From March 11, 2016, new regulations governing the non-banking market will apply. The Act limits, among others the maximum cost of the loan. As a result of this action, online payday loans … have gone up!
Rules for granting non-bank loans
The Act on Good Finance Association, which regulates, among others rules for granting non-bank loans, entered into force on October 11, 2015. Despite this, we had to wait for the most important changes until March 11, 2016. It happened because the legislator gives loan companies six months to adapt to the new regulations.
After checking the market, it turns out that the lenders have also reacted to legal changes. Several companies have suspended their operations altogether.
However, most lenders have coped with the new regulations. The owners of loan companies have come up with solutions that compensate them for the cost limit.
The cost of instant milk for USD 1,500 20 days before and after changes in regulations
The base cost of loans has often increased and the rules for extensions have changed …
It is worth recalling that from March 11, 2016, there are two very important changes regarding lenders. Such companies can now operate as joint-stock companies or limited liability companies. The Act on Good Finance Association also imposed a requirement according to which the lenders’ own capital must be at least USD 200,000.
These funds cannot come from a loan or bond issue.
For the clients of loan companies, the second change, which has been in force since March 11, 2016, is more important. It is about the maximum limit of non-interest loan costs. At present, such costs may not exceed the amount borrowed (irrespective of the repayment period) and the value determined according to the following formula.
MPKK ≤ (K � 25%) + (K x (n / R) x 30%)
MPKK – the maximum amount of non-interest loan costs (e.g. initial commission and extension fees)
K – total loan amount
n – repayment period expressed in days
R – number of days in the year
Note: in addition, the interest rate on the loan may not be higher than 200% of statutory interest (current limit: 200% x 5.00% = 10.00% per annum). Statutory interest from January 1, 2016 is equal to the GFI reference rate (currently: 1.50%) increased by 3.50 percentage points.
Interest and charges for delay must not exceed 200% of the GFI reference rate increased by 5.50 percentage points (currently: 200% x (1.50% + 5.50 pp) = 14.00% per year).
The above limitation applies to all non-interest costs (MPKK) that are accrued during the first 120 days of the loan being granted. The described solution significantly limits the possibility of charging high fees for subsequent loan extensions.
This reduction in the cost of extensions has become a major problem for lenders. Interestingly, the free “momentum” of the highest value has not disappeared from the market (see table above).
However, many lenders have made a change by increasing the base fee for a loan (without extending it). Such a solution was used, among others, by the following loan companies/brands:
The loan companies no longer provide costs for extending the repayment deadline. This means that repayment after the original deadline is impossible or requires individual arrangements. A more interesting solution is to grant a refinancing loan to a related company.
The secondary loan is not subject to the limits
Such a secondary loan is not subject to the limits set by the Act on Good Finance Association. The refinancing loan system uses Good Finance and Honest Bank among others.
After analyzing the effects of introducing a cost limit, it turns out that they are not very favorable for customers. Actual change costs are borne by persons who do not extend their loans. Only customers who previously spent a lot of money on extensions can talk about certain benefits.
The loan will be absolutely free legal assistance “> free if the costs exceed the statutory limit
As a supplement, it is worth mentioning that the limit in force since March 11, 2016, also applies to loans with a higher value (e.g. USD 5,000 for 18 months) .
In the market for such financial products, the effects of introducing a cost limit are less visible.
Regardless of the date of repayment of the loan and other conditions, the customer should exercise the right provided by applicable regulations.
If it turns out that the non-interest cost of the loan or the cost charged for the delay exceeds the statutory limit, then the borrower may pay back the money, without incurring no costs This sanction has the motivation of loan companies to comply with cost constraints.