell them, as a rule, only in extraordinary situations, and only if there is a sharply lack of own resources. “Banks themselves are willing to deal with the return of overdue debts, actively suing – if the situation is completely out of the control. In addition, they offer restructuring and reduction of interest rates, which contributes to improving the quality of borrowers’ payments,” – he said. And noted that there is no developed practice of transferring mortgage debts to outsourcing in Russia. “Of course, sometimes it happens, when a Bank cannot do [the collection – “FinNewspaper”], and then it decided to sell. But, actually, these are isolated cases,” – emphasized Vahata.

Still, analysts of NAPCA appeal mortgage borrowers not to forget about the “golden rule” – taking a loan for the housing purchase, it is necessary to form a safety cushion in advance, which should be enough for at least 2-4 payments. “In the two-thirds of cases, debtor will need at least 3.5–4 months to solve his financial problems and return to the payment schedule,” – the study said. Not a secret that lenders are not interested in obtaining a mortgage security back. For this reason, banks begin all the long procedures which are required to seize the mortgage only after a long-time delay.

Anyway, it is better to avoid this situation.

Century of high technologies

Since January 2017, Russian collectors have been working according to the rules established by the law 230–FZ “On protection of the rights and legitimate interests of individuals in the implementation of activities for the repayment of overdue debts…”. It is not so easy to become a collector – you need to have net assets of at least 10 million rubles, for the same amount to insure liability for possible damages to the debtor and meet a number of technical requirements. In addition, it is necessary to make information about yourself in the register, which maintains the Federal bailiff service (FSSP). At the moment, there were 254 companies (in June 2017 – 126).

Law 230–FZ is accepted to laud for the fact that it expressly prohibits the use of threats, deception or psychological pressure against debtors, not to mention physical violence. It sets the maximum number of calls and how to make written demands.

Members of National Association of Professional Collection Agencies (NAPCA) are generally satisfied with the Law. Although, they recognize that some improvements would be useful.

“The market has become more transparent, there are clear standards that all participants follow. Now it is impossible to talk about efficiency, if you just make calls with a reminder of the debt repayment or come to the debtor with a notification. In order to be an effective collection Agency, it is necessary to constantly improve SOFTWARE, analyze and automate processes, use speech Analytics and Data science”, — said Fedor Vahata, CEO of M.B.A. Finance.

Also there are enough critics of the law 230–FZ. One of the most decisive and categorical is Andrey Vlass, the Financial Ombudsman of the Association of Anticollectors of Russia (AAR). “The law was created by the collection community, the Association “NAPCA” together with the Association of Russian Banks – he said. — The task was in following — to make the niche more closed, so there was no opportunity to include anyone extra, but only the chosen ones remained. I can’t call it a law at all. It is contrary to the current legislation. It has not been tested for compliance with the Criminal and Civil codes. Stylistically, and grammatically — there are all the criteria of the Amateur performance”.

Many players of the legal services market say that almost all collection agencies included in the Register are affiliated with a particular Bank. It is difficult, or even impossible, for an independent company to become a collection agency. The paradox is that few people are confused about the situation. Some legal companies are quietly working in the field of debt collection, and simply not using the methods that are regulated by the Law 230–FZ. One of them is LLC “Lawyers of St.Petersburg”. For promotional purposes the company uses the brand “Collectors of SPb”, but in the registry it’s not listed.

“There is no need in additional laws for collectors, — convinced Alexey Anufriev, the representative of the company. — This is unnecessary and extra work of our legislators. When we are approached by clients, the first thing we prepare is a statement of claim to the court. And we ask to impose interim measures on the debtor’s property. This will exclude the possibility of abuse of legal right and alienation of property. We do not interact with the debtor. And through the court we seek debt repayment. This form of debt recovery is more effective than what collectors do.”

Andrey Vlass is quite agree with the comment: “There is a prescribed procedure for creditors, if they can’t return money back. Write a claim, if within 10 days you don’t get an answer — submit to the court. The court rules a decision, determines the amount of debt, then bailiffs receive a writ of execution and open enforcement proceedings. They can limit travel abroad, and much more.There are all tools. Tell me: What do collectors do?”

However, In NAPCA, they emphasize that collectors also use more actively the judicial ways for recovery. According to the Association, over the past 2 years, creditors have filed about 10 million claims for recovery. And in 95% of cases the court sided with the creditor. As a result, the debtor found himself in an even more desperate situation than if he had paid the amount of the debt with interest, without bringing the case to a court.

Gastarbeiters from call center

Even the toughest critics admit that the debt collection market is becoming civilized. If earlier the AAR hotline received about 200 calls daily with complaints about the actions of “debts beaters”, now this number has been reduced to five per month.

