Loan sharks serviced by private courts

Photo: Toomas Huik / Postimees

Professional loan hunters appreciate the speed provided by arbitral courts acting outside of state court system, the sessions unseen by public eye.

Things are bad. I’ve written many a story on unhappy people taking on beep-beep-loans, failing to pay in time, thereafter groaning under the weight of snowballing interests and fines for delay.

Then, a few years back, a breakthrough happened, and I thought things were on the mend. My optimism was boosted by Supreme Court, in summer of 2011 acquitting Nelli Lusmägi in a vital quick loan debate. The feisty lady considered an interest rate of 240 per cent per year too high and contrary to good practice.

After that, Estonian courts started to send back unfairly high claims by quick loan offices and debt collectors.

But money never rests. A new trick was employed by loan sharks: to settle disputes, they started to use arbitral courts owned by private capital.

Paper-free e-justice

In that case, there’s no need to pay state fee, wait patiently for set time for the session, and hasten to the courthouse.  

On its website, OÜ Krediidihaldus explains that, to solve an average civil case in state court system, it takes close to 200 days i.e. over half a year. An arbitral court does the thing many times faster.

A state-of-the-art electronic arbitral court works paper-free. All it needs is to send e-mails. Debtors may not even notice, that, when entering into a typical payment schedule contract, debt collectors also ask for agreement with arbitral court proceedings.

From there, things go lightning fast. As another payment is late, debt collectors write an e-mail to arbitral court. The court, by e-mail, contacts the debtor so that he could present his explanations and objections. If the woebegone debtor happens not to check the inbox, too bad.

Then, into the inbox drops the court judgement. To judge, the arbitral court doesn’t need the parties to appear in person – papers presented are enough. Your own fault, if you don’t defend yourself.

Should the debtor not happen to read the arbitral court judgement, too bad – again. Because, in that case, the creditor is entitled to have recourse to bailiff. Soon, bailiff knocks on the door, with rights to sell the debtors assets to get the debt covered.

In itself, arbitral court is nothing too special or innovative. With the Chamber of Trade and Commerce, arbitration has been active for decades; even so, the institution is focussed on settling claims between companies.

In Estonia, discussing people’s debts in arbitral courts is little known. «In USA, the arbitral court clause in bank contracts is widely used, in Australia also,» says Mihkel Tasa.

We are seated at a long brown wooden table, at the law firm Concordia. Where Mr Tasa is a partner, while also heading Estonia’s most popular arbitral court OÜ Elektrooniline Vahekohus (e-arbitration), being one of its three owners.

Activities of arbitral courts are regulated by Code of Civil Procedure. Mr Tasa belonged to the working group behind the bill, meaning: he knows the nitty-gritty of it all.

«Yes, I have heard the claims that we, as if, assist in usury. We are aware of that danger,» says Mr Tasa. «But we do not accept overly high interest rates which do not correspond to Supreme Court practice, not the excessive fines for delay.»

«Contradictions with good practice, of course, would mean relatively high interest and fine rates,» he adds. «For fines for delay to be reduced, as a rule people themselves will have to apply for that. I they are passive, the court will not do that for them.»

Mr Tasa admits that, as e-arbitral court makes its judgement, interests may start to tick again – that depends on the agreement entered between creditor and loan taker.

Of the arbitral court clients, Mr Lawyer will not talk. Only noting that these include debt collectors why buy up small loans, in bundles. 65 per cent of last year’s cases involved telecoms, quick loan business amounted to mere five per cent.

Some loan offices openly announce using the court led by Mr Tasa – as seen in general contract terms of Bongabonga (according to Mr Tasa, their last judgement regarding that firm came last spring). Also, e-arbitration services have been used by Raha24.

For bystanders, an issue may arise: Mr Tasa and the other two holders in the arbitration court – Pärtel Tomberg and Martin Rask – are related to loan mediating environment isePankur.ee. Mr Tomberg sits as CEO of isePankur.ee, Mr Rask as development manager, Mr Tasa is in charge of conformity check. 

From that, one may get the impression that the same bunch use one hand to lend money, the other hand squeezing troubled debtors via arbitration court.

«We want to create a permanent arbitration court which would deal, in a portal, with people with problem loans,» Mr Tomberg announced over the tarkinvestor.ee portal even while creating isePankur.

According to Mr Tasa, arbitral court is not linked to loan sharks.

Firstly, isePankur.ee is not a loan office; rather, it is an environment bringing those needing and those providing loans together.

«Right now, we have a campaign going at refinancing of quick loans i.e. quick loan debts are being paid off through us, people getting loans with reasonable conditions in their stead. For a certain contingent, the banks will lend no money. Definitely, these include some people who should not be loaned anything. Even so, there are many who are creditworthy.»

Secondly: there exists a separate arbitral court for claims by isePankur, with rules and regulations of its own; e-arbitration only manages the system.

Thirdly: none of the three men mentioned, work as judge at the arbitral court. The judge is sworn advocate Ott Saame, also working at law office Concordia.

According to the arbitral court price list, use of one judge costs €60, using three judges will be €180. So far, there has been no need for three judges; recently, the first claim of that sort was filed.

Five others

In addition to the speed of the arbitration proceedings, loan hunters value the limited options for appeal. «But these options do exist,» says Mr Tasa. For instance, after the judgement, a debtor may contest the execution document or appeal to circuit that he was not able to sufficiently stand for his rights. 

«I know of no case of a court annulling any of our judgements,» says Mr Tasa.

Elektrooniline vahekohus is not one of a kind. In Estonia, five others of the sort are registered. Eesti Vahekohus, for instance, is different from e-arbitration by not having one fixed judge, rather a bunch of them who alternate case by case.

«We are operating, but not to the extent we hoped. Over these years, we have only proceeded 14 debates – no matter that it’s fast; on average, a debate takes two months only,» says Eesti Vahekohus board member Indrek Leppik, better known as leading partner at law office Glimstedt. «People have not yet become aware of the arbitral court option.»

I agree. Lion’s share of Estonians are not aware of the strengths and weaknesses of arbitral court; for them, this is an absolutely new phenomenon.