Disbursements are expensive
Now they are getting complicated. In addition to a change in legislation with dubious benefits, debt is also a change in the banks’ pricing policy. It is already foreseeable that the interest rates for account overdrafts will continue to rise in the coming years and that too few consumers will make use of the possibility of a change.
The legislature is under criticism for a new requirement for loans with variable interest rates (which include the discretionary credit). Banks should link their interest rate to a reference interest rate, thus making the terms more transparent. Most banks therefore link their borrowing rates either to the 3-month Eurocen or to the CEB base rate.
Measures lead to complicated contractual conditions
In practice, the measures lead to complicated contractual conditions, the benefits of which are limited for the customer. If the reference interest rate rises, the bank may raise the borrowing rate by the same amount. If the reference interest rate falls, this must also be reflected in the borrowing rate. Banks set a measurement date on which the reference interest rate is considered. For example, this may be the first banking day of a calendar quarter. In addition, it is determined when a measured change in the reference interest rate is reflected in the terms – for example, on the first day of the month following the measurement date.
And that’s not all: if the bank is entitled to an interest increase in view of an increased reference interest rate and waives this right, it can “save” its waiver. The missed interest increase can either be made up at any time or charged with mandatory interest rate reductions. In the descriptions of the institutes this reads like this: “The unused relevant increase of the 3-month Eurocen amounts to 30 basis points”.
Regulation tends to be a problem
This regulation tends to be a problem for the banks because it makes the comparison of different offers difficult. Particularly in the case of variable rate loans, which are to be used on a larger scale and in the longer term, accrued interest rate increases must be taken into account in the future, so that the awakening threatens.
With regard to the objective of better transparency, the regulation does not yet have what some politicians have hoped for from it. Anyhow, the credit line will not be cheaper due to the requirement anyway. For one thing, the legislature has refrained from setting an upper limit for the premium which banks levy on the reference interest rate. On the other hand, the link to money market interest rates was made at a very unfavorable time: the CEB interest rate is at a historic low of 1.0 percent.