Caribbean Netherlands: amendment to legal definition of cost of credit with effect from 1 July 2023
The legal definition of the term ‘cost of credit ’ (kredietvergoeding) has been amended. The new definition will take effect from 1 July. Under the new definition, all fees charged in connection with a loan qualify as part of the cost of credit. This will give consumers better insight into their actual borrowing costs.
Additional fees will be part of the cost of credit
Under the new definition, fees charged for additional financial products taken out in connection with a loan, such as for a term life insurance policy, qualify as part of the total cost of credit, even when these fees are not charged by the credit provider itself. Fees charged for insurance policies and valuations relating to the item for which the loan is taken out do not qualify as part of the cost of credit. This is because it is not mandatory to take out these additional financial products in order to obtain the loan. Arrears charges and fees charged for early repayment are also excluded from the new definition. Accordingly, these can be charged separately.
The expansion of the legal definition will create more transparency for consumers and will make it easier to compare loans. The fact that the fees charged for mandatory additional financial products (such as term life insurance) will be included in the cost of credit means that consumers will have a better overview of the total costs of a loan. It will no longer matter whether fees are charged by the credit provider or, for example, by an insurer, as they will all be included in the total cost of credit.
Credit providers must change their calculation method
From 1 July, all credit providers are required to apply the new definition of cost of credit. Therefore, as of this date, providers must include all mandatory and other additional fees charged in connection with a loan when calculating the total cost of credit. In addition, credit providers must communicate clearly about the cost of credit before and after consumers take out a loan.
The AFM will closely scrutinise correct application of the new definition
In its coming supervisory visits to the Caribbean Netherlands, the AFM will pay extra attention to the new legal definition of the cost of credit. The AFM will check if providers correctly apply the new definition. The new definition is laid down in the Financial Markets (Amendment) Act 2022. The text of this Act (in Dutch) can be consulted here: Wijzigingswet financiële markten.
Questions
If you have any questions about this matter, please send an email to bes@afm.nl.
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