News, 18:30 10/25/2016

The Central Bank presented the requirements for the basic standard for protecting the rights of MFO clients

Context

MOSCOW, October 25 – RAPSI. When concluding a microloan agreement, a microfinance organization (MFO) will be obliged to comply with the requirements of the basic standard for protecting the rights and interests of individuals and legal entities - recipients of its financial services, the Central Bank (CB) of the Russian Federation said in a statement.

This basic standard is developed by each self-regulatory organization (SRO) uniting MFOs. This is stated in the draft instructions of the Central Bank of the Russian Federation.

In accordance with the law on SROs in the field of financial markets, all microfinance organizations, before September 6, 2016, were required to become members of self-regulatory organizations, which are entrusted with the functions of primary control over microfinance organizations and the development of basic standards for their activities. In turn, the Bank of Russia supervises the proper performance of control functions by SROs and sets requirements for basic standards.

According to the draft new regulatory document, this basic standard will concern the main areas of interaction between MFOs and clients, such as disclosure of information, interaction in concluding and executing contracts, pre-trial and out-of-court resolution of disputes, etc.

In particular, the regulator requires that the provisions of the basic standard fix the obligation of the MFO to provide the client with information not only about the name or trademark of the MFO, but also about the entry number of the MFO in the state register. It will also be necessary to inform clients about services provided for an additional fee, about the risks and possible losses associated with this financial service (issuing a loan or raising funds from a client). In addition, the consumer should know where, if necessary, he can send an appeal or complaint and how to protect his rights, including through pre-trial or out-of-court settlement of possible disagreements between the client and the microfinance organization.

It is proposed to introduce into the basic standard a provision that access to this information should be free, free and equal for all clients. This information must be presented in understandable language, without distorting the meaning, with an explanation of special terms if necessary, and the possibility of ambiguous interpretation of the properties of a financial service must be excluded, the regulator believes.

The draft document also establishes the requirements of the Bank of Russia that the basic standard include provisions on timely informing the MFO client about the occurrence of overdue debt, the possible consequences of non-repayment of a consumer loan and potential debt restructuring, as well as the procedure for interaction in the event that the client is late in repaying the microloan.

Another important provision of the basic standard will require the microfinance organization to assess the client’s solvency, including obtaining information about the sources of his income and other monetary obligations. In particular, the SRO will have to determine how many contracts with MFOs the borrower can enter into within one year for its solvency to be considered sufficient. At the same time, it is necessary that the standard also take into account the number of extensions to the microloan agreement for one year - this provision applies to citizens who have taken out a short-term loan (the so-called payday loan) for a period not exceeding 30 days. This will reduce the likelihood of a situation where a borrower pays off one loan at the expense of a newly taken another and ends up in even greater debt dependence.

In addition, according to the regulator, the basic standard should contain provisions regulating the advertising of MFO services, the procedure for considering requests and complaints, as well as how the self-regulatory organization will monitor compliance by its members, microfinance organizations, with the requirements of the basic standard.

This basic standard, developed by each self-regulatory organization uniting MFOs, after approval by the standard committee at the Bank of Russia, will be mandatory for all MFOs, regardless of their membership in a specific SRO.

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18:30 25.10.2016

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When concluding a microloan agreement, a microfinance organization (MFO) will be obliged to comply with the requirements of the basic standard for protecting the rights and interests of individuals and legal entities - recipients of its financial services, the Central Bank of the Russian Federation said in a statement.

The Bank of Russia has approved the basic standard for the protection of the rights and interests of individuals and legal entities - recipients of financial services of microfinance organizations (hereinafter referred to as MFOs) (Basic standard for the protection of the rights and interests of individuals and legal entities - recipients of financial services provided by members of self-regulatory organizations in the financial market, uniting microfinance organizations).

Thus, from October 1, 2017, MFOs will not be able to issue more than 10 short-term loans (for a period of up to 30 days) to an individual borrower within one year, or extend loan agreements more than seven times. It is planned to gradually tighten these restrictions. Starting from January 1, 2019, the number of loans issued by MFOs to one individual will be reduced to nine within one year, and the number of contract extensions will be reduced to five. In addition, MFOs will be prohibited from issuing a short-term loan if the previous one received from this organization is not repaid.

