TIRANA, May 17 – The transfer of consumer loans from banks to debt collection companies is often accompanied with hidden and illegal costs for borrowers who because of their poor financial knowledge easily fall prey to abuse in a market with no supervision and amid legal vacuum, according to an investigation published by BIRN Albania.
Journalist Rajmonda Lajthia brings the story of Agron Sula, a 47-year-old man who in 2006 borrowed 1 million lek (€7,343) in a consumer loan from a leading commercial bank in the country, but whose politically motivated dismissal from a local government unit outside Tirana in 2007 soon after the local elections would make things really tough for him.
The default on his loan led to the commercial bank selling his non-performing loan to a non-bank financial institution and the postponement of its execution for several years led to his initial loan amount more than double due to late payment penalties and extra interest rates, also putting at risk his right to an adequate standard of living due to seizures ordered on his wages and debt collection agencies ordering only a small amount of his monthly wages not seized, taking advantage of the country having no official subsistence level.
The 47-year old man managed to escape the ordeal of his loan only in late 2016 after a local human rights NGO helped him sue the bank and its contractors, finally leading to a reduced amount which the now divorced debtor will pay in monthly instalments of 10,000 lek (€73) in two and a half years.
With non-performing loans at about 20 percent, compared to a peak level of 25 percent in mid-2014, the Albanian National Chamber of Private Bailiffs says the number of complaints against commercial banks and debt collection companies has sharply increased while the forceful collection of loan defaults has led to severe social costs for many households.
In late December 2014, a private bailiff asked banks to block every kind of income to debtor Agron Sula except for a subsistence level of 8,000 lek (€59), raising concerns about the violation of the right to a decent life at a time when Albania has no official subsistence level but which a late 2016 study by the People’s Advocate estimated at 16,000 lek (€115).
The National Chamber of Private Bailiffs said the increase in the borrower’s obligations by more than 1 million lek (€7,343) from the issue of the execution order in April 2011 until December 2014 when the loan was sold to a non-bank financial institution was illegal due to violating the debtor’s interests and not informing him.
“Hundreds of debtors of every kind of borrowers currently face increased obligations due to the application of higher interest rates and penalties as a result of long time from the moment of their default until the initiation of the execution of bailiff procedures,” says Tedi Malaveci, the head of the Bailiffs Chamber, also blaming the situation on households’ poor financial knowledge and failure to read credit terms before signing contracts.
“Out of dozens of execution cases, I figured out that only few people read the terms of loan contract they sign with banks and I was surprised to identify this phenomenon in almost all cases I came across,” he says.
While the phenomenon is somehow marring the image of commercial banks in Albania, the country’s central bank supervising commercial banks and non-bank financial institutions says “the banking legislation contains no provision on the process of the execution of obligations which is regulated based on the bailiff law and the Civil Procedures Code” and is not responsible for debt collection companies hired by banks. The latter seem completely unsupervised because of currently operating based on the law on commercial enterprises.
Agron Sula’s case is also an explanation to credit struggling to return to positive growth rates in the past couple of years due to poor demand by both households and businesses and tight lending standards applied by banks due to the high level of NPLs.
The case also undermines confidence in the country’s banking system and explains the high levels of informal borrowing among debtor households, estimated at about 60 percent, according to central bank surveys.
“Borrowers should make use of every other alternative to get the money they need before turning to banks which they should consider a last resort. And when you agree to borrow from banks, please carefully read every term and condition if you don’t want to find yourselves under my circumstances,” Sula tells BIRN in the local Albanian service.
In late 2015, Albania’s Competition Authority launched an enquiry into the country’s banking system over allegations of limited competition leading to high loan interest rates and standstill in lending, but failed to find enough evidence.
Albania’s banking system composed of 16 overwhelmingly foreign owned commercial banks has been well-capitalized, liquid and profitable since the onset of global financial crisis in 2008 despite the pre-crisis credit boom leading to one of the region’s highest non-performing loan levels.
The loan rates, although considerably lower to the pre-crisis period, are still considered high and unaffordable by the business community because of being seven times higher compared to the deposit rates which have dropped below 1 percent.
