Client update on Debt Collection in Vietnam
Debt collection is the use of all legal means to obtain from a debtor the payment of the debt due to the creditor. Under Vietnamese law, the right to collect a debt is regulated by Article 450 of the 2015 Civil Code as a property right that can be purchased, sold and transferred. Several methods of debt collection exist but some are more controversial than others. Recently, there have been a few scandalous debt collection cases in Vietnam, and Mathieu Abdoul and Axelle Compain of our office explore this issue.
Illegal activities of debt collection agencies in Vietnam
Mirae Asset Financial Group’s scandal
Founded by Hyeon Joo Park in 1997 and headquartered in Seoul, South Korea, Mirae Asset Financial Group is a financial services group that includes asset management, wealth management, investment banking, and life insurance. Mirae Asset has a global presence in many countries such as Australia, Canada, the United Kingdom, and even Vietnam.
On November 4, 2022, HCMC police arrested 13 people working for Mirae Asset for the following three alleged illegal activities:
- The company required borrowers to provide personal information and information about their relatives when signing loan contracts with the company which charged a usurious interest rate of 4.58% a month, or 55% a year.
- For the customers who had more than 180 days overdue in their loan repayment, the debt collectors used phones and social network accounts to call, send text messages, slander and threaten the borrowers and their relatives.
- They even used images of the borrowers and their relatives to create funeral pictures or other depraved photos and made-up notices announcing the people were hunted for debt evasion or fraud. They sent these to the borrowers’ customers, relatives, friends and colleagues via social networks, ruining their dignity and reputation.
The investigation established that debt collectors benefited from up to 30% of a client’s total debt recovery.
However, Mirae Asset explained that MAFC stated that the 13 individuals who were arrested had just joined the company this year, and seven of them were still in the probationary period. It also stated that they had stipulated that employees were not allowed to use social media to slander customers and their relatives or to disclose information about overdue debts of customers, to use violence to collect debts, or to use insulting language towards customers and their relatives. The company also affirmed that it did not require personnel to engage in illegal debt collection activities and would tighten recruitment procedures, debt collection processes, and strictly handle violators. When asked why the above employees had previously engaged in illegal debt collection activities but were still allowed to work at MAFC, and what responsibility MAFC had in the incident regarding the debt collectors who violated the law, the company’s spokesperson stated that they would respond soon.
This case is currently being investigated further by the police.
Founded in 2013 by Cong Tran and Steven Nguyen in Vietnam, F88 is a financial services firm that provides loans for micro and small businesses and individual consumers. F88 has been running 830 branches nationwide.
In early February 2023, the Thanh Hoa provincial police issued records of administrative violations to some of the F88 branches in Tan Son, Dien Bien, Ba Dinh, Quang Tam, Dong Son and Dong Tho wards. These branches were found violating regulations on administrative management (making of Administration Ledger, data storage and inadequate business operations) and receiving customers’ assets as collateral without storing these assets during the time of the mortgage. Moreover, the police found that although the mortgage interest rate and the interest rate on F88 loans are within the interest rate limit allowed by the State Bank, during the registration process for those wishing to mortgage financial credit products, these facilities require clients to pay more fees. Specifically, these fees can be: the assessment of the loan conditions (1.4%/month); fees for the management of the pledged property (2-3%/month if the property is left in place of pledge, 5%/month for the person wishing to borrow the property); fees for the registration of the attached insurance service.
On March 6, 2023, HCMC police searched F88’s headquarters suspecting this company of asking for a debt in the form of “property appropriation”. Then, a series of transaction offices and branches in all districts were blocked. The firm is alleged to have threatened its customers who have not been able to repay.
Debt collection agencies disguised as a law firm
Article 6 of the Investment Law 2020, which takes effect on January 1, 2021, includes the “Debt collection service business” on the list of prohibited investment and business activities. Therefore, many companies that were performing debt collection activities that were established before (operating under Decree No. 104/2007/ND–CP) had to be terminated. From now on, only a lawyer or law firm can conduct lawful debt collection activities on behalf of a third party. More peaceful debt collection methods must be used.
However, the conduct of debt collection by a law firm on behalf of a third party can nevertheless lead to a debt collection scandal, when debt collection agencies are disguised as a law firm.
It was recently the case in the Vietnamese Phap Viet Law Firm’s scandal. Indeed, on February 14, 2023, because the police suspected the firm of cooperating with certain banking and financial institutions under the guise of legal support. The Vietnamese authorities arrested deputy directors of the firm, a division head of the company, and at least 13 other people of the firm for “extortion” and “signs of terrorism” according to Articles 170 and 299 of the Criminal Code. Multiple pieces of evidence were also seized: 233 PCs, 4 laptops, more than 300 mobile phones, and numerous documents. Every month and for each customer profile that required debt collection, the Phap Viet firm would take from VND140,000 to VND240,000 and 25-35% of the amount of money they managed to obtain from people as payment. In total, the debt collectors collected around VND1 trillion. Finally, in order to achieve their goal, the law firm’s agents used threatening methods with the borrowers, such as making threatening phone calls, terrorising relatives and acquaintances of the victims, or threatening to kill their wives, children, relatives.
To conclude, as a consequence of the application by many debt collection companies of debt collection methods in the “gangsters’ style” to intimidate the mind and threaten to force the debtor to pay the creditor, the Investment Law 2020 hardened the conditions for collecting debt in Vietnam. Even if this regulation reduces consequently the possibilities of debt collection scandals, zero risk does not exist. Moreover, this legislation is going against some countries’ points of view in which debt collection is still allowed by law (I.e., the Fair Debt Collection Act – FDCPA of the United States of America).