BANKING / UNDERGROUND LENDING

Authorities crack down on firms colluding with loan sharks

The Bank of Thailand is monitoring non-bank finance companies suspected of involvement with underground usurious loan schemes.

Weerachart Sriboonma, a director of the central bank's legal department, said such practices were fraud under consumer protection laws.

Companies found to have collaborated with illegal lenders face back-tax audits and possible closure, he added.

Illegal lenders target mostly low-income earners through pamphlets and billboards, which promote ''quick-cash'' services. They encourage borrowers to apply for a credit card with a consumer-finance company, which is then used to purchase goods from retailers collaborating in the scam.

In reality, no purchases are made with the credit card. Instead, the borrower receives cash from the ''purchase'', albeit less than the amount actually charged to the card issuer. The retailer profits from the spread between the cash paid to the borrower and the charge made to the card issuer.

Police investigators say all three parties _ agents representing card issuers, retailers and underground lenders _ collaborate to draw in clients.

Mr Weerachart said prosecuting such scams is difficult unless borrowers complain to the authorities.

''We can trace the card transactions, but it is difficult to know whether an actual purchase was made,'' he said.

''But borrowers ultimately are forced to pay high interest, while the card issuers face problems with non-performing loans.

Bad debt affects the entire financial system and economy.''

Many card issuers outsource marketing activities to third-party agents, who receive a commissions for every customer that applies for a new card.

According to the Bank of Thailand, as of January, 11 million credit cards were issued with outstanding credit of 168.7 billion baht. Of this, non-bank issuers accounted for 5.37 million cards, with outstanding credit of 78.6 billion baht.

Bangkok Post

Monday April 09, 2007