Banks are trying to influence a bill limiting the use of floating interest rates in consumer lending, which is being prepared for the second reading in the State Duma. Market participants are asking to soften a number of requirements. However, human rights activists, on the contrary, believe that even in its current version, the bill does not sufficiently protect citizens. Experts note that now floating rates are extremely rarely used in lending to citizens, but the situation may soon change and the relevance of the bill will seriously increase.
As Kommersant has learned, the National Council of the Financial Market (NCFM) has addressed the State Duma with proposals from the banking community to amend the bill regulating the use of floating rates in consumer lending, which is scheduled to be considered in February.
As stated in the explanatory note to the document, in order to protect the interests of individual borrowers, the use of variable rates is prohibited for a number of types of loans, including mortgages. The ban is planned to be imposed on loans for a period of up to one year and more than 20 years; the government, in agreement with the Central Bank, will be able to set the minimum and maximum amount for loans with a floating rate. The bill proposes limiting the increase in loan rates by a third and no more than 4 percentage points. Banks are also required to notify borrowers 15 days before changing the payment amount.
The NSFR’s letter states that introducing restrictions on the growth of interest on loans with floating interest rates could lead to losses for banks. As Andrey Emelin, head of the National Financial Markets Service, explained to Kommersant, banks use a mechanism for targeted funding of credit transactions, for which they create liabilities comparable in amount, term, type of interest rate with loans: “Thus, an artificial limitation on the change in the rate on an active operation, with the objective impossibility of it balancing in terms of passive operations will lead to direct losses for credit institutions in the event of an unfavorable change in the economic situation.” To avoid losses, the National Financial Markets Service proposes to allow banks to demand early repayment of the loan within 90 days if the rate increases by a quarter. The NSFR also proposes to establish a similar limit on reducing the interest rate by a third, but not more than 4 percentage points.
The NSFR notes that in some cases it is objectively impossible to notify the borrower of a change in the payment schedule 15 days before the start of the changed value of the variable interest rate. The organization proposes, instead of 15 days before the change, to set the notification period to 5 days after the start of application of the changed variable rate.
As Ilya Kavinsky, partner at the Ru.Courts law firm, notes, the floating rate should be tied to a published parameter, for example, to the key rate of the Bank of Russia. “According to the text of the consumer credit law, the variable rate itself must be posted regularly,” he says. According to him, this means that it is hardly possible to talk about linking loan interest to the average benchmark value, when it is possible to warn the borrower about this 15 days before the start of the changed interest rate.
In turn, the head of the regional block of the project “For the Rights of Borrowers” of the Popular Front, Galaktion Kuchava, draws attention to the fact that the amendments do not take into account or think through the main aspect with which most of the borrowers’ claims are associated—the procedure for notifying the borrower about a change in the value of the variable interest rate. According to him, banks often provide in contracts an inconvenient and incomprehensible way for the borrower to notify about changes in conditions, for example, “on the bank’s website, in small print, in a section that even an experienced user or lawyer cannot find.”
Managing Director of the Expert RA rating agency, Yuri Belikov, emphasizes that in relation to individuals, floating rates are now used only in heterogeneous loans (for example, loans to business owners issued to an individual), the terms of which are reviewed and agreed upon individually. In the scale of the retail loan portfolio, according to him, the share of such loans is very small.
However, according to market participants, after the key rate is reduced, consumer loans with floating rates will again become relevant, especially in mortgages.