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1. Scope
1.1 This directive applies to Consumer Credit Agreements and
related Guarantee Agreements. This Directive will be effective from 1st
January 2006. How-ever, Article 12 of these regulations will be
effective from the date of this circular. The scope and application of
various terms and conditions are covered under Definitions of Terms in
Article 13 of these Regulations.
1.2 Consumer Credit includes loans to individuals, households and
family members, granted on the following basis.
·
Granted by the
creditor to a borrower as a secondary activity for the borrower, i.e.
outside the sphere of the borrower’s principal commercial or
professional activity. It would generally include personal loans,
overdraft facilities, car loans, payment card loans, financial leases,
etc.
·
To finance
purchase of goods and services for enjoyment, consumption and other such
requirements of individuals as identified above e.g to purchase
furniture, household items, vacations, education, etc.
·
While mortgage
loans are to be excluded, real estate and or home improvement financing
is included.
1.3
All consumer
credit agreements, guarantee agreements, repayment schedules and other
documentation related to consumer lending should be in Arabic. An
English translation should be provided to the consumer if required by
him.
2. General Guidance, Information and Practices Related to
Consumer Credit and Related Agreements
2.1 Advertising
All Advertising in
general including when displayed at business premises or elsewhere shall
be provided in good faith and in a simple, clear and comprehensible
manner. This would include information on annual percentage rate of
charge (APR).
2.2 Exchange of
information between creditors and borrowers
2.2.1 The creditors may request of a consumer seeking credit only such
information as is adequate and relevant for assessing his financial
situation and his ability to repay.
The consumer and
guarantor shall reply accurately and in full to any such request for
information.
2.2.2 The creditor
shall inform the consumer of the exact and complete information needed
in respect of the credit agreement under consideration. The consumer
shall receive this request on paper or on another durable medium before
the conclusion of the credit agreement.
In particular, the information must include the following;
·
The guarantees and
insurance required;
·
The duration of the
consumer credit agreement;
·
The amount, number
and frequency of payments to be made;
·
The recurrent and
non-recurrent charges, including non-recurring costs which the consumer
has to pay, i.e. management or processing costs, late payment penalties
(if any), etc.
·
The total amount of
credit and the conditions governing the draw- down of the credit;
·
Where applicable, the
cash price of the financed goods or services, the down payment due and
the residual value;
·
Where applicable, the
borrowing or profit rate, including any index or reference rate
applicable to the initial borrowing or profit rate, as well as the
periods, conditions and procedures for varying the borrowing rate;
·
The annual percentage
rate of charge (APR) and, by means of a representative example
mentioning all the financial data and assumptions used for calculating
the said rate;
·
The period during
which the right of withdrawal may be exercised.
·
Any other information
the consumer needs to assess financial conditions related to the
borrowing.
2.3 For Islamic Products, the documentation covering underlying
purchase and sale of goods should comply with the requirements of the
Bank’s Sharia’a Committee.
2.4. Creditors to provide borrowers with complete documentation
covering loan agreement, repayment schedule, and letter of borrower’s
acknowledgement.
2.5 The creditor shall record the purpose of all consumer loans
and take measures to ensure that they are made only for the stated
purpose
3. Confidentiality or Privacy of Consumer Information
3.1 Collection and processing of data
Personal data
obtained from consumers, guarantors or any other person in connection
with the conclusion and management of agreements must be kept
confidential. Such consumer data may be processed only for the purpose
of assessing the financial situation of the borrowers or guarantors and
their ability to repay the agreed credit.
3.2 Data on the Central database
·
The Saudi Credit
Bureau operates a central database for the purpose of registration and
maintenance of credit information on consumers and guarantors.
·
Banks are
encouraged to consult the database prior to any commitment to the
consumer or guarantor.
·
Personal data
received may be processed only for the purpose of assessing the
financial situation of the consumer and the guarantor and their ability
to repay.
4. Information that must be included in Consumer Credit
Agreements and Related Guarantee Agreements
4.1 General Information
·
Credit
agreements and guarantee agreements shall be drawn up on paper or on
another durable medium.
·
All the
contracting parties, including the borrower, the guarantor and the
creditor shall receive a copy of the credit agreement and guarantee
agreement.
·
Agreements shall
include nature and description of customer complaint and redress
procedures.
·
Where necessary,
Promissory Notes, shall be a part of the credit arrangement.