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The standard also establishes that before concluding a loan agreement or accepting a recipient of financial services for servicing, the MFO will be obliged at least once a year to request from the client information about the amount of his salary, other sources of income and monetary obligations and information about the ability to ensure the fulfillment of obligations under agreement. And in addition to this information, when issuing loans from 30 thousand rubles, the MFO will definitely have to request information about legal disputes in which the recipient of the financial service is the defendant, and when issuing loans from 100 thousand rubles. – information about the availability of movable and immovable property in the ownership of the recipient of the financial service.

The document establishes the inadmissibility of putting pressure on the consumer in order to induce him to choose a certain service, to encourage the conclusion of an on-lending agreement on worse terms, as well as to award bonuses to MFO employees solely for issuing loans without taking into account their actual repayment.

And finally, the standard sets deadlines for considering requests from MFO clients: registration of all requests received within three working days and consideration within 12.

And if an MFO does not comply with the provisions of the basic standard, from July 1, any interested person will be able to contact the self-regulatory organization of which such an MFO is a member, with a demand to apply enforcement measures to it.

Self-regulatory microfinance organizations (SROs) MFOs have prepared and submitted for approval by the Central Bank of the Russian Federation standards on risks and protection of client rights, the Kommersant newspaper writes. On Monday, the Bank of Russia Standards Committee reviewed the basic standards of MFOs. Their implementation is provided for by Federal Law 223 “On self-regulatory organizations in the financial market.” After final approval by the Central Bank, these standards will become mandatory for all market participants.

There will be three such standards: protecting the rights and interests of MFO clients, risk management and transactions in the financial market. Yesterday the first two standards were presented to the Central Bank.

According to experts with whom the publication spoke, less than half of the players will be able to fulfill the standards described in them.

The most critical may be the risk management standard, according to which MFIs will have to implement a risk management system, their control and assessment.

Companies with a loan portfolio of 1 billion rubles or more, as well as microfinance companies (MFCs, with a capital of 70 million rubles or more) will need to create independent structural units for risk management. Currently, only large players systematically manage risks.

The introduction of the standard will lead to weeding out the weakest companies. “Most likely, out of almost 2.5 thousand microfinance organizations, about 1.5 thousand will not be able to meet the standard,” says Andrey Bakhvalov, chief executive officer of the Home Money microfinance organization.

What matters most is the standard of customer protection. It is this standard that the Central Bank intends to approve first. The microfinance market is second only to the insurance market in terms of the number of complaints the Central Bank receives from citizens.

This standard imposes significant restrictions on MFOs. In particular, an MFO will not be able to issue more than 10 short-term loans (for a period of no more than 30 calendar days) within one year. Extension of short-term loans will be possible no more than seven times (with the exception of extension for a period of no more than two days).

In the future, the requirements will become more stringent: from January 1, 2019, a borrower will not be able to obtain more than nine loans from one microfinance organization in a year and roll them over more than five times.

To control the quality of customer service, an obligation is introduced to record and store records of conversations with customers for at least six months. The period for consideration of complaints should not exceed 15 working days.

Basic standards are mandatory for SRO members. Failure to comply threatens the MFO with orders to eliminate violations, fines, and exclusion from the SRO. Outside the SRO, an MFO can operate for no more than 90 days, then it faces exclusion from the Central Bank register - in fact, this is a ban on activity. SRO has the right to apply penalties against its members for failure to comply with basic standards.

The brave world of microcredit

Microfinance organizations in Russia are legal entities in the form of a foundation, autonomous non-profit organization, non-profit partnership, partnership or business entity that provide microloans in an amount not exceeding 1 million rubles. Their borrowers are small businesses, individual entrepreneurs and individuals.

Amendments to the law “On microfinance activities and microfinance organizations,” which came into force on March 29, 2016, provide for the division of microfinance organizations (MFOs) into microfinance companies (MFCs) and microcredit companies (MCCs).

All microfinance organizations, information about which was contained in the state register of microfinance organizations on this date, were recognized by the MCC and are obliged to bring their name into compliance with the requirements of the law within a year - until March 29, 2017.

Microfinance companies can issue bonds, attract funds from citizens (in the amount of 1.5 million rubles), issue consumer loans to one borrower in the amount of up to 1 million rubles, and carry out remote identification of clients.

