Summary of Regulation In Bolivia
- REGULATED ENTITIES
- Commercial Banks
- Private Financial Funds-Microfinance Institutions (FFPs)
- All other Credit Granting Organizations
- TYPES OF REGULATION
- Prudential regulation and non-prudential regulation for Banks and Private Financial Funds – Microfinance Institutions
- Non-prudential regulation for non-deposit taking NGO-MFIs and other credit granting organizations
- LIST OF TRUTH IN LENDING ACT
Truth-in-lending Legislation in Bolivia
The microfinance sector in Bolivia is one of the most mature in the world. Regulation of the sector was first introduced in 1993 through the Banking and Financial Entities Law.
In 2013, a Financial Services Law was enacted, providing for new guidelines and granting new powers to the Financial System Supervisory Authority (ASFI), the main body responsible for regulating Lenders. The 2013 Law targets all financial intermediaries, as well as organizations providing ancillary services.
The scope of the consolidated truth-in-lending legislation extends to all loan types irrespective of loan ranges, purpose, or type of the financial institution providing the loan.
The consolidated legislation requires Lenders to disclose detailed terms and conditions of a loan at several stages of the loan agreement, including in Lender advertising, in pre-contract quotes requested from a potential Borrower, and in the loan agreement itself. Quotes must disclose, in written form, the financial charges associated with the loan offered, as well as payments due and the cost of certain third party services. The financial charges the Lender must disclose include all monetary costs of the loan, such as interest and charges, but exclude notarial and registration costs and penalties.
As part of the loan agreement, the Lender must expressly disclose, in written form, all terms and conditions of the loan, including: the total loan amount and all financial charges related to the loan; interest rate information and calculation method, the loan payment plan and total payments due, default penalties, any related cost of death insurance, and notarial and registration charges. Within 24 hours of closing an loan, the Lender must also inform the Borrower of the “effective interest rate to the client” (Tasa de interés Efectiva al Cliente – “TEAC”), in accordance with a prescribed formula and as described below.
The consolidated legislation specifies that the Lender cannot unilaterally change interest rates and other charges. However, a Lender is allowed to adopt variable interest rates, provided that they are set forth in the loan agreement. Any fees or charges to which the Borrower has not expressly agreed in writing are prohibited. Conversely, Fees and charges to which the parties agree in writing are permitted, with certain exceptions such as certain surcharges, account maintenance fees, certain specific transaction fees, and legal documentation costs. Late payment charges must be based only on the payment missed. Finally, Borrowers have the right to make prepayments at any time without penalty.
Remedies and Enforcement Mechanisms
The consolidated legislation grants potential Borrowers specific rights, such as the right to select loan products and services that best fit their needs, the right to quality services, and the right to register a complaint regarding the services of the Lender. An initial complaint must be filed with the Lender’s Customer Complaint Center and if a Borrower does not agree with the resulting decision, it may appeal to the Complaint Center of ASFI.
For more detailed aspects of the truth-in-lending legislation in Bolivia, please download the Legal Summary Document referenced above.
National Truth-in-lending Formula
The consolidated legislation provides a national formula to be used by Lenders to calculate the TEAC, which must compute the total cost of a loan. The TEAC is a non-compounded annual interest rate, which takes into consideration the nominal interest rate charged on the loan, commissions and other charges.
The mathematical formula of the TEAC provided by the consolidated legislation is based on a non -compounded annualized interest rate that takes into consideration the interest on the loan and loan commissions, and other charges expressed per unit and which are determined by the frequency of interest payment.
The formula for calculating the TEAC is given as:
Dk: Amounts partial credit disbursements (disbursements m)
qk: Number of complete periods from the date of the transaction to the credit disbursement k
ek: Fraction of time in the time interval from the credit transaction to disbursement k
m: Number of payments
Pj: j Payment Amount includes amortization, interest and other financial charges
tj: Number of complete periods since the credit transaction until payment j
fj: Fraction period of time ranging from credit transaction until payment j
n: Number of payments
Pricing Components in the National Formula
Pricing Components Included
- Nominal interest rate
- Fees and commissions
- Insurance charges
Pricing Component Excluded
- Penalties (however, not all penalties are prohibited)
- Conditional charges (however, not all such charges are prohibited)
- Compulsory deposit (however, it is not prohibited)