Charges not disclosed to borrowers in loan agreements null and void – BoG

Governor of Bank of Ghana, Dr Ernest Addison

The Bank of Ghana (BoG) has announced that charges that are not disclosed to a borrower in a loan agreement should be considered null and void.

Describing borrowers who may suffer such ordeal as victims, the BoG also directed commercial banks and lenders to refund such monies to the borrowers.

“Borrowers shall be due a refund of all such charges paid”, the BoG stressed in a statement titled Bank of Ghana’s Responsible Borrowing Guidelines.

It added that “victims” must report such acts to the regulator if the lenders fail to reverse the payments.

According to the BoG, it is embarking on the campaign to promote transparency in loan disbursement, as well as empower borrowers to “shop around” for better rates and loan conditions.

Responsibilities of Lenders

The central bank also directed lenders to make sure that before a borrower signs a loan agreement, they are given what is called “Pre-Agreement Truth” in lending statement (Similar to Proforma Invoice) that summarizes the terms and conditions associated with the loan.

This should disclose all the conditions that is contained in the loan agreement.

The regulator noted that this information on 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

 What should borrowers do before signing a loan agreement?

The BoG also advised borrowers that prior to signing any loan agreement, customers must read and ensure that they understand all the terms and conditions, and seek professional advice.

“They are also required to seek clarification from the lender in any language of your choice to gain the needed understanding of the loan product”, it added.

The BoG advised borrowers to look out for interest rate which in this case should be the Annual Percentage Rate (APR), which represents the total cost to be paid to the lender each year for the loan, expressed as a percentage.

“Note that the APR 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

Repayment of Loans

The BoG has also directed lenders that in circumstances where a borrower wants to pay off a loan, earlier than scheduled ,  lenders should 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.

It added that even though this will be associated with settlement penalty fee, it should not exceed 0.25 percent of the principal amount to be paid.

Why this move by the Bank of Ghana?

The Bank of Ghana explained that the action is part of the broader move to promote transparency and effective disclosure practices in the financial sector.

It 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.