The notorious hard–collection (those annoying calls, sometimes crossing the line of acceptable), however, has not gone away. To avoid problems with the law, now, this service have been often ordered abroad.

“I was approached by representatives of microfinance organizations that work with a certain company from Kazakhstan, the name of which I do not know, — says Alexey Anufriev. — They have a big office there, they call to debtors. When I offer the legal ways to repay debts, they are afraid of the prices, and then go back to these guys from Kazakhstan.”

Another segment of the “black market” of collection services — the activities of the security services of banks, which sometimes operate completely outside the law, reminding about the most dashing times when the main weapon of the collector was a baseball bat, not the Civil code.

But the root of the problem still remains in the psychology of people who are willing to do anything to avoid paying the bills. And they sign loan agreements with crazy interest rates, as if tomorrow will never come.

“Many people have never paid their loans at all, — says Andrey Vlass. — They start immediately with the fact that they write a complaint against the Bank to which they owe money. I say to them: “Let’s file for personal bankruptcy?”No, we’d better write a complaint.”

Of course, all these reasons are objective and reflect the overall situation on the market.

“The growth in the market of the “bubble” associated with the inability of borrowers to pay loans with high interest rates should be stopped,” – recently said Maxim Oreshkin, Head of the Ministry of Economic Development, in an interview to TV channel “Russia-24”. A little earlier, during the St. Petersburg International Economic Forum, he pointed out that the debt of the population is caused by a decrease in income of citizens. However, Russian President during the “Hot line”, also warned about the risks of “bubbles”, pointed out that the Russians are forced to spend a lot of money on servicing Bank debts, and, consequently, their incomes do not grow.

“Most of the population perceives the loan as a lifeline: often borrowed funds are used for the most necessary things that an average family cannot afford – vacation, to buy equipment or, for example, to prepare a child to school. The majority of citizens have not one, but two or more loans. And often there is a situation that all subsequent loans needed to ensure previous”, – said Fedor Vahata, CEO of M.B.A. Finance in the interview to “FinNewspaper”.

Yuri Kudryakov, CEO of the financial market “Unicom 24”, agreed with Fedor Vahata: “Today, more than 60% of Russians do not have savings, while the level of consumption is not reduced. According to recent surveys and studies, 40% of Bank clients take out loans to ensure habitual life style. At the same time, a third of them, with an income below 50 thousand rubles, are forced to save on essential goods in order to make a monthly payment.”

This is a vicious circle: loans grow because of low incomes, and incomes do not grow because of high debt. Can it be broken?

“Of course, there is a policy of financial literacy. And we can say that the population in recent years has become better versed in financial matters, more aware of the loans and the consequences of non-payment of debt. But these measures are not enough. To improve the situation a set of measures should be done by the Government”, – said Fedor Vahata.

According to the Central Bank, the expansion of consumer lending is due to already credited groups of the population. However, Elvira Nabiullina, the Head of the Regulator, is still convinced that there is no “bubble” in this area, and, accordingly, there are no risks to financial stability. Nevertheless, despite this confidence, Nabiullina noted that the Central Bank is taking preventive measures to cool the market.

“The regulator has recently initiated new measures to maintain the quality of the portfolio at the right level. This is the actual prohibition of foreign currency lending, and the definition of the minimum level of the initial payment, as well as many other steps,” – said the President of SRO NAPCA.

Kudryakov agreed with the opinion: “the Regulator keeps abreast. So, already on October 1, the maximum debt load coefficient will come into the force. And according to expectations, it will be able to restrain lending among those categories of citizens who are at risk of default.”

There’s not much left until October: we’ll wait. Let’s hope that the measures taken by the Central Bank will help to cool the consumer lending market.

And yet, “a little” is a little more than three months. Will the bubble burst during this period?

From time to time, collection agencies in their work are faced with debtors who took out loans on unimaginable things from the point of view of the income and common sense of purchases, said at the press-center of the SRO NAPCA. “Such cases you will remember for a long time. For example, a young man of 33 years old took a loan to buy BMW, and a monthly payment was 10 thousand rubles higher than his real income. The purpose of the purchase — acquaintance with girls. Of course, he failed with payments. It would seem that in youth it is forgivable to make mistakes, and with age people become wiser and no longer seek to impress others with expensive things. But, it turns out, this belief doesn’t work. In practice, there was a case when 60 years old woman actively made out credits for purchasing the last models of the farm equipment. According to her, she was tired that the neighbor has always better things and more expensive than her.”

