|Vu Le Bang||Nguyen Thi Thanh Tram|
On January 1 2017 law no 91/2014/QH13 dated November 24 2015 (Civil Code) took effect, and deemed that the lending interest rate applicable to a loan is the one agreed upon by the parties involved. The agreed lending interest rate, however, must not exceed the cap of 20% per annum. If interest is agreed to be paid without a specific lending rate and the lending rate is disputed by the parties, the rate will be deemed to be equal to 50% of the cap on the lending rate (20%) at the time of repayment (article 468.2 of the Civil Code).
In recent years, the applicable bank lending rates of commercial banks have fallen between 7.8% and 9.5% per annum, and at its highest the rate has not exceeded 13.5% per annum. Meanwhile, the lending rates for consumer loans of finance companies have been quite high, between 25% and 40% and even up to 60% per annum, which is much higher than the cap on the lending rate under the Civil Code. The consumer lending rates of other countries, such as India, China and European countries, are ten times higher than the bank lending rates. This is still accepted by consumer lending customers and is permitted under the laws of those countries. Certain Vietnamese experts believe that capping the lending rate on consumer loans at 20% per annum under the Civil Code is impractical and contrary to the generally accepted principle of liberalising interest rates in the banking sector.
To deem the lending rates for consumer loans not only reasonable and acceptable to Vietnamese borrowers, but also reconcilable with benefits of the lenders, the State Bank of Vietnam (SBV) is drafting a circular on the consumer loans of finance companies (including foreign-owned finance companies) (Draft Circular). The SBV's Draft Circular sets no cap on the lending rate of consumer loans unlike the Civil Code mentioned above; and the provisions of the Draft Circular require finance companies to specify in their internal regulations the lending rates for consumer loans, including the highest and the lowest rates for each consumer loan product. This requirement will facilitate the SBV's supervision of the finance companies and at the same time curb the finance companies' discretion to agree with its customers on an extremely high lending rate.
Finance companies are pushing for the Draft Circular to be adopted and come into effect immediately so that they can argue for exemption from the new lending rate set forth under the Civil Code.
Vu Le Bang and Nguyen Thi Thanh Tram
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