Money lenders face regulatory crackdown

• Commission tackles ‘non-existent’ consumer protection

• Violence, threats against borrowers will be prohibited

• New rules targeted for the start of the second quarter in early 2022

By NEIL HARTNELL

Editor-in-chief of the Tribune

[email protected]

A crackdown aimed at overturning “non-existent” consumer protections from unregulated lenders will take effect in the second quarter of 2022, the top Securities Commission executive said.

Christina Rolle told Tribune Business yesterday that the Bahamas is “starting from zero” when it comes to closing what has been “a very big gap” in protecting its citizens from predatory lending practices by people and entities operating outside the established financial services supervisory environment.

She spoke after the regulator, which oversees the capital markets, financial and corporate services providers and investment fund sectors, published draft rules on money lenders for a third round of industry consultation in the hope that it will prevent Bahamians from falling prey to practices such as exorbitant interest rates that exceed the legal maximum of 20%.

The rules, which will encompass all money lenders and require them to operate as corporations or other legal entities, rather than individuals, also prohibit such persons/companies from using physical violence, threats or other forms of intimidation against a borrower or their family members. when collecting loan repayments and debts.

No penalties for such “usurer”-type tactics are provided for in the rules, which specify that guilt and sentence must be determined by the Supreme Court, but they impose much stricter transparency requirements on non-bank non-bank lenders. covered by financial and corporate service providers or any other financial services law.

“What these rules do is they set the standard by which people in the business must operate,” Ms Rolle told Tribune Business. “It sets out the rules by which they must conduct their business practices. The main purpose of the rules, if I had to name one, is consumer protection.

“There are a lot of provisions regarding the calculation of interest. There are provisions on how loans can be rolled over, what fees may be applied. The main objective is consumer protection. There has been a very big gap in the past. At the moment, nothing exists in this space in terms of consumer protection. We start from zero. It is absolutely significant.

“I think that goes a long way to filling in some of those gaps. Obviously, once the rules are used and consumers start to become familiar with them and their rights under the rules, we’ll see if there are any adjustments to be made, but it’s a good place to start.

There is no data on the size of the non-bank and non-traditional lending market in the Bahamas, although Ms Rolle said anecdotal evidence suggested it was large and playing an increasingly important role. in residents’ access to credit since 2008-2009 recession. And this may have increased further due to the devastating impact of COVID-19.

“I think they are hugely important,” Ms Rolle said of the proposed rules on money lenders, “especially considering that non-bank money lending has been on the rise since 2008, and from more and more consumer loans are in the non-bank, non-traditional space as opposed to traditional banks.

“We have no idea of ​​the size of the market yet. Some of the things these rules put in place are our ability to require reporting on these matters. So once these rules are in place, we will be able to get reports and report on size and other statistics regarding the industry in the future.

Ms Rolle added that the latest industry consultation on the moneylender rules is the third, with the feedback period due to end on March 15, 2022. An industry briefing outlining the rules will take place on February 24. , and the Securities Commission also plans to give the general public “an opportunity to engage directly with us on any concerns they have.”

The regulator will spend two weeks after March 15 reviewing the comments and making adjustments and, when satisfied, will send the final version to the Prime Minister, in his capacity as finance minister, for a ‘no objection’ approval. Once this is received, the rules will be implemented, and Ms Rolle hopes to achieve this by the “early second quarter of 2022”.

She revealed the moneylender rules had been in the works since 2016, when the then Christie administration had hoped to introduce them as part of a parallel package to the Homeowners Protection Bill. (now law).

The head of the Securities Commission added: ‘At the time, I think the government raised concerns with the Commission about the lending practices of some lenders. The government also informed the Commission of its concerns regarding collection policies and the calculation of interest rates.

However, Ms Rolle said the reluctance of many Bahamians to file formal complaints against such practices had largely hampered the Securities Commission’s ability to conduct investigations. “The truth is that in financial services, it’s very difficult to get Bahamians to file formal complaints,” she told Tribune Business.

“Without a formal complaint, it is very difficult to investigate these issues. We may receive a formal complaint about money lending practices once a year. We get a lot of anecdotal evidence, stories of what can happen. Without a formal complaint, it is very difficult for us to continue.

Rolle said the Securities Commission generally allows six months from the implementation of these rules for affected parties to come into compliance. “The Commission will work with them,” she added. “We just need to know that they are there and that they have at least started the process, and we will work with them to complete the process of regularizing their activities.”

The Securities Commission’s chief executive said the rules were aimed at those “in the business of lending money” and making “loans to third parties on a consistent basis”. They are not intended to capture, however, people lending money to other family members.

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