This type of borrowers associates the idea of a beautiful life with the latest iPhone model, expensive restaurants and traveling — it is for such purposes that credit money is mostly often spent. “We come across such situations when the debtors say that they took out loans to live a “beautiful life”. In practice, this means that money was spent on expensive phones, restaurants and trips abroad. One such dreamer contrived to take out loans in cash on the sum of 2 million rubles, — said at the company “GC Financial services”, — There was a case with a girl who took a loan to realize her dream of traveling: for six months she visited Cuba, Mexico and Peru. But the debt for her was paid by the relatives.”

Collectors note that such borrowers do not recognize the fallacy of their actions. “We had a situation when the debtor burst into the office of the company with indignant cries and accusations that we had no right to disturb her, to tear her from the business (to call and write letters). However, she looked like a fairly wealthy girl. She arrived in an expensive car, but the question of why not return the debt, picturesquely clapped her eyes and said that she could not do it right now, but we should not call her and send written demands — no one should know about her debt! She was very nervous and asked to wait for, but the main thing was don’t call her. Definitely, she will return to this issue, but later. At that moment she had a couple of loans in different banks for a decent sum. As it turned out later (according to her relative, who paid all the debts some time later), in the pursuit of happiness, the girl took out loans to make some changes at her appearance and could not admit to her future husband,” said Fedor Vahata, the Chief Executive Officer of “M.B.A. Finance”.

Luxury for show

Specifically for the portal Banki.ru, the Bank “Vostochny” has analysed spending in the segments that could be attributed to demonstrative consumption, as well as changes in the purchasing model of them in the spring of 2019 compared to the spring of 2018. Possible “demonstrative” categories were classified according to the MCC (Merchant Category Code) as “Clothing and footwear” (shopping centers), “Digital technology, telecommunications equipment”, “Fur salons” and “Jewelry”.

“The analysis of the operations in these segments showed that the customers of the Bank “Vostochny” in 2019, indeed, began to purchase expensive clothes, shoes more often, and the number of the operations in the segment of digital technology increased. Growth in the spring of 2019 was 10% in annual terms. At the same time, in the segments of “Fur salons” and “Jewelry” (traditionally leading in the field of so-called demonstrative consumption), on the contrary, there has been a decline. Thus, the number of purchases here in 2019 decreased by 25% (“Fur salons”) and by 7% (“Jewelry”). The average check also grew in 2019, but unevenly: in the segment of “Clothes and footwear” — by 8%, “Digital technology” — by 10%, “Jewelry” — by 12%. And in the category of “Fur salons” check decreased, and significantly — by 22%. In general, spending in the segments that could be called as demonstrative consumption — branded clothing, smartphones of the latest models, luxury jewelry — is not typical for the traditional purchasing behavior of the credit cardholders of the Bank “Vostochny”.

The percentage of the purchases is small, mostly loans are taken for more significant purposes, said representative of the bank “Home Credit”. “According to surveys of our customers, the purpose of lending remains quite fundamental. The most popular goals are repair, purchase of real estate and car, traveling. indeed, some clients buy on credit and installment expensive goods from the segments of clothing, household appliances and electronics. However, the percentage of such purchases in the total volume of lending to individuals is small,” – reported the bank press-center.

According to Fedor Vahata, the policy of banks has become more balanced — financial organizations evaluate their borrowers and proportionate the risks. By turns, borrowers have learned to approach the situation sensibly. “But there is also a category of people who still live today and short-term desires. This is a small percentage of the total mass of debtors. We can’t say that it’s the worst violators, but their understanding of the debt does not relate to the responsibility that arises in front of them,” said CEO of M.B.A. Finance.

The lion’s share of such clients is young people. “The lending market for the purchase of various elite and branded accessories is developing by leaps and bounds. Loans for a new model of branded phone and car loans are the most harmless. Of course, the main clients in this segment of lending are young people of the age of 20 – 30 years. Various credit institutions and MFOs very welcome such small loans, as a rule, issue them at a high percentage, so they do not apply any additional practice for the selection of clients and give money on a common basis,” the Loco Bank noted.

Nothing to take from me

According to “GC Financial services”, the motivation “I take now, I will give if I can, and if I can’t — nothing to take from me” is very common. Partly, this could be explained by low income. “If we discard the “big Moscow” and “big St.Petersburg”, we will see that the most part of russians earn 15-20 thousand rubles a month. Outside the regional centers earnings are twice lower. Thus, the income of the population is low as a whole, which makes almost any purchase of durable goods expensive. Of course, credit in this situation is often the only way out. Borrowers have the lack of skills in the life planning, the income planning and risks forward at least for some months. Therefore, they make “excessive” purchases, which are perceived as a chance to live better, and later — perhaps we will think what to do . Hence the numerous credit iPhones for people with a salary of 20 thousand rubles a month, and flights to Cuba on the budget of a two-year salary.”