4.2 Information to be included in Credit and Guarantee Agreements.
4.2.1 The Consumer Credit Agreement shall include:
a)
The
names and addresses of all the contracting parties involved i.e. the
consumer, the creditor and the guarantor.
b)
The APR and the
Borrowing or Profit rate calculated and determined at the time the
credit agreement is concluded. This should indicate the true cost of
borrowing and permit cross lender comparison.
c)
Where capital
amortization is involved, a statement of account in the form of an
amortization table, the payment owing, and the periods and conditions
relating to the payment of these amounts;
d)
If charges and
special commission or profit are to be paid without capital
amortization, a statement showing the periods and conditions for the
payment of the commission or profit and of the associated recurrent and
non-recurrent charges;
e)
A description and
amount of borrowing costs components that are not included in the
calculation of the APR but are to be paid by the consumer under certain
circumstances. These may include penalties, charges e.g. charges for
delayed payments.
f)
Where applicable, the
goods and/or services being financed;
g)
Early repayment, as
well as the procedure applied and charges (if any) to be paid by the
consumer in order to exercise this right;
h)
Terms and conditions
and the procedures to be followed and charges to be paid if the borrower
exercises the right of withdrawal from the credit and or makes partial,
delayed and deferred payments.
i)
In the event of
secured credit, a description of the asset securing the credit and an
undertaking by the borrower that he shall reasonably maintain the
underlying asset securing the loan so that it is available to the
creditor in the event of default.
j)
For credit card
agreements items a, b, e and f will apply
4.2.2 Other Information
·
The amortization table referred to in 4.2.1(c) shall contain a
breakdown of each repayment to show capital amortization, the special
commission or profit calculated on the basis of the borrowing rate or
profit rate and where applicable, the additional costs. However, if the
table is not ascertainable as in the case of variable borrowing rates
applicable at the time of the draw down, the basis of the schedule
should be given and the table determined immediately once the rates are
available.
·
If, in the case
referred to in 4.2.1(c),
a new draw down is not
possible without the consent of the creditor, the creditor's decision
shall be communicated on paper or on another durable medium. It shall be
made available to the consumer and contain the amended data to which
this paragraph refers.
·
Where the exact
amount of the components referred to in 4.2.1(c) is known, it shall be
shown. Otherwise, and as a minimum requirement, these costs must be
ascertainable in the Consumer Credit Agreement on the basis of an
indication of the percentage linked to a reference rate, a calculation
method or a most realistic estimate possible. In such cases, the
creditor shall make available to the consumer on paper or on another
durable medium a breakdown of these costs and when they are to be
applied.
·
The Guarantee
agreement shall state the maximum amount guaranteed, as well as the
charges for defaulting to be applied in accordance with the standard
procedure.
·
The creditor should
inform the consumer that appropriate credit information would be
provided to the Saudi Credit Bureau.
·
Nature and most
recent market value of collateral.
·
Consumers’ and
creditors’ signatures.
4.3 Right of Withdrawal
4.3.1 With the
exception of Islamic transactions, the consumer shall have a minimum
period of ten business days to withdraw his acceptance of the Consumer
Credit Agreement without giving any reason.
This period shall begin on the day the consumer credit
agreement is concluded.
4.3.2
The consumer shall
inform the creditor of his withdrawal before expiry of the period
referred in paragraph 4.3.1 The deadline shall be deemed to have been
observed if this notification, which must be on paper or on another
durable medium that is available and accessible to the creditor, is
dispatched by registered post, at least three business days or received
through hand delivered advise before the expiring of the deadline as
described in 4.3.1.
4.3.3 With the
exception of Islamic transactions, exercise of the right of withdrawal
shall oblige the consumer to return to the creditor the sums of money
that he has received by virtue of the credit agreement. The consumer
shall pay commission or profit due for the period during which credit
was drawn, calculated on the basis of the agreed annual percentage rate
of charge. No other indemnity may be claimed in connection with
withdrawal. Any down payment affected by the consumer under the credit
agreement shall be repaid to the consumer without delay.
5. Annual Percentage Rate of Charge, Borrowing Rate and
Profit Rate.
5.1 Annual Percentage Rate of charge
(APR).
5.1.1 APR, equates, on an annual basis, the present value of all
commitments (draw downs, repayments and charges), future or existing,
agreed by the creditor and the borrower. It shall be calculated in
accordance with the mathematical formula set out in
Annex I.
The APR should include
all compulsory costs or unavoidable costs featured in a transaction as
reflected in the advertising notices or materials.
