On activity of organisations offering ‘alternative household lending’

In order to protect the rights and legitimate interests of borrowers, the Bank of Russia gives notice of the activity of organisations offering services of so called ‘alternative household lending’.

Amid higher cost of consumer and mortgage loans and microfinance borrowings, in many regions of the Russian Federation non-financial organisations not entitled to carry out consumer lending increasingly offer various ‘alternative lending’ schemes to purchase vehicles, housing, land plots, consumer goods, etc. As a rule, interest rates offered under such schemes are considerably lower that those on bank loans and microfinance borrowings and requirements to borrowers are insignificant.

Citizens’ participation in such schemes are usually documented in the form of a ‘service agreement’ for a period of up to 15-year under which the citizen is provided with funds required to purchase the necessary property upon paying a one-time ‘registration fee’ in the amount of 5% to 20% of the value of the corresponding property and monthly payments aimed at redemption of the future debt. Meanwhile, the number of payments required to receive funds and the term of provision of funds to the citizen are not stipulated. The ‘registration fee’ and monthly payments are not subject to reimbursement even in case the contractual relations with the organisation are abrogated and/or it fails to meet its obligations.

The Bank of Russia notifies that organisations offering such services may mislead financial service consumers and advises citizen to be prudent and to refrain from participating in such schemes and concluding the related agreements.

In compliance with Russian legislation, entities entitled to issue loans to households are credit institutions, microfinance organisations, credit consumer cooperatives, agricultural credit consumer cooperatives, and pawnshops.

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30.03.2015 00.00.00