The Bank of Thailand is set to issue regulations on auto refinancing in November aimed at standardising and creating fair practices for consumers.
The regulations would help protect consumers, particularly those at the bottom rung of the economic ladder, said Daranee Saeju, senior director of financial institution strategy development for the central bank. A consultation paper was published and a public hearing on the issue was held this month.
The central bank's survey found that interest rate and loan contract conditions are the key unfair factors for borrowers, who are largely lower-income earners and lack financial statements.
"On average, the refinancing rate for motorcycles is in the range of 25-65% a year, while the rate for cars is 20-30%, with a top rate of 50%," Ms Daranee said.
The unfair conditions include high interest rates for loan defaults and expensive debt collection fees, she said.
Car-for-cash service poses an opportunity for consumers to access financial sources, especially in case of an emergency. As a result, the central bank wants to standardise the business and make it fair for consumers.
The public hearing noted that auto and motorcycle refinancing firms are required to have minimum registered capital of 50 million baht with a one-year grace period. There is no limit to the credit of the financial service. The ceiling interest rate including fees is 28%, equal to the maximum rate for personal loans.
The regulator also prohibits interest charges for top-up loans, and prepayment fees. In the event that collateral is foreclosed on and sold, creditors must pay back the different amount to borrowers. Lenders also must clarify monthly loan instalment, interest rate and fees and debt default charges, and they must have a complaint centre.
At present, personal loan service providers regulated by the central bank are allowed to offer car-for-cash business, while picofinance under Finance Ministry rules also covers car-for-cash business.
Ms Daranee said new business operators need to apply for an auto refinancing business licence. Meanwhile, existing car-for-cash business operators under personal loan and pico-finance licences are required to report to the central bank for business operations and qualifications within 60 days after the regulation announcement.
There are about 1,000 car-for-cash business operators nationwide, of which about 100 have the minimum registered capital of 50 million baht.
Thirty of the 100 business operators are granted personal loan licences, and 17 of the 30 are required to report to the central bank for business operations.
The operators with the minimum registered capital of 50 million baht hold a combined 90% market share, while the top three players represent 50% market share.
The top three are Muangthai Capital Plc, which operates under the Muangthai Leasing brand; Srisawad Power 1979 Plc; and Ngern Tid Lor (Money on Wheels).
