The average market value of the total cost of a consumer loan by the Central Bank of the Russian Federation is a necessary measure of regulating bank interest on loans among credit organizations. The purpose of the innovation is to reduce the burden on borrowers by requiring banks to adhere to restrictions. Despite the fact that such a measure has existed for several years, many know little what it is, why it is needed, and what are the consequences of its application.
What is
The average market value of the total cost of a consumer loan is the sum of all payments of the debtor over the duration of the loan. This value includes, in addition to the amount of debt and its value, expenses for paperwork, commissions, expenses for deposit insurance.
The main task that the Central Bank solves in this way is to prevent the enslavement of individuals by various credit organizations, which, given the low financial literacy of the population and the imperfection of competition in the consumer credit market, was possible.
How to calculate
The Central Bank uses data from about a hundred banks as a basis for calculating the average market value of the total cost of a consumer loan. However, each type of credit institution has its own values. The calculation also takes into account the purposes for which the loan is issued.
So, for the purchase of cars (car loan), one value is set, for the purchase on credit of consumer electronics - another. The calculation takes into account the size of the loan and the period for which it is issued, as well as how often payments will occur. For its part, the borrower is able to carry out the calculation independently, using the following formula:
CPM = loan amount + expenses for registration, insurance + overpayment on a loan.
If the borrower made the calculation, and it turned out that the bank or some other organization in which he took the loan exceeded the limit indicated on the Central Bank website by more than a third, he is entitled to apply either to the bank or to the court with a request to review the terms of the loan agreement . All financial institutions are required to adhere to the average market value of the total cost of a Bank of Russia loan if they want to keep the license and continue to work.
Where to find out
The size of the accepted value can be found in periodicals (Rossiyskaya Gazeta, Kommersant) and on the Bank's website. They are also published on the resources of commercial banks, but such information can be in doubt, given the fact that these financial institutions often profit from the financial illiteracy of borrowers.
The site contains regulatory values for each type of credit institution. Recalculation of the rate occurs quarterly. This means that the Central Bank of Russia publishes data on the size of the maximum allowable value on its website every four months.
The reasons for such tight control
The need to tightly regulate the average market value of the total cost of the loan arose due to abuse in the field of lending. The imposition by banks of hidden premiums, commissions, insurance and other payments to borrowers leads to an increase in the cost of the loan.
In the face of declining purchasing power, such factors lead to an increased risk of delay by the borrower. The growth of unpaid payments is one of the main threats to the stability of the banking system. The Bank of Russia had to limit the “appetites” of credit institutions with such tough regulatory measures.
The most severe restrictions had to be imposed on microfinance organizations. For the Russian financial market, this type of lending institution is quite new, therefore, special attention to them from the Central Bank. And although the average market value of the total cost of a loan from the Central Bank of the Russian Federation for this type of loan service is higher than for other similar organizations, they are subject to additional restrictions not only regarding the size of the interest, but also the amount of overpayments for the year, based on the size of the loan.
Features of legal regulation
The main regulatory legal document is the Law on Consumer Credit. In accordance with the text of the law, this parameter should be calculated quarterly for each type of credit institution.
The results are published on the official website or "Vestnik". In turn, commercial credit institutions are required to adhere to the standards specified in the document. According to this law, banks do not have the right to exceed the average market value of the total cost of a consumer loan by the Central Bank by more than 1/3 of the amount indicated on the Central Bank website. That is, if the value is set to 30%, then the maximum percentage deviation is not more than 10%. They include the borrower's expenses for insurance, commissions and other related payments. The law applies to all types of credit organizations. Each of them has its own percentage corridor.
What does this mean for the borrower
For the borrower, this also means that he can count on the fact that the total amount of the loan taken by him, even if there is a delay, will not exceed a certain amount established by the Central Bank. He can be sure that the bank will not have the right to impose services on it, the amount of which, together with the main debt, will exceed the average market value of the total cost of a consumer loan from the Central Bank. However, this also means that banks are more likely to tighten requirements for borrowers, which may lead to the fact that a debtor who has several loans and wants to take another one will be refused.