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Opinion / Editorial

Borrowers breathe

Borrowers breathe

In the process of mandatory collection of consumer loans, the ordeal of bad borrowers (creditors) facing stratospheric fines from commercial banks and bailiffs is expected to end very soon. The Bank of Albania has proposed setting a regulatory limit on the amount of fines and interest arrears that lending institutions (banks) may impose on non-performing borrowers. This measure is coming in time, why, due to the extraordinary economic difficulties from the pandemic, many citizens and entrepreneurs find it impossible to repay the loan installments on time. It is about 20 thousand loans at the level of about 2 billion euros as a total amount in the market. Of course, only a small portion of these loans are non-performing. Pra, there are citizens and entrepreneurs who can have several months without repaying the installments. There are hundreds of such loans. And in these difficult months for our society and economy, the number of non-performing loans will increase. According to the regulatory changes proposed by our central bank, the penalties and interest on arrears for bad loans can not be more than 30 percent of the total liability of the creditor. So, if I have taken a consumer loan (I bought a new car) at the level of 15 million old lekë and, with unpaid installments and interest I have the obligation of 10 million old unpaid on time, the bank can not to fine me with fines and interest on arrears more than three million old lekë. What has happened so far is that in many cases this limit has been exceeded, from the severity of the commercial bank to the client (borrower) in difficulty. There have been cases when after six months of non-payment of the obligation, the client owed the bank twice the obligation! This burden of unlimited penalties (fines, late interest), precisely in these cases has become an economically devastating obligation for small borrowers. It is these who today are most in trouble from the pandemic. From small businesses to ordinary citizens. Given that the penalties provided in the loan agreements are very high and yet, there are many citizens and small entrepreneurs who take into account the need for cash at certain times, when they are not able to repay the obligations. grow vertigo. Prolonged time (sometimes even years) processes of legal collection of liabilities, through bailiff offices, often make these liabilities reach unaffordable amounts, denaturing the right of the commercial bank to claim back the borrowed money. For example, for a consumer loan (for the purchase of household furniture, a car, vacations and visits abroad, etc.) worth 5 million old lek and its non-repayment for one year, 15 million can not be requested from the bank old money! Alongside banks are other lending institutions (called credit institutions), almost banks, which have recently increased in number and activity, but which have much higher fines for non-repayment on time, sometimes even more often. higher than the banks themselves! Prohibiting the extension of their fines to citizens-clients who are usually very poor people (unemployed, low-income citizens who can not get money from banks, due to the guarantees required of them) is a necessity. These credit institutions turn into real caterpillars, when citizens can not repay the loan taken on time and can not even afford the interest rates they have many times higher than the banks themselves. For example, when you get a loan with a very short repayment period, only three months, with payment in three monthly installments, the interest is 27 percent. More 500 thousand old lekë. You have to return 635 thousand ALL in three months. Or more than double the loan for one year! And if you do not return these 635 thousand old lekë in three months, stratospheric fines begin. Such cases have become the subject of denunciations in investigative media shows. High penalties, which inflate obligations beyond any reasonable limits, are really a violation of the rights of borrowers, protected by the Constitution. Our central bank is doing very well to intervene and in a timely manner to put an end to abuses. Immoral business practices can no longer be tolerated by bad debt collectors. With the outbreak of the pandemic and the rise of bad credit, the potential for abuse of austerity against troubled borrowers increases. The regulation of the Bank of Albania on setting a limit on the amount of fines and interest on late loans will improve the legal framework for the collection of bad loans. The sale of non-performing loans to specialized companies for their collection in some cases has made a significant contribution to clearing bank portfolios and reducing the non-performing loan ratio. But, on the other hand, the increase in bad loans also pointed out the other side of the coin, the fact that, in special cases, the legal and regulatory framework did not guarantee some limits to the protection of borrowers' rights. Hence this move to be welcomed, by the central bank.