New rules on fees seek cost fairness
The Bank of Thailand is requiring financial institutions to adjust prepayment charges for small and medium-sized enterprise (SME) and personal loans and late-payment fees for SME, personal and mortgage loans based on actual costs, with immediate effect.
Replacement fees for ATM and debit cards and codes are also waived, but financial institutions are still allowed to charge such fees in the event of high costs if the fee is charged appropriately, said central bank governor Veerathai Santiprabhob.
The measures are aimed at establishing a fairer fee structure to better reflect actual costs, reducing affordability risk and alleviating consumer and SME financial burdens.
Under the new rules, prepayment charges for SME and personal loans are calculated based on the outstanding balance, rather than the loan amount as practised previously.
Financial institutions are also required to set a waiver period for the prepayment charges of the loans.
For example, a Mr Somchai has been approved personal loan with the amount of 500,000 baht and his outstanding balance is 300,000 baht, so his prepayment charge, under the new regulation, is based on 300,000 baht rather than 500,000 baht.
"Prepayment charges that are not too high allow people to pick operators offering the best [loan] deals, intensify competition in the market and trigger the refinancing market in Thailand," Mr Veerathai said.
For instance, car title borrowers are liable for an average 12% prepayment charge in the event that they pay off the debt in less than one year.
Mr Veerathai said high prepayment fees prevent good borrowers from refinancing their debt.
Late-payment fees for mortgage, SME and personal loans will be charged based on the principal component of the instalment due, he said. Lenders earlier charged such fees based on the outstanding balance.
The central bank is demanding that financial institutions set a grace period in the event that borrowers are unable to make payments on the due date because of a force majeure clause.
Providing details of the overdue amount, late-payment penalty and collection fee charge to debtors is required as well.
Furthermore, financial institutions must refund annual ATM and debit card fees on a pro rata basis in the event of cancellation, Mr Veerathai said.
In the next stage, the central bank will call on financial institutions to apply the rules on fee charges to other products and services.
The guiding principle is that fees must reflect actual costs and must not be a burden to service users. Financial institutions must avoid duplicate charges and clearly disclose fees.
The central bank will also provide the interest rates and fees of each lender for comparison to give borrowers decision-making information and to enhance competition.