For Islamic Banking
products a similar methodology is to be employed i.e. relevant and
identical cash flows, drawdowns, repayments and all other unavoidable
charges.
5.1.2 For the purpose of calculating the APR the total cost of the
credit to the consumer shall be determined. This will include all
unavoidable costs with the exception of charges payable by the
consumer
for non-compliance with any of his commitments laid down in the credit
agreement.
5.1.3 The calculation of the APR shall be based on the assumption that
the credit contract will remain valid for the period agreed and the
creditor and the consumer will fulfill their obligations under the terms
agreed.
5.1.4 In the case of credit agreements containing clauses allowing
variations in the borrowing or profit rate contained in the APR but
unquantifiable at the time of calculation, the annual percentage rate of
charge shall be calculated on the assumption that the borrowing or
profit rate and other charges will remain fixed in relation to the
initial level and will remain applicable until the end of the credit
agreement.
However, it would be made clear to the customer that the APR
calculation is based on the current borrowing or profit rate and the APR
can vary with the changes in the underlying borrowing or profit rate and
unavoidable costs.
5.1.5 Where necessary, the following assumptions may be adopted in
calculating the APR:
a)
If a credit agreement
gives the consumer freedom of draw down, the total amount of credit
shall be deemed to be drawn down immediately and in full;
b) If there is no fixed timetable for repayment, and one cannot be
deduced from the terms of the agreement and the means for repaying the
credit granted, the duration of the credit shall be deemed to be one
year;
c) Unless otherwise specified, where the agreement provides for more
than one repayment date, the credit will be made available and the
repayments made on the earliest date provided for in the agreement;
5.2 Borrowing rate
5.2.1 The borrowing rate may be fixed or variable.
5.2.2 Where one or
a number of fixed borrowing rates have been established, they shall
apply for the duration of the period specified in the credit agreement
in line with the agreed index or reference rate.
5.2.3 The consumer
shall be informed of any change to the borrowing rate, on paper or on
another durable medium. This information must include the new annual
percentage rate of charge, the Creditor’s new borrowing rate and, where
applicable, the new amortization table. The calculation of the new
annual percentage rate of charge shall be based on item 5.1.3.
5.3 Profit Rate
·
The profit rate
applies to all credit extended under Islamic contracts.
·
It means the
rate used to derive profits on invested amounts.
·
It is
represented as an annual percentage rate.
6. Unfair Terms
A consumer
credit agreement or guarantee agreement shall be regarded as unfair if
their object or effect is to
compromise the economic or any other interests of the borrower in
substance or in form. In this regard, if any of the following conditions
apply;
·
Vary any contractual
costs, indemnities or charges other than the borrowing or profit rate;
·
Introduce rules on
the variability of the borrowing or profit rate that discriminate
against the consumer;
·
Introduce a system
involving a variable borrowing or profit rate which does not relate to
the net initial borrowing or profit rate proposed when the credit
agreement was concluded
·
Oblige the consumer
to use the same creditor to refinance the residual value and, in
general, any final payment on a credit agreement for financing the
purchase of movable property or a service.
·
Impose on the
consumer, exclusive of margin trading, as a condition for a draw down, a
requirement to leave as guarantee, in full or in part, the sums borrowed
or granted, or to use them, in full or in part, to constitute a deposit
or purchase securities or other financial instruments, unless the
consumer obtains the same rate for such deposit, purchase or guarantee
as the agreed annual percentage rate of charge.
·
The
consumer or guarantor shall not be required to sign a cheque
guaranteeing repayment, in full or in part, of the amount due.
7. Assignment of Rights, Joint and Several Liabilities and
Early Repayments
7.1. Assignment of rights
Consumer rights in
credit agreements remain untouched or unchanged if the creditor assigns
his rights to another party.
7.2 Joint and several liabilities
The existence of a credit agreement shall not in any way
affect the rights of the
consumer against the
supplier of goods or services purchased by means of such an agreement in
cases where the goods or services are not supplied or are otherwise not
in conformity with the contract for their supply.
7.3 Early repayments
7.3.1 The consumer shall be entitled to discharge fully or partially
his obligations under a credit agreement before the time fixed in the
agreement.
