02.11.2016, 07:54
New Requirements for Base Standard of MFO Customer Protection
OREANDA-NEWS. To execute a microloan agreement, a microfinance organisation (MFO) shall observe the requirements for the base standard designed to protect the rights and interests of individuals and legal entities – consumers of its financial services. The base standard shall be elaborated by all self-regulatory organisations (SROs) uniting MFOs. These issues are discussed in the draft Bank of Russia Ordinance published on the regulator’s website for assessing the effect of regulatory measures.
In line with the law on SROs in the financial markets, all MFOs had to join SROs by 6 September 2016. Those SROs are in charge of the initial control over MFOs and of the elaboration of the base standard of their activities. In turn, the Bank of Russia supervises the proper discharge of control functions by SROs and sets requirements for their base standards.
The draft Ordinance says that this new base standard will cover key areas of interaction between MFOs and their customers. Those areas will include information disclosure, agreement conclusion and execution, pre-trial and out-of-court dispute resolution, etc.
Specifically, the regulator demands that the base standard includes the MFO’s obligation to inform its customer not only about the name and trade mark of the MFO, but also about the registration number (it is available on the Bank of Russia website at www.cbr.ru), about the membership in the SRO, and the SRO’s standard concerning the protection of the rights and interests of financial consumers. Customers shall be also informed about additional paid services, and associated risks and potential losses (loan provision to or funds attraction from customers). Besides, consumers shall receive contact information to send applications or claims, and shall be aware of the methods to protect their rights, including in the process of pre-trial and out-of-court resolution of disputes between customers and MFOs.
It is suggested that the base standard includes a provision on an open, free and equal access to this information for all customers. Besides, this information shall be given in a clear language, free of any distortions of meaning, shall explain special terms (if necessary), and shall exclude any ambiguity in construing the characteristics of financial services.
The draft document also includes Bank of Russia requirements, i.e. the base standard shall provide for a timely notification of an MFO customer about his/her overdue debts, implications of a default on the obligation to repay a consumer loan, possibility for debt restructuring, and also about steps to be made on both sides in case of a delay in the repayment of a microloan by a customer.
Another important provision of the base standard requires that an MFO assesses the customer’s solvency, including receiving information about the sources of his/her income and other monetary obligations. Specifically, the SRO shall determine the number of agreements with MFO a customer may conclude during one year not to threaten his/her solvency. The standard shall also determine the number of permitted microloan extensions during one year; this concerns individuals with short-term loans (the so-called ‘payday loans’) for up to 30 days. It will help reduce the likelihood of a situation when borrowers repay old loans with new ones, thereby increasing their debt burden.
Besides, the regulator believes that the base standard shall contain provisions designed to regulate the following aspects: advertisement of MFO services, procedure to handle applications and claims, and procedure for a SRO to control the compliance with the requirements of the base standard by its members (MFOs).
After being approved by the Committee on Standards at the Bank of Russia, this base standard, prepared by self-regulatory organisations, uniting MFOs, will become mandatory for all MFOs irrespective of their membership in specific SROs.
In line with the law on SROs in the financial markets, all MFOs had to join SROs by 6 September 2016. Those SROs are in charge of the initial control over MFOs and of the elaboration of the base standard of their activities. In turn, the Bank of Russia supervises the proper discharge of control functions by SROs and sets requirements for their base standards.
The draft Ordinance says that this new base standard will cover key areas of interaction between MFOs and their customers. Those areas will include information disclosure, agreement conclusion and execution, pre-trial and out-of-court dispute resolution, etc.
Specifically, the regulator demands that the base standard includes the MFO’s obligation to inform its customer not only about the name and trade mark of the MFO, but also about the registration number (it is available on the Bank of Russia website at www.cbr.ru), about the membership in the SRO, and the SRO’s standard concerning the protection of the rights and interests of financial consumers. Customers shall be also informed about additional paid services, and associated risks and potential losses (loan provision to or funds attraction from customers). Besides, consumers shall receive contact information to send applications or claims, and shall be aware of the methods to protect their rights, including in the process of pre-trial and out-of-court resolution of disputes between customers and MFOs.
It is suggested that the base standard includes a provision on an open, free and equal access to this information for all customers. Besides, this information shall be given in a clear language, free of any distortions of meaning, shall explain special terms (if necessary), and shall exclude any ambiguity in construing the characteristics of financial services.
The draft document also includes Bank of Russia requirements, i.e. the base standard shall provide for a timely notification of an MFO customer about his/her overdue debts, implications of a default on the obligation to repay a consumer loan, possibility for debt restructuring, and also about steps to be made on both sides in case of a delay in the repayment of a microloan by a customer.
Another important provision of the base standard requires that an MFO assesses the customer’s solvency, including receiving information about the sources of his/her income and other monetary obligations. Specifically, the SRO shall determine the number of agreements with MFO a customer may conclude during one year not to threaten his/her solvency. The standard shall also determine the number of permitted microloan extensions during one year; this concerns individuals with short-term loans (the so-called ‘payday loans’) for up to 30 days. It will help reduce the likelihood of a situation when borrowers repay old loans with new ones, thereby increasing their debt burden.
Besides, the regulator believes that the base standard shall contain provisions designed to regulate the following aspects: advertisement of MFO services, procedure to handle applications and claims, and procedure for a SRO to control the compliance with the requirements of the base standard by its members (MFOs).
After being approved by the Committee on Standards at the Bank of Russia, this base standard, prepared by self-regulatory organisations, uniting MFOs, will become mandatory for all MFOs irrespective of their membership in specific SROs.
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