# The average market value of the total cost of a consumer loan of the Central Bank: where to find out how to calculate

The average market value of the full cost of a consumer loan of the Central Bank of the Russian Federation is a forced measure to regulate bank interest on loans among credit institutions. The purpose of the innovation is to reduce the burden on borrowers by obliging banks to adhere to restrictions. Despite the fact that such a measure has existed for several years, many people know little what it is, why it is needed and what are the consequences of its application.

## What is

The average market value of the full cost of a consumer loan is the sum of all payments by the debtor during the life of the loan. This value includes, in addition to the amount of debt and its cost, the costs of paperwork, commissions, and deposit insurance costs.

The main task that the Central Bank solves in this way is to prevent the enslavement of individuals by various credit organizations, which, in the face of low financial literacy of the population and imperfect competition in the consumer loan marketturned out to be possible.

## How to calculate

As a basis for calculating the average market value of the total cost of a consumer loan, the Central Bank uses data from about a hundred banks. However, each type of credit institution has its own values. The calculation also takes into account the purposes for which the loan is issued.

Thus, for the purchase of cars (car loan) one value is set, for the purchase of consumer electronics on credit - another. The calculation takes into account the size of the loan and the term for which it is issued, as well as how often payments will occur. For its part, the borrower is able to carry out the calculation on his own, using the following formula:

TCP=loan amount + processing costs, insurance + loan overpayment.

If the borrower made a calculation, and it turned out that the bank or any other organization from which he took a loan exceeded the limit indicated on the Central Bank website by more than a third, he has the right to apply either to the bank or to the court with demand to revise the terms of the loan agreement. All financial institutions are required to adhere to the average market value of the total cost of a loan from the Bank of Russia if they want to keep their license and continue to work.

## Where to find out

The size of the accepted value can be found in periodicals (Rossiyskaya Gazeta, Kommersant) and on the Bank's website. They are also published on the resources of commercial banks, but such information maycause doubt, given that these financial institutions often profit from the financial illiteracy of borrowers.

The site contains normative values ​​for each type of credit institution. Rates are recalculated quarterly. This means that the Central Bank of Russia publishes data on the size of the maximum allowable value on its website every four months.

## Reasons for such tight control

The need to strictly regulate the average market value of the total cost of a loan arose due to abuses in the field of lending. The imposition by banks of hidden surcharges, commissions, insurance and other payments to borrowers leads to an increase in the cost of the loan.

In an environment of declining purchasing power, such factors lead to an increased risk of delinquency on the part of the borrower. The growth of unpaid payments is one of the main threats to the stability of the banking system. The Bank of Russia had to limit the “appetites” of credit institutions with such tough regulatory measures.

The strongest restrictions had to be imposed on microfinance organizations. For the Russian financial market, this type of credit institution is quite new, so they receive special attention from the Central Bank. And although the average market value of the full cost of a loan from the Central Bank of the Russian Federation for this type of credit services is higher than for other similar organizations, they are subject to additional restrictions not onlyregarding the amount of interest, but also the amount of overpayments for the year, based on the size of the loan.

## Peculiarities of legal regulation

The main regulatory legal document is the law "On Consumer Credit". In accordance with the text of the law, this parameter must be calculated quarterly for each type of credit institution.

The results are published on the official website or the Bulletin. In turn, commercial lending institutions are required to adhere to the standards specified in the document. According to this law, banks do not have the right to exceed the average market value of the total cost of a consumer loan of the Central Bank by more than 1/3 of that indicated on the website of the Central Bank. That is, if the value is set to 30%, then the maximum deviation percentage is no more than 10%. They include the borrower's expenses for insurance, commissions and other related payments. The law applies to all types of credit institutions. Each of them has its own percentage corridor.

## What does this mean for the borrower

For the borrower, this also means that he can count on the fact that the total amount of the loan taken by him, even if there is a delay, will not exceed a certain amount established by the Central Bank. He can be sure that the bank will not have the right to impose services on him, the amount of which, together with the principal debt, will exceed the average market value of the total cost of a consumer loan of the Central Bank. However, this also means that banks are more likely to tighten requirements on borrowers,which may result in a debtor who has multiple loans and wants to take on another one to be rejected.