Auto securities lending companies face new rules
Central bank expects amended regulations to take effect next month
The Bank of Thailand expects the amended regulations governing auto securities lending, including a cap on interest rates and practical guidelines for operators, to take effect next month.
The amended auto title lending project, which aims to better protect consumers, is expected to be published in the Royal Gazette later this month before implementation in February, said Wajeetip Pongpech, deputy governor of the financial institutions policy group.
The project is currently the subject of a public hearing.
Depending on the project, all auto title lenders are to be operated through picofinance or personal loan licenses, which will determine industry operations, interest rates, and loan amount.
Those operating under picofinance licenses will be overseen by the tax policy office of the Ministry of Finance, and they may run businesses in specific provinces. To qualify for a license, they must have registered capital of at least 5 million baht and they are limited to loans of up to 50,000 baht per borrower. Lenders can charge a maximum rate of 36%.
Those with personal loan licenses will be governed by the Bank of Thailand. They can operate in any province, but they must have a minimum share capital of 50 million baht and are prohibited from charging more than 28% interest.
There is no maximum loan amount requirement for borrowers applying for auto title loans from central bank regulated operators. It will depend on their debt service capacity.
Existing auto title lenders who apply for a personal loan license but whose share capital is below the minimum central bank request must meet the requirement within one year of the law coming into force. .
There are more than 1,000 auto title lenders in the country, Ms. Wajeetip said, and 70 of them have applied for permission from the central bank to operate their business under a personal loan license.
The central bank will spend 120 days to review the process.
Ms Wajeetip said auto securities lending operators do not have the right to charge prepayment charges and must pay borrowers the difference in cases where foreclosed cars can be sold at a higher price than the deficit balance.
“The regulations will create more fairness for consumers in terms of the prices charged and information,” she said. “It should also better protect consumers, especially those at the bottom of the economic ladder.”
One of the goals is to counter loan sharks, she said.
Somkiat Jaturabundit, president of the Pico-Finance Thailand association, said more than 900 members, including 200 car-for-cash lenders, attended yesterday’s public hearing.
“Some of our members want to apply for personal loan licenses to expand their scope or area,” he said. “Several operators have potential in terms of capital and upgrade capacity to operate under personal loan licenses.”
But Mr Somkiat said the maximum credit line for picofinance licensees of 50,000 baht per borrower is too low to solve the problem of loan sharks. He suggested doubling it to 100,000 baht.