"Those illegal online loan providers are outside the recognized financial service institutions. Can we, for instance, call the moneylenders at the traditional markets who suddenly sent an SMS to us as a legitimate financial service provider? Surely not," head of the Investment Alert Task Force of the OJK, Tongam L Tobing, said during an online discussion in Jakarta on Friday.
Institutions are recognized as financial service providers only when they are registered within the OJK system, which ensures all recognized institutions are properly organized as a public company with transparent capital sources and complete permits, infrastructure, and systems, he informed.
"We do not recognize illegal loan providers as legitimate financial service providers," he said.
Illegal loan providers exploit victims who are in urgent need of quick cash and resort to applying for a loan to them, Tobing said. Illegal loan providers then impose unreasonable interest, high fees, unlimited penalties, and often intimidate borrowers, he added.
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Illegal loan providers always violate their agreement with borrowers, he said. For instance, they transfer only Rp600 thousand from the agreed Rp1 million to borrowers, then unilaterally increase the agreed 0.5 percent interest to 3 percent and modify the loan period from 10 days to 7 days, he informed.
"This is extortion and fraud, and it is clear the illegal online loan providers are not financial service providers but are criminal syndicates. They often also trick borrowers into allowing access to their personal data and contacts -- this is the most vulnerable part often exploited by them," Tobing cautioned.
Besides taking action against rampant illegal loan providers, Tobing urged the authorities to improve financial knowledge and education among the public.
"We noticed the illegal loan providers are exploiting lack of financial literacy and knowledge among the public and their financial problems and urgent need for quick cash. Therefore, we should thoroughly address this issue from the illegal services to the public," Tobing said.
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