ArmInfo. At the end of 2017 at the meeting of the Armenian parliament in the first reading amendments were made to the RA Civil Code concerning restriction of the rights of commercial banks and credit organizations of Armenia in the accrual of fines and penalties. To learn more about the specifics and consequences that these changes can bring with them, ArmInfo talks to the Financial Ombudsman of Armenia, Mrs. Piruz Sargsyan.
The Parliament recently approved a draft amendment to the RA Civil Code concerning the restriction of commercial banks and credit companies in the rights to impose fines and penalties. In this regard, it would be interesting to know how many complaints are received by the FinOmbudsman office from borrowers (banks and credit companies) regarding the excesses of assessed fines and overdue notification of delinquency?
First of all, I would like to note that these amendments were adopted on December 14, 2017. Entered into force on January 8 this year and apply to credit agreements that were concluded, respectively, after the amendments entered into force. According to Article 372 of the RA Civil Code, the established maximum penalty rate for fines can not exceed 4 times the maximum rate set by the regulator for banks. At the same time, the accrued penalties and pennies for the customer's debts cannot exceed the double size of the principal amount of the loan, irrespective of the time of the delay.
As for complaints from borrowers regarding the amount of assessed fines, if we consider the overall statistics of our applications, then this figure is not large. Nevertheless, there are cases that cause fear, and in connection with this, the adoption of these amendments in RA legislation was necessary. Changes, I regard, only from a positive point of view.
Then how relevant was the adoption of the law?
The urgency of this law is primarily that if earlier, according to the 372nd article of the RA Civil Code, the amount of accrued penalties and pennies could be reduced only by a court decision, and basically in cases when the party itself filed an appropriate claim. With the entry into force of the Act in certain cases, if the amount of fines obviously does not correspond to the consequences of violations other than the court, the Financial System Mediator also receives the authority to reduce the amount of penalties and pennies. At the moment, very often the total amount of loans with accrued fines and pennies is several times higher than the income of consumers, and then the exit from the debt hole becomes almost impossible. As a consequence, this situation negatively affects both the consumer and the lender, and the financial market as a whole. I believe that these problems will be resolved through new amendments, and the burden of consumers will be facilitated, which, of course, will positively affect the financial market. In particular, if we consider international trends in the development of the financial sector, we will see that in many countries the issue of lending to natural persons is settled in this way. In particular, in the region. In Russia and Kazakhstan, these changes were made quite a long time ago. In addition, recently we held a forum, to which the representatives of the financial structures from countries where the sphere was sufficiently settled were invited. We had guests from South Africa, Australia, who shared their experience in the matter of consumer protection, in particular in terms of reducing the credit burden. Based on the experience of colleagues, I can say that the problems relating to the accrual of fines and penalties will be settled thanks to this bill.
And how can these changes affect the performance of financial institutions?
We do not have such statistical data on financial organizations and their indicators, therefore, we can not make any conclusions and forecasts. Perhaps in the beginning there will be some difficulties, but I believe that the financial organizations are quickly adapting to the changes that, as a result, will benefit them and the financial market as a whole. As the number of outstanding loans and non-creditworthy consumers will decrease.
Is there a risk that due to the entry into force of the Law, the share of overdue loans in the banks of Armenia will increase? Does this Law carry such risks?
I believe that these amendments do not carry risks in themselves, since on the one hand the creditor has the right to demand from the borrower an amount equal to the double amount of the principal amount of debt for the current moment, and on the other hand, consumers can make more rational decisions, in particular, correctly calculate your income and assess the possible maximum losses before you go to lending.
The amendments to the Civil Code will oblige the lender to notify the borrower on time, because otherwise no fines and penalties can be applied against the borrower. Moreover, banks and credit companies often wait for several months, and even a year before declaring a debt. To prevent this from happening, a maximum period of 3 months is set, after which banks will not have the right to charge fines and penalties.