Countering violations and unfair practices: regulator meets bankers
The Bank of Russia has drawn credit institutions’ attention to the problem of unacceptable practices in consumer lending, namely circumventing the requirements for setting the maximum allowed effective interest rate (EIR) and unfair sales of investment and insurance products and extra services, including via remote channels.
The Bank of Russia presented a number of cases covering, among other things, direct violations of laws — failure to include the entire insurance amount in the EIR calculation where the former influenced the loan rate, or the cost of an additional service paid for from the loan.
The Bank of Russia also addressed the issue of circumventing regulatory requirements, e.g. when, simultaneously with a loan agreement, a bank signed an addendum to it significantly increasing the interest rate, or issued credit cards with limits under the guise of POS loans where the maximum EIR on these cards was higher, expecting that the client would be unable to understand this and would eventually pay more. There are also cases when credit institutions sold ‘voluntary’ additional services which technically did not change loan conditions, but could not be rejected by clients.
The Bank of Russia will enhance the efficiency of measures countering such practices — this is set as one of the priorities in conduct supervision. ‘One of the objectives of the financial market development over the period until 2024 is to create incentives that would encourage financial service providers to elaborate long-term strategies aimed at improving their clients’ satisfaction and loyalty’, said Mikhail Mamuta, Head of the Service for Consumer Protection and Financial Inclusion of the Bank of Russia, closing the meeting. ‘In this regard, the regulator will continue to enhance conduct regulation and supervision as one of the main mechanisms to adjust market participants’ business models’.