In more detail
Background
The Notification requires the Service Providers to offer lending products responsibly and ethically throughout the debt cycle and enhances compliance with the existing guidelines and regulations to be more comprehensive and clearer. Financial service providers must comply with this Notification in addition to the existing BOT regulations, such as the Market Conduct Regulations.
The Notification specifies requirements from before customers create new debt, requirements in relation to handling and operating existing debt with quality and care, requirements on handling bad debt, up until litigation and transfer of debt sales. This includes promoting the provision of information to influence customer behavior throughout the debt cycle. This is in order to promote good credit culture and financial discipline to customers, which will be an important part in solving the household debt problem sustainably.
Debt cycle:
Overview of the regulations
The Notification sets out the eight principles that the Service Providers must comply with throughout the loan debt cycle, as illustrated below. The attachments to this Notification also provide a list of "Do's" and "Don'ts", examples, and guidelines for the Service Providers under each principle.
| Principle |
Key summary |
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1. Development of loan products
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- Service Providers must offer loan products that are appropriate to the customers' needs and abilities in repaying debt, and which do not encourage excessive debt.
- Service Providers should set the credit interest rates based on a risk-based pricing basis (to be in line with the risks of the customer or customer group and credit characteristics) and should prescribe fair contract conditions.
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2. Advertising
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- Service Providers must create and control the content of advertisements to be accurate, clear, complete and provide conditions of the interest rate and fees.
- The advertisement should not stimulate customers to have excessive debts. Customers must receive and understand the necessary information that is sufficient for the customers to make adequate decisions and promote financial discipline.
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3. Sale process
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- Service Providers must ensure that customers receive all important information, without exaggeration and distortion, which must be sufficient for making decisions with a correct understanding.
- The customer should be offered products that are consistent with the objectives or needs of customers' money usage and not be encouraged to take on excessive debt.
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4. Affordability
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- Service Providers must assess the customer's affordability by taking into account all the existing debts, and the customer's residual income, which should cover the customers' living costs, on a best effort basis.
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5. Promoting financial discipline and financial management during the debt period
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- Service Providers must provide important information and warnings that the customers should be aware of, including by creating tools to influence customer behavior (nudge) to promote better financial discipline and responsible borrowing.
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6. Assisting the debtor who has Persistent Debt (PD)
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- Service Providers must provide customers with important information to understand the disadvantages of being in persistent debt and have in place guidelines to help the debtors completely repay the debt appropriately.
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7. Assisting the debtor who is facing the debt repayment issues
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- Service Providers must propose debt restructuring guidelines that are consistent with the customer's ability to repay debt quickly. The assistance is expected to be in place throughout the debt cycle stages.
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8. Legal action and transfer of debtors to other creditors
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- Service Providers must inform debtors of their rights and provide important information when legal action is taken, or when the debtor makes inquiries, and should offer the debtor an opportunity to mediate debt problems following the transfer and sale of the debt.
- The debtor must receive appropriate installment payment conditions.
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Scope of applicability
The applicability of the principles and guidelines under this Notification varies depending on the type of loan products that are being offered. Please see the table below.
| Type of service provider |
Type of products |
| Retail lending |
Small to Medium Enterprises (SME) lending |
Other types of lending |
| Financial institutions and companies in a financial business group |
Must fully comply with all principles |
Must comply with principles 7 and 8 above.
*Encouraged to comply with the other principles as appropriate
|
Encouraged to comply as appropriate |
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Non-bank service providers:
- Credit cards
- Personal loan under supervision
- Vehicle registration loan with title
- Digital Personal loan under supervision
- Nano finance under supervision
|
Same as above |
Same as above |
Encouraged to comply as appropriate |
| Asset management companies |
Must comply with certain principles (e.g., principles in 7 regarding debt collection and 8 above)
*Encouraged to comply with the other principles as appropriate
|
Encouraged to comply as appropriate |
The Service Providers offering lending products must implement the guidelines under the Notification to its loan products in addition to the other on-going regulations, such as the BOT's market conduct regulations and the BOT notification regarding interests, fees, and fines.
There are further details to the requirements mentioned above, including the timeline to comply with certain requirements (e.g., Persistent Debt).
For more information, please feel free to contact our team at Baker McKenzie.
1 The "Service Providers" under this Notification refers to the offeror, recommender, seller, factor, and transferee of a lending product.
