Latvian central bank proposes caps on payday loan interest rates

Source: Xinhua| 2018-08-07 21:23:27|Editor: Shi Yinglun
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RIGA, Aug. 7 (Xinhua) -- In order to offset risks from careless lending, the Bank of Latvia has come up with a proposal to put caps on the interest rates charged by payday loan providers, the central bank's board member Harijs Ozols said on public radio Tuesday.

The Bank of Latvia representative explained that the caps on interest rates charged by nonbank lenders and a requirement to thoroughly check the borrowers' solvency are also intended to reduce macroeconomic risks.

At present, interest rates on consumer loans provided by nonbank lenders are considerably higher than interest rates on consumer loans provided by Latvian banks.

These payments eat away people's savings and increase insolvency risks, prompting many to "disappear" from the official labor market and receive their wages under the table, the central bank's representative said.

The Latvian interest rates are also much higher than in neighbor countries Lithuania and Estonia. While in Lithuania the daily interest rates on consumer loans are in the range from 0.24 to 0.15 percent and in Estonia they average at 0.12 percent, the Latvian rates are in the range from 0.55 to 0.25 percent.

The Bank of Latvia proposes limiting the Latvian rates at 0.12 percent.

The Latvian Finance Ministry in July announced its proposals aimed at protecting borrowers. The ministry proposed restricting the size of nonbank loans and their extension options. Since the respective legislation is still in the process of drafting lawmakers, too, are expected to come up with their own proposals.

Ozols said that it is also important to provide lenders with a comprehensive database containing information on the potential clients' income and outstanding debts.