7.3.2 Any indemnity claimed by the creditor for early repayment shall
be fair and objective and shall be calculated based on actuarial
principles. No indemnity shall be claimed:
a)
For credit
agreements where the period used to fix the borrowing rate is less than
one year;
b)
If repayment has
been made under an insurance contract intended to provide a conventional
credit repayment guarantee;
c)
For credit
agreements which provide for payment of charges and commission or
profits only and without capital repayments.
8. Specific aspects of a Consumer Credit and other types of
Agreements in the form of Advances on a Current Account, Debit Account,
etc.
8.1 If payments
made by the consumer do not give rise to an immediate corresponding
amortization of the total amount of credit outstanding, the agreement
shall provide for an unconditional guarantee of repayment of the total
amount of credit drawn down including commissions.
8.2 Open-end credit agreement
Either party may terminate an open-end credit agreement by
giving three months notice1
drawn up on paper or on another durable medium in accordance with the
procedures laid down in the credit agreement.
8.3 For all types of credit agreements including those in the form of an
advance on a current account or a debit account, the consumer shall be
informed on a quarterly basis of his debt situation by means of a
statement of account, on paper or on another durable medium, containing
the following information:
a) The precise
period to which the statement of account relates;
b) The amounts and
dates of draw downs;
c) Where
applicable, the outstanding balance due from the previous statement, and
the dates thereof;
d) The date and
amount of charges due;
e) The dates and
amounts of payments made by the
consumer;
f) The last agreed
borrowing or profit rate;
g) The total amount
of special commission or profit due;
h) Where
applicable, the minimum amount to be paid;
i) Where
applicable, the new balance outstanding;
j) The new total amount outstanding, including any special commission
on arrears (profit in arrears) and penalties
9.
Performance of a
Guarantee Agreement
9.1 Maximum
guarantee period for open ended credits is 5 years. This guarantee may
be extended only with the specific agreement of the guarantor at the end
of that period.
9.2 The
creditor may take action against the guarantor only if the consumer
having defaulted on repayment of the credit and has failed to comply
with a default notice for a period of 30 days.
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For
Credit cards no notice period is necessary.
9.3 The amount guaranteed will only cover the outstanding balance
and arrears in accordance with the credit agreement and not include any
other indemnities or penalties.
10 Non Performance of a Consumer Credit Agreement
10.1 Default notice and enforceability
a) Creditors, their
representatives and any other assignee of the creditor's rights under a
credit agreement or guarantee agreement may not take disproportionate,
excessive or unreasonable measures to recover amounts due to them in
the event of non-performance of such agreements;
b)
The creditor may
demand immediate payment in the event of default only through a prior
default notice requesting the consumer or, where applicable, the
guarantor to comply with his obligations under the agreement within a
reasonable period of time or to apply for rescheduling2
of the debt;
c)
The creditor may not
suspend the consumer's draw down rights unless he justifies his decision
and is required to inform the consumer without delay;
d) In the event of
non-performance of their obligations or in the event of early repayment,
the consumer and the guarantor are entitled, on request and without
delay, to receive a detailed statement of account, free of charge,
allowing them to verify the charges and special commission (profits)
claimed.
10.2 A default
notice as referred to in paragraph 1 (b) is not necessary, under the
following conditions;
10.2.1 In the event of borrowers fraud, evidence of which shall be
provided by the creditor or the assignee of the creditor's rights;
10.2.2 Where the
consumer alienates or transfers the property financed before the total
amount of credit is repaid or uses the property in a manner inconsistent
with the conditions of the credit agreement.
10.3
Overrunning of
the Total Amount of Credit and Tacit Overdraft.
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Rescheduling at the creditors discretion.
10.3.1 In the event
of an authorized temporary overrunning of the total amount of credit or
overdraft, the creditor shall inform the consumer without delay, in
writing or on another durable medium, of the amount involved and the
borrowing rate applicable. No penalties3,
charges or special commission on arrears shall be included.
10.3.2 The creditor
shall inform the consumer without delay that he has overrun the credit
amount or is in an unauthorised overdraft situation and shall inform him
of the borrowing rate and/or the charges or penalties applicable.
Any overrunning or overdraft as referred to in this article
shall be rectified within three months, where necessary at the
discretion of the creditor through a new credit agreement providing for
a higher total amount of credit.
10.4 Repossession of goods
If the consumer has not given his specific consent at the
moment the creditor proceeds for repossession, and if he has already
made payments corresponding to one-half of the total amount of credit,
the goods financed may not be repossessed unless by judicial
proceedings.
