Bank of Russia cancels EIR limit on credit cards from 1 January to 31 March 2025
The Bank of Russia Board of Directors decided not to limit the effective interest rate (EIR) on credit cards1 for credit institutions from 1 January to 31 March 2025.
The Bank of Russia imposes a moratorium in case of significant changes in market conditions that may impact the EIR, including market rates, if the credit product pricing is adjusted with a lag. For most categories of loans, the monetary tightening (since the beginning of 2024 Q3, banks have raised deposit rates by 3.6 pp2) quickly affected their market value, and a legally permitted deviation is sufficient to continue lending without interruption.
For credit cards, due to incorrect practices of certain large banks who are the major issuers, the average market value of the EIR for 2024 Q3 turned out to be underestimated. Since the average market value of the EIR for 2024 Q3 is used as the calculation basis for setting the maximum EIR level for 2025 Q1, this restriction in the credit card segment could decrease the affordability of cards for people.
Taking into consideration market rates’ growth, the Bank of Russia cancels the maximum EIR on credit cards for one quarter. Due to the violations found, the Bank of Russia has issued an information letter where it reported on the inadmissibility of such practices and also sent orders to banks to promptly eliminate the violations and use the correct method for calculating the EIR. Concurrently, the risks of a heavier debt burden on borrowers will be limited by the macroprudential measures in place.
The EIR limit remains effective (292% per annum or 1/3 of the excess over the market average two quarters earlier) for other loans, except mortgage loans for purchasing (building) housing or land plots,3 and all loans issued by microfinance organisations, consumer credit cooperatives (including agricultural ones), and pawnshops.
1 As well as on overdraft debit cards.
2 The maximum interest rate of the 10 largest deposit banks.
3 For the above loans, the EIR limit will not apply from 10 October 2024 to 31 March 2025 in accordance with the decision of the Bank of Russia Board of Directors, dated 10 October 2024.
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