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The Bank of Thailand prohibits the pre-payment fee for Personal Loan and Nano Finance

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The Bank of Thailand prohibits the pre-payment fee for Personal Loan and Nano Finance

On 28 December 2023, the Bank of Thailand (“BoT”) issued Notification No. FPG. 13/2566 re: Regulations, Procedures and Conditions for Undertaking a Personal Loan Business under Supervision (No.2) (“Amended Personal Loan Notification”); and Notification No. FPG. 14/2566 re: Regulations, Procedures and Conditions for Undertaking Nano Finance under Supervision (No.2) (“Amended Nano Finance Notification”) (collectively referred to as the “Notifications”). These Notifications aim to establish a prohibition against business operators from charging interest, penalties, fines or any kind of fees and charges for cases where the consumer redeems or repays the credit before the due date (prepayment fee), either in whole or in part. It is clearly stated in the Notifications that these measures aim to provide consumers with the option to redeem or repay the credit before the due date, or to alleviate obstacles in changing service providers (refinancing), thereby promoting competition among business operators for the benefit of consumers.

The Amended Personal Loan Notification revokes the provision related to the collection of interest, penalties, fines, service charges and any other fees and expenses under the previous Personal Loan notification, and replaces it with the following provision:

Former Provision

Current Provision

(1) Operators may collect interest on overdue loans, interest during loan default periods, any service charges, penalty rate, fines for late payments, or any fees from consumers totaling up to 25 percent per annum (effective rate) for non-title loan and totaling not exceeding 24 percent per annum (effective rate) for title loan.
(2) In addition to interest, penalties, fines, service charges, any fees, and other expenses under Section 5.4.3 (1), operators may reasonably charge other expenses that are actually paid. However, these charges must comply with the list that the BoT prescribed in the table attached to this notification, and the characteristic of such charges must be as prescribed in the attachment 2.
For a title loan, operators shall not collect interest, penalties, fines, service charges, and any fees in case of consumers prepay their loans, both partially or fully, prior to the due date. Furthermore, operators may not include interest, penalties, fines, service charges, and any fees under Section 5.4.3 (1) and reasonable expenses that are actually paid under Section 5.4.3 (2) into the debt outstanding amount for the purpose of calculating interest, penalties, and fines again. Operators must also ensure that debt restructuring and contract amendments of personal loan under supervision are not to circumvent the requirements on interests, penalties, fines, service charges, any fees, and other reasonable expenses, that are actually paid, related to personal loan under supervision.

(1) Operators may collect interest on overdue loans, interest during loan default periods, any service charges, penalty rate, fines for late payments, or any fees from consumers totaling up to 25 percent per annum (effective rate) for non-title loan and totaling not exceeding 24 percent per annum (effective rate) for title loan.
(2) In addition to interest, penalties, fines, service charges, any fees, and other expenses under Section 5.4.3 (1), operators may reasonably charge other expenses that are actually paid. However, these charges must comply with the list that the BoT prescribed in the table attached to this notification, and the characteristic of such charges must be as prescribed in the attachment 2.
In this regard, operators shall not collect interest, penalties, fines, service charges and any fees in case of consumers prepay their loans, both partially or fully, prior to the due date. Furthermore, operators may not include interest, penalties, fines, service charges, and any fees under Section 5.4.3 (1) and reasonable expenses that are actually paid under Section 5.4.3 (2) into the debt outstanding amount for the purpose of calculating interest, penalties, and fines again. Operators must also ensure that debt restructuring and contract amendments of personal loan under supervision are not to circumvent the requirements on interests, penalties, fines, service charges, any fees, and other reasonable expenses, that are actually paid, related to personal loan under supervision.

To summarise, the previous personal loan notification from the BoT restricted the collection of prepayment fees exclusively for title loans. In contrast, the Amended Personal Loan Notification broadens this prohibition to encompass all types of personal loans.

In a similar way to the Amended Personal Loan Notification, the Amended Nano Finance Notification also revokes the previous provision of the previous nano finance notification, and replaces it with the following provision:

Former Provision

Current Provision

Operators may collect interest on overdue loans, interest during debt default periods, any service charges, penalty fees, fines for late payments, fees, or any expenses from consumers with the total rate not exceed 33 percent per annum (effective rate).
In this regard, operators must not compound interest, penalty fees, fines, service charges, fees, and any expenses to the debt outstanding in order to calculate interests, penalty fees, and fines again. In addition, operators must be aware not to allow debt restructuring or contract amendments of nano finance under supervision for the purpose of circumventing aforementioned regulations on interest, penalty fees, fines, service charges, any fees, and expenses related to nano finance business under supervision.

Operators may collect interest on overdue loans, interest during debt default periods, any service charges, penalty fees, fines for late payments, fees, or any expenses from consumers with the total rate not exceed 33 percent per annum (effective rate).
Operators shall not collect interest, penalties, fines, service charges and any fees in case of consumers prepay their loans, both partially or fully, prior to the due date.
In this regard, operators must not compound interest, penalty fees, fines, service charges, fees, and any expenses to the debt outstanding in order to calculate interests, penalty fees, and fines again. In addition, operators must be aware not to allow debt restructuring or contract amendments of nano finance under supervision for the purpose of circumventing aforementioned regulations on interest, penalty fees, fines, service charges, any fees, and expenses related to nano finance business under supervision.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or any other areas of law, please contact:

Nuttaros Tangprasitti

Partner

Tel: (66) 2-126-9100

E-mail: n.tangprasitti@nishimura.com

Kewalin Tiyajamorn

Attorney-at-Law

Tel: (66) 2-126-9167

E-mail: k.tiyajamorn@nishimura.com

Authors

Nuttaros TANGPRASITTI

Partner
Bangkok

Nuttaros Tangprasitti specialises in corporate and commercial law. She regularly assists both international and domestic corporate clients (limited liability companies and partnerships, stock corporation in several industries) on the relevant laws of Thailand, which includes foreign direct investment, legal due diligence, M&A and cross-border M&A, joint venture, compliance, banking and finance. In addition to supporting clients on the above and a multitude of different legal formalities, she also has expertise in advising on various investment promotion policies of the Board of Investment (BOI), as well as compliance with foreign business, other laws on salient points for shareholders and joint venture agreements, which includes laws on immigration and foreign work under Thai law. Nuttaros speaks at many seminars and takes an active role in educating the clients on issues relevant to their businesses and her practice areas. She also writes various articles and newsletters on cutting-edge topics in several legal areas, which are widely distributed to existing and potential clients. Nuttaros aims to ensure the lawyers on her team are constantly developing and upgrading their skills, to ensure they meet or exceed the high professional standards of Nishimura & Asahi. She is committed to ensuring that both she and our firm deliver top-quality services to our clients and strong internal support for our colleagues. She recently began drafting a manual on several aspects of Thai law, as part of an “Investment promotion scheme,” and also wrote several newsletters on corporate law, and banking and finance laws. She also recently authored an article on the impact of Tax Reduction for Land and Buildings, which received excellent feedback from our clients, particularly those who are land and building owners. Nuttaros is committed to building a strong and progressive corporate and commercial practice, which also incorporates tax law, by adapting to new ideas in the legal industry.

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