Charges not disclosed to borrowers in loan agreements null and void – BoG
According to a statement made by the Bank of Ghana (BoG), charges that are not disclosed to a borrower in a loan arrangement should be regarded as void.
The BoG also gave commercial banks and lenders the order to return those funds to the borrowers, referring to any borrowers who would go through such a situation as victims.
The Bank of Ghana underlined in a statement titled Bank of Ghana’s Responsible Borrowing Guidelines that “Borrowers shall be granted a refund of all such charges paid.”
If the lenders do not reverse the payments, the “victims” must report such conduct to the regulator, it was stated.
The BoG claims that it is starting a campaign to encourage transparency in loan disbursement and give borrowers more flexibility to “shop about” for lower interest rates and loan terms.
The central bank also instructed lenders to ensure that borrowers receive a “Pre-Agreement Truth” lending statement (similar to a proforma invoice) outlining the terms and conditions of the loan before they sign a loan agreement.
This should list all of the loan agreement’s terms and conditions.
The regulator noted that this information on the ‘Pre-agreement Truth’ in lending statement should include:
- Other fees and charges such as commissions, administrative or processing fees, commitment fees, insurance.
- Penal charges or late payment penalties.
- Penalty rates and any other charges associated with the product.
- Total amount to be paid back at the end of the loan period, among others
What should borrowers do before signing a loan agreement?
The BoG further warned borrowers that they should read and fully comprehend any loan agreements before signing them, as well as seek expert counsel.
It said, “They are also expected to ask the lender for clarification in any language of your choosing to have the necessary comprehension of the loan package.
The Annual Percentage Rate (APR), which is the entire cost to be paid to the lender each year for the loan, represented as a percentage, is what the BoG urged borrowers to keep an eye out for when comparing interest rates.
It should be noted that the APR gives a more comprehensive picture of the cost a borrower incurs while taking out a loan.
The APR includes the interest rate as well as any other fees or charges that borrowers must pay for the loan.
Paying Back Loans
The BoG has also instructed lenders to give borrowers the whole amount due when they wish to pay off a loan faster than expected and give them 20 working days to complete the full repayment after receiving their written request.
It was also stated that even though there would be a settlement penalty cost, it shouldn’t be more than 0.25 percent of the principle amount due.
Why this move by the Bank of Ghana?
According to the Bank of Ghana, the initiative is a part of a larger effort to support good disclosure standards in the financial industry.
It claimed that it also wished to draw the public’s attention to the important problems surrounding the duties and obligations of bank and specialized deposit-taking institution clients with relation to loan acquisition and repayment.
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