Sanctions, recently applied by ANPC to a significant number of credit institutions, have raised the topic of protection of consumer banking rights into the public debate, writes the adviser to the chairman of the BNR, Christian Bichi, in the blog of the Central Bank.

It is therefore time to explain again the differences between prudential and behavioral supervision and the fact that the central bank has no authority over the marketing practices of banking products to consumers.

In its press releases dated May 16 and 25, 2023, the National Authority for Consumer Protection (ANPC) claims to have discovered deceptive commercial practices committed by a number of 19 banking institutions “regarding the method of calculating rates, due to the fact that on the repayment schedule the rate was , in the first years, with 25% of the principal amount to be repaid and 75% of the interest.

Due to this method of calculation, consumers mainly paid interest.” In this regard, the ANPC fined the banks concerned and issued orders to “issue new repayment schedules whereby consumers must repay the loan principal in equal installments throughout the loan period in respect of interest related to the loan. to the honor (sic!)…”. The author of this article admits that he does not understand what is meant by this wording, and it seems that he is not alone in this situation.

Evidence that the press offers different interpretations of the ANPC order. For some journalists, we are talking about partial payments, in which the principal amount and interest are equal throughout the entire term of the loan. For others, it’s the application of a sliding-rate method, where principal rates remain the same and interest rates decrease over time.

ANPC’s decision sparked strong controversy

The Association of Romanian Banks (ARB) issued a statement stating that the false information published in the public space, which qualifies as a “deceptive commercial practice” a legitimate interest calculation method used worldwide, casts doubt on the professionalism of some ANPCs. employees

For CEC Bank, a bank with state capital, “the control was done quickly and it seems that the culprit was known even before the investigation was completed.” For their part, several economic analysts have joined the debate, saying that it is mathematically impossible to create a repayment schedule in which principal and interest accrue equally.

Finally, the icing on the cake in this whole story is the fact that the ANPC measure has been criticized, as well as an official of this body who wanted to point out that the repayment of the loan in equal installments (annuities) is legal and that the issuance of new repayment schedules in accordance with the requirements of the ANPC orders would be “manifest abuse and unwarranted.” Therefore, as noted by the Romanian press, we are in the center of a real scandal, which must be finally resolved by the courts in the near future.

BNR – a collateral victim of the scandal?

The answer to this question is yes, the way some media channels present the facts is damaging the image of the central bank. How could it be otherwise, I will give just one example, as long as banks are accused of “improper commercial activity” on various television stations, and images of the headquarters of the BNR or the governor of the BNR are broadcast in the background, this is when there are no direct accusations that the central bank is not paid attention to the commercial practice of banks.

In this last regard, the speech of the moderator is representative, who wants to emphasize that the regulation of banks is handled by the NBR, ending with the question whether this body knows or not about “violations detected by the ANPC” and “is this abuse not done with the consent of the NBR”? The interlocutor’s reaction to this question is affirmative: “Absolutely yes.” Similar opinions can be found regarding other communication channels.

The answer to such statements made out of ignorance is that the NBR does regulate banking, but its powers in this area relate to aspects of banking prudence, not related to the business conduct of banks in relation to consumers. going back to ANPC. Or the aspects reported by the ANPC in the current situation are clearly under consideration by this body.

Prudential supervision versus behavioral supervision

The realities described above show that it is necessary to explain to the general public how prudential supervision differs from behavioral supervision.

Regulation in the banking sector has two main goals:

(1) maintenance of stability and confidence in the banking system;

(2) compliance by banks with their professional obligations to clients in order to protect users of banking services.

Two types of supervision meet these goals in practice: banking prudential (prudential) supervision and behavioral (behavioral) supervision.

Banking prudential supervision is aimed at ensuring the stability of the banking system and individual banking institutions. Considering the important role played by banks in the national economy and the possibility of their generation of systemic (systemic) risk, the fact that determines the stability of the banking system must be recognized as a matter of public interest.

CONCLUSIONS

In Romania, the law gives the National Authority for the Protection of Consumer Rights (ANPC) the power to protect the interests of consumers of financial services, a power that largely corresponds to the dimension of supervision of the conduct of banks.

The central bank is not in a position to get involved in such activities that are already carried out by the ANPC, as it has no legal authority in this area.

As for the current disputes between the sanctioned banks and the ANPC regarding the correctness of the calculation of rates for medium and long-term loans, they should be resolved by the courts, since the sanctions of the controlling body (whether BNR or ANPC) are subject to jurisdictional control.

However, a quick resolution of the discussed issues is necessary to prevent the deterioration of public trust in the institutions of the Romanian state.

See the full post of the adviser to the Vice-Chancellor of the BNR here