The Indonesian government has started cracking down on unlicensed and illegal peer-to-peer (P2P) lending platforms amid growing complaints over intimidatory debt-collection practices and data-privacy concerns.

However, many people have already fallen victim and are languishing in debt in the midst of a crushing pandemic. Those who take advantage of such services are often unable to pay back their loans due to financial constraints caused by the pandemic or predatory loan interest rates.

Heny, a 31-year-old freelance makeup artist based out of Tangerang, Banten, said that she initially did not intend to get involved with any P2P lenders.

However, with her husband suffering a bone fracture and out of work since last year, she found herself having to take out a loan to cover their daily needs.

Heny said she had initially taken out loans from two licensed P2P lenders but was forced to take out new loans to pay back the previous ones due to ongoing financial constraints. It did not help that her loans were already connected to various online shopping accounts, making it more difficult to avoid spending money that she did not have.

She currently owes the P2P lenders up to 17 million rupiah ($1,200). However, her troubles do not stop there.

Heny has learned to anticipate repeated calls from the debt collectors when her payments are due.

“But their methods have become increasingly threatening lately. They say they will tell the people I know that I am in debt. Some acquaintances even told me they were contacted by debt collectors,” she told the Jakarta Post on October 23.

In another part of the country, Reyna, 41, had already taken out loans from dozens of P2P lenders – licensed and otherwise.

The online travel agent from Makassar, South Sulawesi, said that she and her husband were initially making enough to meet their daily expenses. But then in 2019, Reyna’s business partner ducked out of a deal, forcing her to pay back the vendors they had been cooperating with.

To finance this, Reyna started taking out loans from licensed lenders. But due to their steep administrative fees, she was forced to take out even more loans from other lenders to cover her initial costs.

Until recently, she had racked up nearly 100 million rupiah in debt to various P2P lenders. “Their interest rates are too high, but then asking for an extension to pay back the loans also bears additional costs,” Reyna told the Jakarta Post.

She said that she currently had no other choice but to ignore the debt collectors incessantly hounding her as she looks to pay back her loans step by step.

In response to growing complaints about rampant illegal P2P lending, President Joko “Jokowi” Widodo ordered a moratorium on new P2P lending licences.

Following a Cabinet meeting on October 15, information minister Johnny G Plate also said that the Financial Services Authority (OJK) would impose a similar ban on new licences for P2P lending information systems.

According to the ministry, the government blocked 4,874 social media accounts belonging to unlicensed P2P lenders between 2018 and October 15, with more than a quarter of this number blocked this year alone.

The OJK itself has backed a previous recommendation for debt-ridden customers to stop paying back their loans and the incurred interest that they owe to illegal online lenders, in spite of the potential risks involved.

Tongam Lumban Tobing, the head of the OJK’s investment watch task force, said that reneging on a loan contract with an illegal P2P lender was legally justifiable.

“From the standpoint of criminal law, illegal lenders [can be] charged with extortion as stipulated in Article 368 of the Criminal Code, … as well as violations under the ITE [Electronic Information and Transactions] and Consumer Protection Laws,” he told KompasTV on October 24. “There’s no need to pay because the [transaction] is legally void.”

Meanwhile, the police have also stepped up raids on the offices of unlicensed P2P lenders and their debt collectors in the Greater Jakarta area and elsewhere in the country.

Coordinating Minister for Politics, Legal and Security Affairs Mahfud MD said at the weekend that the government would punish any unlicensed P2P lenders if their actions amounted to a criminal offence.

He urged victims of illegal online lenders or debt collectors to report their cases to the police.

“We want people to be brave enough to report such instances to the police so they can get the protection they need,” Mahfud said, as quoted by kompas.com.

In response to the recent controversy, Indonesian Fintech Lenders Association (AFPI) chairman Adrian Gunadi said that the group had also taken strict measures against unlicensed lenders, including by lowering interest rates.

“We’ve conducted an [internal] review and agreed that we will lower our interest rates by more than 50 per cent [or no more than 0.4 per cent per day], so that P2P lending can become more accessible and the public will be able to distinguish between unlicensed and licensed lenders,” Adrian said in a press conference on October 22.

The organisation was also “fully” cooperating with the authorities to crack down on illegal lenders and moved to reprimand and even suspend members serving these platforms, another association member said on October 25.

A number of borrowers are also preparing a civil lawsuit against the president, the information ministry, the House of Representatives and the OJK as they demand comprehensive rules to prevent similar incidents from recurring.

The Jakarta Legal Aid Institute’s (LBH Jakarta) Jeanny Sirait said that the plaintiffs, who wish to remain anonymous until they have formally filed their lawsuit at the Central Jakarta District Court in the coming weeks, believe a legal challenge is required to push the needle.

“We need it, even licensed [lenders] still have problems like high interest rates and administrative fees or a lack of monitoring,” Jeanny told the Jakarta Post on October 23.

THE JAKARTA POST/ASIA NEWS NETWORK