The Association of Commercial Banks has called for proper regulation of all non-banks that lend to consumers, so that consumers’ interests can be protected.
The association, which represents all major commercial banks in Bulgaria, made the call soon after on May 25, Parliament approved the first reading of the Consumer Credit Bill.
The bill is meant to protect consumers from unscrupulous lenders or from entering into loan agreements without understanding the obligations they are undertaking. However, the bill does not govern, among other categories of loans, consumer loans of up to 400 leva for domestic appliances.
The association’s statement said that non-bank financial lenders should be the focus of criticism because their actual loan terms were much more unfavourable than those of banks.
Other notable aspects of the draft of the bill approved by Parliament include a provision for fining banks that refuse to accept early repayment of loans.
This provision was included in the bill to enable borrowers to be able to reduce interest and service costs. Bulgarian banks, like other banks elsewhere in the world, have tended to charge a special fee for accepting ahead-of-schedule payments.
Retiring a loan or part of it before the agreed maturity date will, in terms of the bill, reduce interest and service costs in proportion to the period of time in which the borrower will not be using the loan.
Any violation of the provisions designed to facilitate early repayment will lead to fines of 1000 to 3000 leva for employees, or double these amounts if a bank declines to comply with the law.
The bill also bans banks from introducing additional service fees not provided for in the original loan contract.
Late payments may not be levied as charges higher than those set out by law.
The bill covers loans of 400 leva to 40 000 leva, but will not apply to mortgage loans, loans repayable by a single payment within a three-month period or loans repaid within 12 months by four equal payments. It introduces the term “annual amount of loan servicing cost”, which represents the total sum a borrower will have to pay, along with a formula for calculating this cost.
Bulgarian-language media reports said that Bulgarian National Bank (BNB) was considering changes to Ordinance 22 on the central credit register that will oblige local banks to report all credits sold to related or unrelated financial institutions.Bulgaria’s commercial banks have resumed, over the past couple of months, shifting parts of their credit portfolios overseas to avoid having to pay penalties for exceeding lending limits. Banks that exceed the limits have to pay additional reserves to BNB.
And on May 26 the Financial Supervisory Commission approved the first reading of a regulation on the minimum credit ratings awarded to commercial banks that accept deposits from pension funds.
The regulation set outs the minimum level of credit ratings of banks in which pension insurance companies’ funds will be allowed to deposit the assets of pension funds. It also lists the credit rating agencies that will be approved for assigning the minimum ratings.
The regulation also specifies the countries in which pension companies may invest the assets of pension funds. The markets in these countries must be trading in shares regarded as legal investments for the assets of pension funds.
