Hidden banking services will disappear in Russia – RealnoeVremya.com

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The Central Bank and the Ministry of Finance are jointly drafting amendments to a bill which specifies the modalities for calculating the total value of the loan. This document will be presented to the State Duma in the fall and, as experts believe, will be adopted in the first quarter of 2022. The author of Realnoe Vremya finds out what the amendments are and how they will help an ordinary customer of banks .

Hidden services

According to the Central Bank of Russia (CB), in the eight months of 2021, the number of complaints about the imposition of services and additional fees quadrupled (to 3,595), tuition fees increased by 28.1 % (to 2049). Hidden services usually mean additional charges from a bank or microfinance company that are not specified in the agreement or appear in small print. Various rights or premiums can be hidden services: insurance premiums, for opening or maintaining an account without transactions, etc.

It is interesting to note that neither the Civil Code nor the Law on Banks and Banking Activity has any notion of commission: in fact, it is illegal.

The legislation only contemplates the following types of payments:

  • interest on a loan;
  • interest on deposit;
  • payment for the services of a bank for transactions with money in the account.

However, all bank customers were confronted with the wording “bank charges” in the documents to be signed. This involves payment for the services in the transactions on the customer’s accounts. This is either a fixed rate (for example, 1000 rubles per month for maintaining an account) or interest on the amount of the transaction (for example, 1% of the transaction in cash) . It should be noted that for banks, income from all kinds of fees is the second most important after loan interest. It is a considerable amount of income.

All of the bank’s customers were confronted with the wording of “bank charges” in the documents to be signed. Photo: zen.yandex.ru

Indeed, the fees for services rendered are legal, in particular:

  • cash transfers, for example, from a credit card;
  • currency exchange, say, in case of payment with a ruble card abroad, the amount automatically converted according to the fixed rates of the bank;
  • withdrawal of cash from other banks or from a credit card;
  • trade finance transactions, that is, if a legal person has credit, the bank charges a fee to provide a bank guarantee.

Charges which are an indispensable part of the main service and which are written off by the bank to generate additional income can be considered illegal.

Many clients are faced with the need to pay for transactions such as credit investigation, granting credit, transferring money to a borrower’s account, prepaying a loan, opening a loan and maintaining a credit account, notification of a debt. All of these services are an indispensable part of the main service, and a supplement for them is illegal. In such cases, judicial practice is on the side of the clients. From now on, the regulator in the person of the CB will oblige the banks to disclose the list of possible costs including up to the total value of the loan. The fight against the pressure to purchase services is brought to the legislative level.

Life insurance in a mortgage is a separate subject in the imposed services: as a rule, the client can only choose an insurance company linked to the bank. It would be good to separate these services from the banking business so that the client has the option of taking out a loan without additional services and choosing an alternative insurance company. In all cases, this type of insurance (life, job loss) is crucial in a mortgage. This allows the loan to be repaid in the event of a problem. But the customer must have a choice.

Life and job loss insurance is crucial in a mortgage loan. This allows the loan to be repaid in the event of a problem. But the customer must have a choice. Photo: realnoevremya.ru

There is another example of difficult selling of additional services, which is called POS financing, that is, to buy equipment and other things in stores. For example, expensive technologically sophisticated products cannot be purchased on credit without fulfilling an extended warranty. In this case, a bank and a chain of stores have an agreement that the additional income is divided between them.

With the introduction of amendments, there will likely be more loan refusals as customers will fully assess the burden after receiving the settlement from the bank. Now, clients often have to use a variety of aggregators to compare loan terms.

Although this results in the disclosure of his personal data on these websites, it is stored uncontrollably and can then be used by wrongdoers. There will be no need for comparison with the introduction of a fixed method of calculating the total loan value.

The essence of the amendments

Under the proposed changes, banks will now be forced to offer two lending options – with hidden services and without them. Now, such a requirement is only in effect for mortgages. However, it will be necessary to provide the entire loan amount so that a customer can clearly see their possible expenses throughout the repayment period. The changes will also affect loan product announcements to give customers accurate information on loan terms. We have all seen the announcements of 5% per annum loans from the big banks. If we go into details, it becomes obvious that such a rate is only possible after having taken out insurance, which considerably increases the cost of the loan.

The task is to protect customers from dishonest advertisements. At first he lures a client into a bank office by all means, then the managers make sure he gets a loan with the help of efficient scripts providing him with a lot of unnecessary services.

Besides the inclusion of possible additional services to the cost of the loan, the BC plans to regulate the situation when, depending on the behavior of the borrower, the contract sets out different figures of the total value of the loan and different interest rates. The changes suggest that the total value of the loan will be calculated as the largest possible amount of payments that can be included in the agreement.

According to the idea of ​​the authors of the endorsements, a borrower should also have the right to refuse additional services within a maximum period of five calendar days after the first payment in the agreement. As with insurance contracts, the shortest “cooling off period” is 14 calendar days. A client often finds that repayment of the loan is unbearable only when paying the first installment. The initiative of CB and the Ministry of Finance makes the market more customer-oriented.

At the same time, the regulator is pursuing a goal of cooling the credit market: the Russians have taken out a considerable number of loans, while a new growth in overdue debts has a negative impact on the standards of the sector.

Recall that previously, Russian President Vladimir Putin had instructed the government and the State Duma to give the central bank the power to restrict consumer loans, which are granted by banks and microfinance institutions.

To sum up, I would like to note that the planned changes will certainly make the credit market more transparent, increase customer confidence in banks. Banks will have to lose their income a little because the income from the so-called transaction activity (fees, etc.) represents an important part of the general structure of income.

Interest rates are to be expected to rise, as banks will compensate for lost income by increasing interest income. Life and job loss insurance remains the most reasonable of all additional benefits: it should be taken seriously, and insurance should not be refused.

The planned changes will certainly make the credit market more transparent and increase customer confidence in banks. Photo: realnoevremya.ru

Auto loan insurance also makes sense: a new car can be hijacked or lost in some other way. All other “offers” from banks can be ruled out. Keep in mind that selling consumer credit insurances insistently, the bank is breaking the law and you are dealing with the manager whose reward depends on the number of insurances sold too. With the adoption of the changes, ordinary customers will have a quite clear opportunity to refuse any additional service and get the main service – a loan.

The novelties will come into force in the second half of 2022.

Artur Safiulin

Reference

The author’s opinion does not necessarily coincide with the position of the editorial board of Realnoe Vremya.



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