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Microfinancing: new caps for marginal debt value and daily interest rate

04.01.2019 18:14 / The Bank of Russia

On 28 January 2019, amendments will be effected to the current legislation that will set forth a new uniform limit for the marginal debt of a borrower under a consumer loan agreement for the period up to 1 year totalling 2.5 times of the sum of a respective loan. Once this amount is reached, the law prohibits further accrual of interest, as well as penalties (fines), other payments and the application of other measures.

That means that if a borrower has taken out a loan of one thousand rubles, for example, their debt shall never exceed 3.5 thousand rubles (principal plus accrued interest and other payments). The law stipulates that starting 1 July 2019 the limit will be set at the two-fold amount of the loan, and starting 1 January 2020 – at the 1.5-fold amount of the borrowed sum.

A further innovation involves capping the interest rate at 1.5% per day and concurrently setting the limit on the total cost of credit. Starting 1 July 2019, the daily interest rate will be reduced to 1% per day.

Taking into account the average sum of short-term loans (the so-called “payday loan”), legislators introduced a special loan not exceeding 10 thousand rubles for up to 15 days. The interest accrued on such a loan shall not exceed 3 thousand rubles (or 30% of the original sum of the loan if less than 10 thousand rubles has been taken out for 15 days). The daily payment on such a loan shall not exceed 200 rubles. This loan shall not be subject to the above-mentioned caps, however it will be prohibited to extend it or increase its original sum.

Federal Law No. 554-FZ ‘On Amending the Federal Law ‘On Consumer Loans’ and the Federal Law ‘On Microfinance Activities and Microfinance Organisations’ was signed by the RF President V. Putin on 27 December 2018. The law will come into effect one month after its official publication.

The new law will also limit the number of potential assignees under consumer loan agreements. For example, no creditor shall be allowed to assign debt collection rights to rogue debt collectors.

Special attention shall be given to the provision of the law which stipulates that illegal creditors or illegal collectors shall lose the right to enforce, including in a court of law, the execution of a concluded consumer loan agreement or rights assigned under such agreement.

The new standards represent a more streamlined system of financial consumer protection, which includes measures against unfair practices related to issuing payday loans and debt collection, thereby making the law especially timely and socially important.

‘Microfinance organisations issuing loans at virtually maximum interest rates shall either have to change their business model or exit the market,’ said Ilya Kochetkov, the Director of the Microfinance Market Department. ‘We are fully aware of the fact that these innovations will not please everybody, however, they will benefit borrowers and help considerably alleviate their debt burden’.

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