New caps on loans take effect

On 1 July 2019, new caps on marginal debt will take effect for consumer loans with a maturity of up to one year. According to the amendments, any accrued interest, penalties (fines) and other sanctions, as well as additional fees on any of the creditor’s extra services, shall not exceed the twofold amount of the loan principal. Once the limit is reached, the law prohibits any further accrual of interest, other payments, fines or application of any other sanctions.

For instance, if a borrower has taken out a loan of 10,000 rubles, their debt shall never exceed 30,000 rubles (the loan principal of 10,000 rubles plus 20,000 rubles in accrued interest, fines and other payments).

Another innovation involves capping the total cost of credit (TCC) and the daily interest rate at 1% per day. The decision primarily targets the so-called ‘payday loans’ by microfinance organisations (MFOs). Starting from 1 July 2019, the TCC shall not exceed 365%.

The new round of restrictions has been introduced by the amendments to the Federal Law ‘On Consumer Loans’ and the Federal Law ‘On Microfinance Activities and Microfinance Organisations’ that took effect on 28 January 2019. The move reflects the Bank of Russia’s consistent policy of improving financial inclusion in the microfinance market and enhancing its financial consumer protection framework.