On April 1, 2021, the new rule on customer protection has come into force, protecting the rights of natural persons and legal entities with financial institutions. We would like to introduce you to the ten most essential amendments within the above-mentioned rule:
The rights of the banks to terminate the term deposit for repayment of the loan amount have been restricted. The banks are not authorized to terminate the term deposit placed in the respective bank to repay the loan amount unless the term deposit is used as the collateral of the loan and the pledge is registered in the public registry.
The maximum amount of the fee for prepayment or refinancing the loan has been reduced. The new rule determines the maximum amounts of the fees for prepayment or refinancing the loan in respect to the types of interest rates of the loans (for example, fixed, indexed, variable). For instance, in the case of the variable interest rate loan, the fee for prepayment or refinancing the loan shall not exceed 1% of the remaining loan amount and in the case of the indexed interest rate loan (example, refinance rate, LIBOR, or other public indexes) shall not exceed 0,5 % of the remaining loan amount. Before the changes, the maximum amount of the fee in the case of variable interest rate loan or indexed interest rate loan was 2% of the remaining loan amount.
The borrower is authorized to choose the sequence of the loan payments. If you have multiple loans in the same bank and the loan payment date is the same, you are authorized to choose which loan shall be paid by the amounts placed on your account at the moment of the payment (the agreement beforehand is prohibited).
The borrower is authorized to choose the priority of the conversion while paying the loan. If the amounts placed on your account are in different currencies, you can select the priority currency of the payment. For example, if the loan is in USD and the amounts placed on your account are in USD and Georgian lari, the bank is not entitled to convert the amounts placed in Georgian lari and the prior currency for loan payment shall be USD.
The banks are obliged to offer the borrower multiple insurance companies for health and property insurance. According to the previous regulations, the banks were entitled to determine the health and property insurance company in respect to the loan at its own discretion. Under the new rule, the banks are obliged to offer the borrower minimum of 3 (three) different insurance companies. Besides, the borrowers are entitled to present the insurance policy issued by the preferred insurance company and the bank is not authorized to refuse acceptance of the insurance policy without justification. The main purpose of this change is to give flexibility to the customers while choosing the insurance company.
The bank is obliged to inform the actual grounds for refusing the loan disbursement. Under the new rule, the bank is obliged to explain the reason for not disbursement of the loan if such refusal is based on the info registered in Creditinfo.
The notification period for unilateral change of the contract terms by the bank has been increased to 2 (two) months. If the bank decides to change the contract’s essential terms unilaterally, the bank is obliged to notify about the changes at least 2 (two) months in advance. According to the previous regulation, the notification period was one month. Besides, the notification shall be sent not only to the borrower but also to the guarantor and collateral owner.
The bank is obliged to explain the risk regarding the general agreement. The new rule defines the definition of the general agreement, and according to the new rule, banks are obliged to explain the risks arising out of the general agreement. The loans and other bank products are issued under the framework document defined as the general agreement. If you are the guarantor under the general agreement or the collateral owner of such agreement, the bank is obliged to inform you that multiple loans can be disbursed within the general agreement without your consent and your liability will be extended to such loans too. Besides, if the new loan is disbursed within the general agreement, the bank is obliged to inform the guarantor and the owner of the collateral in 5 (five) business days after the disbursement. Under the previous regulation, the obligation to notify did not exist.
The banks are obliged to inform the guarantor and the collateral owner about the changes to the respective loans. If you are the guarantor or the collateral owner within the third-party loan, the bank is obliged to inform you about the changes made to the loan agreement 5 (five) business days in advance.
The banks are obliged to notify about the overdue. According to the new rule, if you are a guarantor or the owner of the collateral within the third-party loan and overdue arises under the respective loan, the bank is obliged to inform about overdue immediately but not later than 5 (five) business days after overdue. This change allows the guarantor or the collateral owner to protect their rights properly and in time while the unpaid payment.
The new rule on Customer Protection comes into force from April 1, 2021. Full consolidated version of the rule can be found here.