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Relief Delayed for Russian Consumer Debtors?

posted by Jason Kilborn

BlindbearI studied Russian in college because I thought a post-Gorbachev Russia was poised to become an economic superpower. I've been bitterly disappointed to see that country's leaders taking one step forward and two back for years now. The latest disappointment concerns my new academic focus: consumer bankruptcy.

First, Russian lawmakers seem to have ignored the rest of the world as they drafted a new law on "rehabilitative procedures" for "citizen-debtors." The law reflects neither direct input from international experts nor indirect analysis of the challenges and successes that dozens of other countries have encountered over the past 30 years with consumer insolvency systems. That Russia would ignore the 120-year-old U.S. consumer bankruptcy system is understandable; that it would ignore 30 years of recent trial and error in Europe and the rest of the world is ... disappointing.

Now, after adopting a law in December 2014 that lawmakers themselves now characterize as "labor-intensive," "costly," "extremely harsh," and "Draconian," the Duma is considering a bill to delay implementation of the new system for three years, to 1 July 2018. The "Explanatory Note" to this bill offers anything but an explanation for this odd, eleventh-hour delay. After blaming banks and their overly risky lending behavior, bemoaning the law's new and burdensome "powerful bureaucratic structure" and "extremely harsh" provisions on liquidation, and fearing the impact on government finances and the courts of implementing the new law, the explanatory note concludes curtly, "it is proposed to delay the entry-into-force of the Law for three years." Period. No explanation of what is supposed to happen in the intervening three years or, more importantly, why legislators adopted such a burdensome, expensive, and ill-structured system to begin with.

Ugh. Even if Russian lawmakers didn't want to reach out to the supposedly US-dominated World Bank or IMF, who I know stand ready to offer technical assistance to any country considering a consumer insolvency system (see here for efforts underway in South Africa), why not at least reach out to disinterested academics or practitioners? I'm sure INSOL could have helped Russia to avoid this mess and get on the right track from the beginning (their Consumer Debt Report II at least hits the major highlights).

Because the Duma's Committee on Property has recommended delay of the law, I expect we won't see a consumer bankruptcy system in Russia until at least 2018 now (though the Duma seems to have put off consideration of this bill half-a-dozen times already--update, I didn't read the dossier carefully enough: the Committee on Property recommended against the delay bill, though it remains on the Duma's docket, and the Duma apparently agreed today to postpone the law's effective date to 1 October 2015). But I genuinely hope that lawmakers don't waste this time simply waiting--perhaps they can depart from Russia's past, reach out to international observers and advisers, and put together a system that will really work for the country and its many, many distressed consumers.

Bear covering eyes image courtesy of Shutterstock

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