Provident Responds to Polish Rate Cap

Provident has responded to last year's decision of the Polish Parliament to introduce interest rate ceilings by providing Polish customers with the option to make payment directly into bank accounts - and reduce the cost of their loans by over 25%.

The new law has also required Provident to provide a break down of their pricing structure on all loans.

Whilst Provident insist that many customers will continue to want to have their loans collected on the doorstep, for the first time they will be told that this service will cost them a further 470 zlotys on a 1000 zloty loan.

The Polish law restricts interest charges to 4 times the main bank rate, which is currently 5.75% - making a cap on interest of 23%. However, Provident's new loan charges right up to the maximum in interest and then attempts to circumvent the ceiling by making a number of set 'charges' in the form of a preparatory fee or for 'creditor insurance', or for the home collection service.

At 468 zlotys, the home collection fee amounts to 26.5% of Gross Revenue on a loan

The charging of a compulsory up-front credit insurance fee, amounting to 12% of the loan amount, is also interesting as this would probably be illegal under current U.K law. No details of the cover that this provided were available from Provident's presentation.

These developments show that introducing caps force creditors in uncompetitive markets to innovate and find ways of cutting costs. Providents' acceptance of payments into bank accounts could reduce the cost of credit significantly for many Poles provided they are forced to market this effectively. However, the figures published by Provident also show how we could construct a cap in the U.K which has an even greater impact. We must ensure that it is the total charge for credit - including fees and insurances - that is limited by statutory ceilings not just the interest that is charged. There are two ways of doing that - firstly by requiring lenders to justify the levels of charges being made, and requiring them to stipulate these as the Poles have done is a big step in that direction; and secondly by placing an upper limit on the total charge being paid as a % of the amount being loaned. At the present time, Provident continues to charge 76% in interest and fees on a 1000 zloty loan when home collection is selected as the borrowers repayment mechanism.