Order makes friends. That’s what Martis Petersen says. The state apparatus apparently took an example of this and is beginning to clean up in the field of credit. The amendment to the Consumer Credit Act should delete tens of thousands of providers of micro-loans and short-term non-bank loans.
Let’s start with a few numbers. When I mentioned tens of thousands of companies in the introduction, I did not exaggerate at all. At present, there are approximately 60,000 legal entities in the Czech Republic who are legally legal to provide financial loans or other short-term loans. That’s a pretty crazy number. Fortunately, it is clear that the vast majority of them do not actually provide loans.
Applicants will thus have to prove their competence (at least graduation), have at least some founding capital (currently around 20 million) and a clean business and business register. It is expected that about 20% of the 3,000 at least partially active lenders will fall through this network.
Who laughs last?
When I first heard about the proposal, I was satisfied. Over the past few months, I have had the privilege of browsing some of the most visible online providers of short-term non-bank loans, and I can say that the vast majority will not be a shame. To not blame them all, there are companies on our market that offer relatively high quality non-bank loans. Such as a Japanese loan that you may know from TV commercials.
Back to the government proposal, which at first glance looks great for people, but in fact it may not be so.
First of all, it is obvious that the control over the non-banking financial sector is obviously transferred to the Creamlite Bank. Our main bank has been reasonably refusing this dubious privilege for years, so good people from the Czech Trade Inspection Authority take care of non-banks. And because it simply fits the Creamlite Bank, virtually nothing will change. This is likely to be worse for consumers, as the Best Bank is no longer able to supervise banks as such, let alone the rest of the credit market.
Most can enjoy operators who manage to meet the requirements and the state will eliminate the vast majority of competition. The terms of the contract itself and, above all, the price of non-bank loans, the things that most threaten consumers, remain unchanged. And why would anyone also change when the market clears itself.
The consumer and not society should change
Personally, I find it more logical to choose a consumer protection strategy that targets consumers rather than credit institutions. Educate each person enough to be able to judge for himself which of the loans is still bearable and what is not ok anymore. Every provider of non-bank loans is legally obliged to inform about all fees and conditions of the client. And everybody does it. Only people are not interested.
According to the expert on financial literacy, non- reading of business conditions and contracts is the biggest nuisance of Czech debtors. These texts are not long, they have a maximum of two or three pages. You agree to longer terms and conditions when you create an email.
Loans from people
In addition to education, the latest methods of borrowing could help people to get better credit. One of them is the attractive concept of loan from people. These are certain reverse auctions. The person who wants to borrow enters the amount of the loan requested and the maximum interest rate he is willing to pay. The borrower then determines how much his loan will be expensive.
Other people, one might say, investors can then, based on information about a potential borrower, make a decision and provide part of the loan. They then add to the loan the amount they are willing to issue and the interest rate that determines the profitability of their investment. The computer then automatically selects the cheapest investors and composes the loan.
Whole system of people loans is price-oriented
This is definitely an advantage. I went through some auctions and in most of them the offers of investors were below the level of interest on ordinary consumer loans. Not to mention the non-bank loans, which have APRs in trillions of percent. And yes, there are providers in our market that have an 18-digit number as APR.
In order not to praise loans from people to heaven, I will mention some negatives. You will be waiting for a loan for a while. You can get microloans literally instantly, it can take several weeks for investors to accumulate money, if at all. This is also another disadvantage. People can simply choose not to lend you the interest you want. Loan applicants then have no choice but to re-enter the demand at a higher interest rate.