Where the
creditor
repossesses the goods, the account between the parties is to be on a
basis which ensures that repossession does not entail any unjustified
enrichment to the creditor.
10.5 Recovery
10.5.1 Costs incurred
by the Creditor to recover debts are not to be for the borrower’s
account. This include costs incurred by the Creditor to recover debt
through using natural or legal persons who undertake debt recovery as
their principal or as a secondary activity, unless such fees or
indemnities are specifically agreed in the credit agreement or and the
guarantee agreement or are sanctioned by a court.
10.5.2
For the recovery of
debts arising from a credit agreement or guarantee agreement, the
following shall be prohibited:
a) Written communications containing incorrect information on the
consequences of defaulting on payment.
b) Unauthorised
repossession of goods without judicial proceedings or the specific
consent of the consumer subject to clause 10.4.
c) Any
inscription on an envelope which makes it clear that the correspondence
concerns the recovery of a debt;
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3
For payment card this is not applicable.
d) Collection of
charges not provided for by the credit agreement or the guarantee
agreement;
e) Any contact
with the neighbors and relatives of the consumer or guarantor,
especially any communication of, or request for, information on the
solvency of the consumer or guarantor.
11. Borrowers’ Acknowledgement
In order to ensure that
the borrower understands all the terms and conditions of the credit, a
suitable letter of acknowledgement should be signed by the borrower.
12. Maximum credit limit; and Maximum Term to Maturity of
Credit
12.1 Maximum credit limit
Maximum limit would be
such that the total monthly payments of the borrower on total
borrowings, including credit cards borrowings, should not exceed one
third of his net monthly salary. However, for retired persons this limit
is set at 25% of pension payments.
Also, SAMA at its
discretion, may put a limit on a creditor whereby its consumer credit
portfolio may not exceed a specified percentage of its total loans
portfolio.
12.2. Maximum
term to maturity of Credit
Maximum term to maturity of
a consumer credit agreement should not exceed 5 years.
13. Definitions of Terms related to Consumer Credit Regulations
a)
“Consumer or borrower”
means a natural person who in a borrowing transaction is covered by this
Regulation and is borrowing for purposes outside his trade or
profession;
b) “Creditor” means a Bank licensed under the Banking
Control Law.
c) “Consumer Credit Agreement”
means an agreement whereby a creditor grants or promises to grant to a
consumer credit in the form of a deferred payment, loan or other similar
financial accommodation. Agreements for the provision on a continuing
basis of services (private or public), where the consumer has the right
to pay for them for the duration of their provision by means of
installments, are not deemed to be credit agreements for the purposes of
this directive;
d)
“Guarantor agreement”
means an ancillary agreement concluded by a guarantor and guaranteeing
or promising to guarantee the fulfillment of any form of credit granted
to natural or legal
persons;
e) “Total cost of credit to the consumer” means all the
costs, including borrowing special commissions, indemnities, and any
other kind of charge which the
consumer has to pay for the credit;
f) “Annual percentage rate of charge” means the
total cost of the credit to the consumer expressed as an annual
percentage of the total amount of credit granted;
g)
“Borrowing rate”
means the commission rate expressed as a periodic percentage applied for
a given period to the amount of credit drawn down;
h)
“Profit Rate”
applies to credit extended under Islamic contracts. It means the rate
used to derive profits and is expressed as an annual percentage rate. It
should be comparable with borrowing rate in a conventional consumer
banking transaction;
i)
“Residual value”
means the purchase price of the financed goods applicable at the time
when the purchase option or the property transfer option is exercised;
j)
“Draw down,”
means an amount of credit made available to the consumer in the form of
a deferred payment, loan or other similar financial accommodation;
k) “Total amount of credit”
means the ceiling or the sum of all draw downs that are likely to be
agreed;
l)
“Durable medium”
means any instrument which enables the consumer to store information
addressed personally to him in a way which makes it accessible for
future reference for a period of time adequate for the purposes of the
information and which allows the unchanged reproduction of the
information stored;
m) “Payment cards”
are to include credit and debit cards.
n) “Secured credit” means a
credit loan that is collateralized by assignment of rights to property
including security interest in personal property or real property taken
by the creditor. A consumer loan can be secured by cash, other tangible
goods, a guarantee or other acceptable collateral. In the event a
borrower fails to repay according to the original credit terms, the
lending can taken legal action to reclaim, and sell, the collateral.
Contrast with unsecured loan which is backed only by the borrower’s
promise to pay. |
