FAS looks to straighten up bank loan advertising

The Federal Anti-Monopoly Service has developed a clear position on the advertising of banking products and services, with disclosure of total loan costs being discussed during an international banking forum in Sochi.

Julia Bondareva, Head of financial markets control at the FAS, says the new laws, when approved by the government, will force banks to make clear the total cost of loans, including interest rates and fees.

“The amendments to the Law on Advertising will oblige the banks to specify the real cost of a loan along with its interest rate and other additional payments in an equal type size. We have prepared and coordinated the document with all concerned authorities and forwarded it to the government”

The struggle for transparency in the cost of bank loans has been led for many consecutive years by the official regulators, including FAS. The Central Bank recommended banks disclose the effective interest rate on consumer loans early in July 2007. Later in 2008, the Central Bank obliged the banks to disclose the full cost of consumer loans, indicating it as a percentage per annum.

Bondareva noted that the current law left an opportunity for banks to keep real costs veiled from customers, by making it hard to distinguish the characteristics of a product or service.

“The last approved amendments to the law required banks to mention all the conditions for loans including time, size, interest rate, the commission, but not the full cost of a loan which gives a clear and comprehensive information on every product or service of a bank. This in turn, causes a lack of competition.”

Bondareva added that, to improve information clarity of banking product advertising, the FAS has pushed the idea to establish a standard model of consumer credit contract. She stressed that all banks would have to specify the total credit or loan cost within a certain page, using an standard type size according to a standard document.

"It is a painstaking work for a customer to distinguish whether one bank gives better conditions and services by trying to compare both contracts assuming that nowadays, banks follow their own standards of contract. Most of them still avoid showing the real interest rate and commission. “

Deputy President of the HCF-Bank, Vladimir Gasyak, says the recent proposals and reforms provide banks with a good opportunity to strengthen their position and further their reputation. He says Banks are still confident about attracting new clients.

"There are many innovative communication channels which provide a client and a bank with a variety of choices in reaching the right information and obtaining better conditions. Although advertising is increasing demand, it cannot cover all the required information and competition factors.”

Alexei Levchenko Board Chairman at Renaissance Credit says the new legal amendments will bring about a degree of certainty after a long period of discussion in the industry.

“The Russian financial market had a long way to reach the agreement on additional commission charges. The recent actions by the official regulators will bring that issue forward and are not planned to keep the decision making long”