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Fintech companies call for strict law to protect consumers, ensure fair business

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An employee checks a customer’s identity card at Indonesian peer-to-peer lending start-up PinjamDuit in Gading Serpong,Tangerang, Banten. R BERTO WEDHATAMA/THE JAKARTA POST

Fintech companies call for strict law to protect consumers, ensure fair business

Indonesia's growing financial technology (fintech) companies have called on the government and legislators to issue a new law to ensure fair business for and better protection of both the industry and consumers.

The Indonesian Fintech Lenders Association (Asosiasi Fintech Pendanaan Bersama Indonesia, AFPI) said fintech companies, especially those involved in peer-to-peer (P2P) lending or online lending, needed a stricter regulation to ensure that all the stakeholders, such as borrowers and investors, would receive better protection.

“Fintech law should, among other things, cover personal data protection and set limits and boundaries during an appraisal of someone’s credit worthiness. A meticulous assessment should minimise default loans,” AFPI spokesperson Tumbur Pardede said during an AFPI event in Kebayoran Baru, South Jakarta on October 15.

He said now is the right moment for the government to step in and monitor the rapidly growing online lending business amid the increasing number of illegal fintech companies that have used unethical methods to extort payment.

“There are laws for banking, insurance and the stock market. I think it’s time to create one for fintech lending as millions of people have been investing,” said Tumbur.

Previously, Legal Aid Institute (Yayasan Lembaga Bantuan Hukum Indonesia, YLBHI) branches on Java received hundreds of complaints from borrowers who had their personal data breached by P2P companies that were not registered with the Financial Services Authority (Otoritas Jasa Keuangan, OJK).

According to some female borrowers, their personal data and pictures were shown in pop-up advertisements online claiming to offer sexual favours in exchange for money to pay off their debts.

Furthermore, the YLBHI also heard some cases in which unregistered fintech companies imposed high penalty rates on late payments without a prior notice.

Laying down the law

The government has prepared a draft law on personal data protection. The deliberations over the bill are expected to start this year.

However, analysts believe that in addition to personal data protection, the fintech industry also needs another regulation that can set business standards to ensure fair business and to give sufficient protection to both investors and borrowers.

The OJK issued a regulation on online lending in 2016, but it only has provisions on registration and licensing. The companies involved in the P2P business should first register and obtain a licence from the OJK before starting their activities.

To protect consumer interests, providers are also required to use escrow and virtual accounts in banks and set up data centres within the country. Furthermore, the amount of money that a provider can lend to a customer is limited to $140,000, to protect national financial system’s stability.

The AFPI has also established a code of conduct for its members. The code, among other things, caps interest charges at a 0.8 per cent per day flat rate and penalty fees at 100 per cent of the value of the loan principal. In addition, lenders cannot directly collect debts 90 days after the loan is due.

AFPI members who violate the code of conduct could end up blacklisted, reported to the OJK and/or have their licences revoked.

However, the analyst said that the regulation should cover wider aspects of the online lending business, such as capital, the mechanism by which investors channel their funds and those related to capital requirements and legal lending limits.

Meanwhile, OJK fintech authority and supervision director Hendrikus Passagi claimed that imposing a new law could scare off potential investors who want to establish legitimate fintech lending businesses.

“As of now, I think the existing fintech regulations issued by the OJK are already sufficient. In the end, I think the best way of mitigating risk is for each borrower and lender to be cautious about whom they borrow from or lend to,” Hendrikus said on Thursday.

Hendrikus reminded all people to only borrow from P2P fintech companies that have been approved by the OJK.

He also underlined the importance for lenders to check the payment histories of their loan applicants to ensure they have never previously defaulted.

“With no collateral to guarantee the loan, lenders must conduct a thorough background check to ensure that the borrower is capable of paying back the loan on time. Meanwhile, borrowers must read the contract carefully to ensure that the interest rate is fixed,” said Hendrikus.

Based on the OJK’s latest data, 127 fintech lending entities are registered in the authority’s database. Out of that total, 13 are fully licensed and 50 are still waiting to become accredited.

The total amount of loans that have been distributed by fintech online lenders as of August this year was 54.71 trillion rupiah, a 140 per cent increase from the 22.55 trillion rupiah in December last year.



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