Poland - Fees and charges in shadow banking - report of UOKiK
Charges for: collection of the instalment payments at the borrower’s house, preparation of the loan agreement, extension of the repayment period, investigation activities - these are the examples for charges collected by shadow banking institutions. The Office has examined the charges applied by 30 entrepreneurs. Practices used by all of the controlled entities raised concerns.
In the period from January to May 2013, the President of UOKiK analysed the charges, fees and other costs provided for in the loan agreements concluded by shadow banking institutions. 30 selected entrepreneurs , 73 agreement templates and 300 actually concluded agreements were analysed. UOKiK controlled the costs which are charged to consumers by shadow banking institutions, and checked whether the lenders reliably inform about the charges, and whether such charges are indicated in the agreement. The entrepreneurs were selected due to the highest number of agreements concluded by them in 2012 and the value of granted loans, and some of them were selected at random. Practices applied by all of the controlled entities raised concerns. This is another report on shadow banking institutions drafted by UOKiK.
The issues which were the most frequently questioned by the President of UOKiK include: providing unreliable data in the information forms (15 entrepreneurs), providing incorrect information on Annual Percentage Rate (15), charging fees for the service at the borrower’s house which do not correspond to the actually performed activities (12). The analysis of the UOKiK indicates that the costs of offered loans are often very high - in addition to the interest rate which does not exceed the statutory limit, i.e. four times the NBP Lombard Loan rate , charges or fees are collected for the receipt of instalment payments at the borrower’s house. Reliable information on the costs is crucial to the consumer because there are no limits to the fees charged in connection with the granted loan.
Unfair charges
The situation in which the costs are inadequate to the activities actually taken by the loan company raises UOKiK’s doubts. As shown in the analysis of UOKiK, 12 shadow banking institutions charge fees for the collection of the instalment payments at the client’s house. Such fees are determined as a percentage of the loan amount, and thus they do not correspond to the actually undertaken activities. For example, a consumer who borrows PLN 500 from a shadow banking institution for 57 weeks will have to pay PLN 417.24 for the service of the loan at his house. While borrowing PLN 2700, it would be PLN 2252.64. The proceedings were initiated in the case of all of these 12 entrepreneurs.
In addition, the UOKiK’s objections were raised as to unreasonably excessive charges, e.g. the penalty for providing false information amounts to four times of the granted loan, and the charge for the investigation activities related to identification of the address outside the town/city where the borrower resided so far - PLN 1000. The President of UOKiK does not question the possibility of imposing such sanctions, but they cannot be set at any level and should not be a source of additional income for the entrepreneur. President of the Office will file applications to the court for recognition of these provisions as abusive.
False information about the level of APR
The annual percentage rate (APR) is the official, required by law, calculation for the consumer, enabling to compare the costs of loans offered by different financial institutions. It must include not only the interest on borrowed money, but also other costs related to the loan - such as the fee for the receipt of instalment payments at the borrower’s house and insurance. Reliable information on APR is significant to the consumer because it allows to compare offers of different entrepreneurs.
The failure to take into account the costs of the loan service at the borrower’s house in the APR calculation was the most frequent problem (8 shadow banking institutions). For example, for a loan in the amount of PLN 800, the entrepreneur declared APR at the level of 34.91 per cent. However - according to the estimations made by UOKiK - it was 310.65 per cent. Most of these irregularities were found in loans repayable in weekly instalments, and least of them were found in payday loans (loans provided for 15-30 days) and repayable in monthly instalments. In the case of eight entrepreneurs, the proceedings concerning the infringement of collective consumer interests were initiated.
Information forms
All entrepreneurs violate the provisions on the information forms. Under the law, prior to the conclusion of the loan agreement, each consumer must obtain - on a special form - the information on, among others, all costs related to the loan, interest rate, APR, and repayment period. The UOKiK determined, among others, that shadow banking institutions (5) did not provide their customers with such forms, did not provide information on other costs of the loan (12), and did not provide information on the costs on the service of the loan at the borrower’s house (6).
In the case of all of the entrepreneurs violating this obligation, the proceedings concerning the infringement of collective consumer interests were initiated.
Other infringements
Additionally, the UOKiK’s control has shown that in the case of two shadow banking institutions - the consumers cannot be sure that they will receive the money, even after signing the agreement and paying high charges. This is because the agreements require customers to establish high collateral security after the conclusion of the agreement. The consumer cannot meet this demand, therefore, these two shadow banking institutions retain the charges. UOKiK’s data shows that the retaining of charges, and not just providing loans, is the actual source of income. In the case of these entrepreneurs, the proceedings were initiated on the infringement of collective interests of consumers.
Activities performed by UOKiK
In the case of all 30 shadow banking institutions which were controlled by UOKiK, the proceedings concerning the infringement of collective consumer interests were initiated. The President of UOKiK may impose a maximum fine in the amount up to 10 per cent of the last year’s income of the entrepreneur, and may also order the entrepreneur to change its practice. In addition, the President of UOKiK plans to file 12 applications to the court for recognition of the relevant clauses as abusive.
Assistance for consumers
In the case of any problems with repayment of the financial liability, in the first place the consumer should get in contact with the financial institution. If the lender applies the provisions which are contrary to the law, the consumer can seek assistance from the municipal and poviat consumer ombudsmen, or the consumer helpline at 0 800 007 707. Free-of-charge assistance of experts is also provided at the Association of Polish Consumers and in the branches of the Consumer Federation. More information about financial services is available on the website of the UOKiK in the questions and answers section.