Lenders must provide ‘Pre-Agreement Truth’ statement before loan signing, says BoG
The Bank of Ghana (BoG) has taken a major step towards promoting transparency and effective disclosure practices in the financial sector. The central bank has issued a set of guidelines that are aimed at empowering borrowers to make informed decisions about loans and to protect them from undisclosed charges. The move comes in response to widespread concerns about the lack of transparency in the lending industry, and the adverse impact that it can have on the financial wellbeing of borrowers.
Under the new guidelines, commercial banks and lenders in Ghana will be required to disclose all charges to borrowers in a loan agreement. Charges that are not disclosed in the agreement will be considered null and void, and borrowers who have paid such charges will be entitled to a refund. The BoG has also directed lenders to provide a pre-agreement truth in lending statement, which summarizes the terms and conditions associated with the loan, including interest rates, fees and charges, repayment schedules, and penalty charges.
The ‘Pre-agreement Truth’ in lending statement should include:
a. Interest rate of the credit facility (indicating whether fixed or variable).
b. Annual Percentage Rate (APR)
c. Other fees and charges such as commissions, administrative or processing fees, commitment fees, insurance.
d. Bundled products and services.
e. Repayment Schedule.
f. Penal charges or late payment penalties.
g. Penalty rates and any other charges associated with the product.
h. Security deposits or savings required as a condition to acquire the loan.
i. Total amount to be paid back at the end of the loan period, among others.
This move by the BoG is aimed at ensuring that borrowers are fully informed about the loan before they sign the agreement.
In addition to promoting transparency, the BoG has also sought to empower borrowers to “shop around” for better rates and loan conditions. The central bank has emphasized the importance of borrowers seeking professional advice before signing any loan agreement, and has advised them to look out for the Annual Percentage Rate (APR), which provides a broader measure of the cost that a borrower pays for taking a loan. The APR reflects not only the interest rate but also the other fees and charges that borrowers have to pay for the loan.
The BoG has also taken steps to protect borrowers who wish to pay off their loans earlier than scheduled. Lenders are now required to provide the full outstanding amount to pay and allow the borrower 20 working days from the date of receipt of the written request to effect the full repayment. While this may be associated with a settlement penalty fee, the BoG has set a limit on the penalty fee, which should not exceed 0.25 percent of the principal amount to be paid.
The BoG has emphasized that the action is part of a broader move to promote transparency and effective disclosure practices in the financial sector. The central bank has argued that it also wanted to bring to the attention of the general public the key issues with regards to loan acquisition and repayment responsibilities and obligations of customers of banks and specialized deposit-taking institutions. The move is expected to promote financial inclusion in Ghana, by encouraging borrowers to make informed decisions about loans and by protecting them from undisclosed charges.
Overall, the BoG’s guidelines are a welcome move towards promoting transparency in the lending industry in Ghana. By empowering borrowers to make informed decisions and by protecting them from undisclosed charges, the BoG is taking a major step towards promoting financial inclusion and safeguarding the financial wellbeing of borrowers.
