National Bank of Ukraine proposes capping consumer loan rates
MOSCOW. May 3 (Interfax) - The National Bank of Ukraine (NBU) has called for capping rates on consumer loans as part of its proposed amendments to the country's consumer lending legislation, Ukrainian media said, citing the regulator's website.
Setting caps on consumer loan rates is a well-established practice in the United Kingdom, the European Union and United States, the NBU said. The maximum real daily interest rate - the total daily cost of a consumer loan expressed as a percentage of the total loan amount - should not exceed 0.8% per day. According to the regulator, today this rate for microloans averages out at 2.5%.
Furthermore, in order to reduce the excessive debt burden on Ukrainian consumers, the NBU proposes authorizing the regulator to set minimum requirements for the process of verifying borrower's creditworthiness. Since individual financial companies do not have such requirements today, the assessment of borrowers' creditworthiness is almost absent. At the same time, the creditor himself consciously chooses a business model, according to which conscientious borrowers pay an exorbitant amount of interest not only for themselves, but also for those who cannot fulfill their obligations.
The NBU's proposal envisages a series of additional fines for violating these potential new regulations, because rules are usually of no use if there is no liability for their violations.
"The National Bank is monitoring the conduct of creditors and collectors all the time. But loans at 1,500% interest per annum are an extremely unhealthy practice. It puts the consumer loan service on a par with a 'debt yoke' and highlights Ukrainian laws' inconsistency with the best international practices, including those of EU countries, whose community we aspire to join. Such inconsistency should be eliminated, and preferably as soon as possible. And we are doing it," NBU Governor Andrei Pyshny was quoted by the bank's statement as saying.
An analysis of reports from citizens and information received as part of oversight procedures shows that the overwhelming majority of contracts on so-called fast online loans are concluded at night with the aim of placing bets at online casinos, the NBU said.
Financial companies that issue microloans consciously choose a business model offering services to vulnerable groups of the population who are frequently unaware of what consequences their moves may entail. They effectively offer an "instantaneous solution" to financial problems of low-income people, people without a steady source of income, students, etc. The main way of selling such consumer loans is remote channels, i.e. online loans issued in a matter of minutes and available 24/7. This circumstance adds to the problem. At the same time, since such organizations do almost nothing to verify borrowers' creditworthiness, interest rates on such loans may reach 1,500% on average per annum.
Ensuring efficient regulation and oversight of the non-bank financial services market is defined as an avenue of Ukraine's work as part of the new Extended Fund Facility program with the International Monetary Fund. Efforts to fulfill this task rely on a comprehensive approach, which is the core of the NBU's responsible lending concept and consists of two key components.