“Such people are the hostages of themselves, commit their actions rashly and in a fit of emotions. When the time is coming to return money back, they can get in touch, explain that they can not return money or they simply do not have it, tell what purpose the loan was taken for, but something went wrong,” added Fedor Vahata.

According to the President of SRO NAPCA, the purchase of expensive phones, watches, cars, branded items on credit is linked with the desire to seem richer and more secure, but this leads to the opposite result. “The moment is coming when such debts are overdue and appeared an understanding that any debt is red with payment, but brands and other props do not help much in this. In practice, a little more than a quarter of debtors are ready to get rid of their luxury goods, but the amount received after the sale is not able to cover the debt. At the same time, a significant part of such debtors are not ready to say goodbye to their idea of a beautiful life, fearing condemnation of the social circle in which they aim to get with the help of such purchases.”

“From a psychological point of view, the demonstrative consumption is making wasteful purchases that are not necessary,” explains the expert of the consulting company “MM-Class”. “The purpose of the demonstrative consumption is to illustrate prestige, status, uniqueness to a significant reference group. Primarily, the driving mechanism is a combination of narcissism and low self-esteem. Of course, unlike the adherents of conscious consumption, such clients that bring good interest on the loan and are ready to take the loan again after paying off the previous, are profitable to banks. The desire to be “on a top of success”, having the latest model of iPhone or a car, requires more and more new purchases”.

Collection agencies receive debt cases of people who do not return money to banks or microfinance organizations in two main ways:

1. Cession: the volume of proposals in this market is estimated at 470 bln rubles ($7.3 bln);

2. Agency-based services: the volume of such transactions has increased in 2018 for the first time since 2015. In-all collectors received 6.4 mln new debt cases in total amount of 505 bln rub ($7.8 bln). In 2017, they have had 5.3 mln debt cases.

“In 2018, within the framework of Agency-based services, collectors have returned to banks about 16 bln rub ($247 mln),” – said the analyst of NAPCA.

Types of “bad” loans

The average amount of overdue debt per person increased from 73.6 thousand rubles in 2017 to 79.4 thousand rubles.

What debts collectors have bought from banks

Elman Mekhtiev, the Head of NAPCA, is confident that in the coming years will grow as original debts, and resale. He explains this not only by the growth of lending, but also by the weak dynamics of income of the population and the increase in the efficiency of the collectors themselves. Real disposable income in Russia did not grow from 2014 to 2017. At the end of 2018, firstly, Rosstat reported about the fall of this indicator by 0.2%, but then recalculated it. It turned out that the income, however symbolically, but increased by 0.1%. According to the latest data of Rosstat, the income of Russians has decreased by 8.3% since 2013.

Trends of the market development:

– In the future, collectors expect that the Russians will allow delays in mortgage loans. Last year there was a mortgage boom in Russia: banks issued more than 3 trln rubles of mortgage (46.5 bln dollars). The Head of NAPCA believes that the part of the mortgage debts will also be overdue. He associates this situation with the issuance of loans for a small down-payment. “If the down-payment is less than 30%, then in the conditions of the economic turbulence, much more people fall into debts,” he told to the BBC.

– Collection market was changed by the law in 2016, which restricts the activities of agencies. The law prohibits collectors to communicate with the family and neighbors of the debtor without his/her permission, as well as limits the number of calls and personal meetings. But the rules are not the same for everyone. In practice, banks and MFOs often fall out of regulation and may themselves try to withdraw debts. Fedor Vahata, CEO of Russian branch of MBA Consult Group, noted that there are so-called “gray collection agencies” that operate without any license and with whom the regulator can do nothing.

Another consequence of the law was a sharp increase in the number of lawsuits: judicial recovery is developing rapidly and becomes one of the important directions in the development of the collection business of the country.

– CEO of M.B.A. Finance believes that another opportunity for the growth – debt collection in the utilities sector. “This segment of the market is not yet so much covered by the professional collection companies, while the amount of debts in this area is simply enormous.” The only obstacle would be the law which will ban the recovery at the Utilities.

– At NAPCA believe that the market will partially grow due to the increase in the efficiency of the agencies themselves. “Now any collection agency can clearly explain to you when and what client you need to call. That is, not a not a massive attack of calls, but they know when they should make a call to different clients – in five days, in three, or there is no need to call at all,” – said the Head of the Association.

Agencies are becoming more and more automated: robotic collectors and the introduction of speech Analytics, the use of Big Data tools and much more. In the age of digital transformation, collection companies do not lag behind the market trends and constantly automate workflows, introduce new technologies and even offer their solutions to the market.