Moscow (RIA Novosti economic commentator Nina Kulikova).
In late May, Russia's Federal Anti-Monopoly Service (FAS) and the Central Bank issued joint recommendations for credit institutions on standards of information disclosure when extending consumer loans. In other words, what the lenders have to tell Joe public.
Today, it is not uncommon that the interest rates announced by banks, to put it mildly, have little relation to reality. This is not because the banks seek to deliberately deceive people, though it may seem like that to some unsuspecting clients. For instance, when a contract is signed, a client is rarely told that in addition to interest payments the full cost of his or her loan includes extra expenses, such as the cost of opening and maintenance of an account, a loan fee, an arrangement fee and others.
When applying for a loan, an inexperienced borrower is more likely to concentrate on the interest rate the bank promises, often ignoring additional expenses, considering them small and so makes a mistake. A survey conducted by the Confederation of Consumer Societies showed that the full cost of a loan was often 100-150% higher than the publicized interest rate.
This practice could be seen as a particularly subtle form of fraud, but the FAS has taken a different approach, accusing the banks practicing schemes like this of gaining uncompetitive advantages. And these advantages are considerable. According to Andrei Kashevarov, the deputy director of the FAS, the interest rate publicized by the Russky Standart Bank, was 29% a year until recently, whereas in fact the full credit cost came to 66%. Home Credit and Finance Bank offered 21% and 50%, respectively. The FAS said that regional banks in the Murmansk and Astrakhan regions, where no Moscow credit institution had an office, offered almost accurate rates, with a difference of 2-3% between the announced and real rates. However, Kashevarov says that regional practice may change for the worse if Moscow banks came to work in the regions.
However, it should be mentioned that credit institutions have no common credit history databases on their clients and appear to be making up for their risks incurred when working with dubious borrowers at the expense of all their clients.
All these problems are becoming increasingly topical, as retail services are dynamically developing in the financial sector, and consumer lending is leading the way. Over 500 billion rubles ($17.8 billion, or �14.2 billion) worth of credits had been given to the population by late 2004. Although only 2% of the population uses this service, the volume of consumer lending has jumped by 400% in the last three years.
It is possible that the financial authorities' new recommendations on the disclosure of lending information will improve the situation and boost growth in this economic sector. The document drawn up by the FAS and the Central Bank states that before concluding a contract banks should inform their clients of all the expenses they may incur. This information should be provided in uniform charts, so that the consumer could compare the terms of different banks and make a reasonable choice.
Although no sanctions are envisaged for non-compliance with these recommendations, banks that care about their image are certain to follow the new rules. Otherwise, their clients may change to banks that provide complete information. The new standards might be made mandatory if included in the new law on consumer lending.