Microcredit companies are allowed to issue consumer loans to one borrower for a total amount of no more than 500 thousand rubles and are prohibited from attracting loans from citizens who are not their founders. The status of microfinance companies can be obtained by MFOs that have their own capital in the amount of at least 70 million rubles and have submitted to the Bank of Russia the documents necessary to obtain MFC status.

It should be noted that in recent years, Russian microfinance organizations are often mentioned in a negative context, in particular because of “payday” loans or with daily interest accrual on the balance at rates that are sometimes tens of times higher than bank rates, as well as because of the abuse of the poor financial literacy of the population .

In addition, MFOs are known for the fact that they do not seek to sell “bad” debts to collectors, since on average their discounts are over 90% of the nominal value, and they try to maximize profits through “loan restructuring”.

Illustration from the Internet

Rules for all microfinance organizations

The Bank of Russia approved basic standard protection of the rights and interests of individuals and legal entities - recipients of financial services of microfinance organizations. It sets rules that MFOs must follow when interacting with consumers of their services . From July 1, 2017, the document will be mandatory for all microfinance organizations. The standard is aimed at regulating relations between microfinance organizations not only with citizens, but also with small and medium-sized businesses and other legal entities, reports press service of the Central Bank.

The document was developed by self-regulatory organizations of microfinance organizations in accordance with the requirements of the regulator.

Loan restrictions

In order to limit debt load MFO borrowers, the basic standard introduces a ban on providing a borrower with more than 10 (from 01/01/2019 - nine) short-term (up to 30 days) microloans within one year. In addition, a microfinance organization will not be able to renew such agreements more than seven times (and from 01/01/2019 - five times) under one agreement. Also, to reduce the total debt burden on the borrower and eliminate the practice of on-lending, the standard prohibits MFOs from issuing the next short-term consumer microloan until the previous one is fully repaid .

15 days to respond to the borrower

The standard introduces strict requirements for responses to borrower requests. MFOs will be required to respond to all requests from consumers of financial services within 15 business days from the date of receipt of the request. It is expected that this will increase opportunities for pre-trial settlement of disputes and will allow borrowers to contact a microfinance organization without intermediaries to resolve conflict situations.

Prohibition of pressure on the client

The standard regulates the procedure for restructuring overdue debt. It will be considered unacceptable putting pressure on the consumer in order to persuade him to choose a certain service, encouraging the conclusion of a new loan agreement on worse terms for repaying the original loan, as well as bonuses to MFO employees solely for issuing loans without taking into account their actual repayment.

Who will monitor compliance with the standard?

If a microfinance organization does not comply with the provisions of the basic standard, any interested person has the right to contact a self-regulatory organization of which such microfinance organization is a member, with a requirement to take enforcement action against it. In turn, the Bank of Russia supervises how self-regulatory organizations of MFOs monitor compliance with the requirements of the basic standard.

The Bank of Russia has approved the basic standard for protecting the rights of consumers of the services of microfinance organizations (MFOs). This is stated in a message on the Central Bank website.

In particular, the standard prohibits providing a borrower with more than ten short-term loans (up to 30 days) per year. The extension of the agreement for such a loan will be possible a maximum of seven times.

From 2019, these requirements will be tightened to nine loans and five extensions, respectively. “Also, in order to reduce the total debt burden on the borrower and eliminate the practice of on-lending, the standard prohibits the issuance of the next short-term consumer microloan by microfinance organizations until the previous one is fully repaid,” the Central Bank said in a statement.

In addition, the standard obliges MFOs to respond to all customer requests within 15 working days from the date of receipt of the application. It is expected that this will increase the opportunity for pre-trial settlement of disputes.

“If a microfinance organization does not comply with the provisions of the basic standard, any interested person has the right to contact a self-regulatory organization, of which such an MFO is a member, with a demand to apply enforcement measures to it. In turn, the Bank of Russia supervises how self-regulatory organizations of MFOs control compliance with the requirements of the basic standard,” the Central Bank said in a statement.

The requirements of the standard will become mandatory for all microfinance organizations from July 1, 2017. The document was developed by self-regulatory organizations of microfinance organizations in accordance with the requirements of the Central Bank.
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