September 16, 2014 was a significant date for the Personal Finance market in Saudi Arabia. This date was the cut off on which the new Consumer Finance Regulations were launched for all financial institutions in the Kingdom. These regulations covered various aspects however placed special emphasis on costumers and their rights. Any and all financial institutions, who provide the personal finance product are required to abide by these.
The regulations covered aspects on rules for lending, methods of calculation of profit, Changes to Early Settlement/closure calculations, eligibility criteria for top ups, Partial payments, transparency by sharing information with customers for reasons of rejections, a redesign of documents given to customers by banks, periods of cancellations, customer’s rights of appealing to changes in Terms and Conditions and Statements of financing accounts. Each of these will be discussed in detail below in order to give you, the customer, a better understanding of each:
1. Rules for borrowing:
a. As per the new regulations, customers can repay 33% of their monthly income towards their Personal Finance and Credit Card Debt. Previously this included Auto lease payments as well. This change helps increase the customer’s borrowing appetite.
2. Methods of calculation of profit:
a. All banks are now required to calculate their profit on a declining balance basis. Banks are also required to display only the APR (Annual Profit Rate) on their advertisements, helping customers get a better understanding of how much they would owe at the end of their tenor.
3. Changes to Early Settlement/closure calculations:
a. All customers who have availed personal finance post sept 16, 2014 can only be charged the three future profit components along with a small third party cost (calculation of this is as per internal policy) and the principal balance to those customers who wish to terminate/close their financing before the agreed date.
b. Customers may at any point of time during their tenor request for early settlement.
4. Partial Payments:
a. Customers may choose to pay multiple instalments in one go, in order to reduce their tenors. The only requirement is that these payments must be multiples of instalments (e.g. instalment amount – SAR 5000, payment can only be multiples of this).
5. Eligibility Criteria for top ups
a. Top up financing (refinancing) can only be availed once a customer has paid back 20% of their borrowed amount. This criteria has been put in place in order to reduce safeguard financial wellbeing of customers who may fall into a large debt.
6. Transparency by sharing information with customers for reasons of rejections
a. Customers will need to be notified of the reasons for which their applications for personal finance have been rejected.
7. Redesign of documents given to customers by banks
a. Banks will now be required to give to customers a Summary sheet, outlining all relevant financial information, consolidated in one simple document. This will cover Borrowed amount, instalment amount, profit rate, total profit to be paid back and management/administration fees which will be charged.
8. Periods of cancellations:
a. Customers now have a chance to cancel their personal finance even after it has been transferred to their personal account.
b. The two requirements are
i. This has to be done with 10 days of the signing of the contract
ii. The customer must not make use of part/complete funds (the customer cannot make any transactions using the finance amount).
9. Customer’s rights of appealing to changes in Terms and Conditions
a. Customers will need to be notified at least 60 days prior to any changes which are taking place to the terms and conditions of their contracts
b. If the customer does not agree with/is unhappy with the changes, they can request to terminate their agreement with the bank and they will not be charged any extra penalties for doing so.
10. Statements of financing accounts
a. Customers must now receive a Quarterly statement of account for their Financing account. This should include information of their product, the transactions which occurred on the account during the period, the total profit/principal amounts charged and to the customer during the period.
The new regulations were issued in order to safeguard consumers and to ensure a greater level of transparency from financial institutions. If you are planning on applying for a personal finance, or have an existing financing, you can get further details by contacting the call centers or by speaking to customer service representatives.