New loan restrictions come into force
Amendments limiting retail borrowers’ maximum debt on loans with up to one-year maturities became effective on 1 January 2020: the total interest charged on such loans, fines (penalties), other sanctions and payments for services rendered by a creditor to a borrower for a separate fee may not exceed the principal debt more than 1.5 times. After this threshold is reached, no interest, other payments, penalties and sanctions may be charged any more.
For instance, if a person borrows 10,000 rubles, the repayment may not exceed 25,000 rubles (10,000 rubles – principal; 15,000 rubles – interest, penalties and other payments).
In addition, the maximum total cost of credit and the 1% limit on a daily interest rate effective since 1 July 2019 remain in force. This restriction is primarily relevant for pay day loans issued by microfinance organisations. From 1 July 2019, the effective interest rate on such loans may not exceed 365%.
The new limits are introduced by the amendments to the Federal Law ‘On Consumer Loans‘ and Federal Law ‘On Microfinance Activities and Microfinance Organisations’ that became effective on 28 January 2019. This is the result of the Bank of Russia’s consistent policy aimed to socialise the microfinance market and enhance the protection of financial service consumers’ rights.