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    New law on express loans to be less profitable for banks, more secure for consumers

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    The Russian Finance Ministry has developed a draft law introducing new regulations for express loans making the procedure less profitable for banks and more secure for consumers, a Russian respected business daily said.

    The Russian Finance Ministry has developed a draft law introducing new regulations for express loans making the procedure less profitable for banks and more secure for consumers, a Russian respected business daily said.

    The ministry published on its website a draft law it has been developing since 2004, Kommersant said. "The existing legislation and procedure for consumer credit... did not take into account the internationally accepted specific rights of the borrower," the ministry said.

    If the law is adopted, banks will have to meet a list of new requirements in procedures to issue loans, including notifying borrowers of overdue debts no later than one week after its occurrence and strictly through a registered letter.

    "One letter with a notification costs some 30 rubles ($1), and if a market average delay is 10%, while a bank has some 5 million customers, costs of mail would be $ 500,000 per month, this is an incredible amount," a member of Renaissance Credit bank management Sergei Korolyov said.

    However, the head of the International Confederation of Consumer Societies, Dmitry Yanin said some banks are intentionally not notifying borrowers for a long time so the size of the debt plus penalties and interest continue to grow.

    Text notifications by phone or e-mail are not an option as the bank cannot prove that notice in court.

    The draft bill also bans sending credit cards if it cannot be "unequivocally established that it [the card] was received by the borrower personally or by his legal representative."

    "And this seems logical since one cannot determine whether the borrower received his card or not, some banks are starting to charge a fee for this, and an outstanding debt occurs without the knowledge of the potential beneficiary," a deputy chairman of Absolut Bank Emil Yusupov said.

    Another restriction stipulated by the bill concerns insurance. Banks working with unsecured loans are required to exclude insurance from its agreements. "With mortgage and auto loans, insurance contracts are issued as separate documents, and with consumer loans, usually, this condition is included in the consumer credit contract, but in fact this is a fake insurance as the payment for insurance cases for such loans tends to be zero, so fees for insurance are an additional income source for banks," Yusupov said.

    The level of rates and risks in the consumer finance sector will be largely determined by the degree of elaborating the legislation, which for several years proved controversial, leading to the delay in adopting the bill for more than six years.

    MOSCOW, November 11 (RIA Novosti) 

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