What will the new rules for calculating the total cost of a loan affect?
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On January 21, new rules for calculating the total cost of the loan (FLC) came into force – now it will include all additional costs that the borrower incurs when receiving funds, affecting their issuance and cost. What additional services and conditions affect the loan will be determined by the Central Bank. The regulator may force the bank to recalculate the PSC. Market participants believe that such an approach will significantly complicate the possibility of underestimating the indicator.
New rules for calculating the PSC and notifying clients about it began to take effect on January 21. The day before, the Central Bank reminded that banks must now include in the calculation of the PSC all additional payments by the borrower, on which the provision of a loan or its conditions depend. For credit cards, the bank is required to indicate the minimum and maximum values of the indicator.
The PSC will be calculated based on the maximum amount of possible payments. Moreover, if since October last year banks were only required to write the PSC value in advertising in the same font as the stated loan rate (see “Kommersant” dated October 18, 2023), now the requirement applies to information on websites and in marketing materials.
As the Central Bank explains, banks often underestimated the value of the PSC, not including all loan costs in the calculation, “to eradicate this practice… a law was passed establishing new rules for calculating and reporting on the PSC.”
According to a study conducted by the Central Bank, for example, on cash loans, the real profitability of banks in some cases was higher than that indicated in the PSK by 5–8 percentage points (pp). For credit cards, it exceeded the PSC by almost 10 percentage points, since banks differentiate rates depending on the method of using the card (cash or non-cash transactions). For individual card products, the real profitability of banks reached more than 40% per annum (and under some conditions could reach up to 70%), the Central Bank notes, its excess over the PSC was already more than 15–20 percentage points.
According to the head of the regional bloc of the project “For the Rights of Borrowers” of the Popular Front (ONF), Galaktion Kuchava, there are still a lot of complaints that the real cost of the loan is higher than stated. “There is no need to talk about any positive dynamics, an improvement in the situation, or a reduction in the number of these complaints in general,” emphasizes Mr. Kuchava. “From the explanation of the Central Bank it follows that banks should not refuse to return funds for additional services, including those imposed, but, as always, the situation in reality turns out to be different: most of all, consumers complain that there is no well-functioning system for collecting and processing such claims.”
The ONF expects that the new rules for calculating and publishing the PSC will help solve the problem of “completely and reliably informing citizens about the full cost of the loan.”
The head of the Electronic Money Association, Viktor Dostov, notes that the measure will also “improve the quality of competition between banks and lead to some, although not very large, reduction in the cost of loans for the population.” “Some concerns,” the expert clarifies, are caused by the possibility of returning even a deliberately taken loan during the cooling-off period with the bank’s responsibility for returning payment for all additional services, but “this is a manageable risk.”
The head of the National Financial Market Council, Andrei Emelin, admits that “the debate around the new method of calculating the PSC was long and heated,” and the chosen option “is not so much a regulation as a fuse.”
The main innovation, according to Mr. Emelin, is the wording “related services,” which inspectors from the Central Bank can interpret as broadly as possible. “On the one hand, this is bad, because it turns out that regulation will be carried out “according to concepts,” and on the other hand, banks will know that any of their cunning schemes can be quickly exposed,” says Andrei Emelin. At the same time, the Central Bank, according to him, can force the bank to recalculate the PSC and create additional reserves even for loans that have already been repaid; there were similar precedents for other reasons.
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