• Dr. Omran: The law defines the terms set for granting license and establish a registry to list the companies and service providers which are authorized to practice consumer finance activity in Egypt. The draft law sets a period to settle their legal status.
• Dr. Omran: The provisions of the law give FRA’s BOD the right to take necessary measures in order to achieve market stability and protect the rights of clients dealing with consumer finance companies and consumer finance providers.
In its session held by the end of last year, FRA’s BOD approved a new draft law to regulate consumer finance activity and moved forward to send it to the competent official authorities to issue the legislation. Dr. Mohammed Omran –FRA’s Chairman emphasized that the draft law consisted of twenty nine articles regulating each activity aimed at providing financing to purchase goods and services for consumption purposes in Egypt. In addition, it included financing through commercial payment cards or payment systems.
The draft law excluded financing in which the period of its installments is shorter than the limit issued by FRA’s BOD decision provided that installment period shall not be less than six months in all cases.
FRA’s Chairman said that the provisions of this law is not applied to financing activities carried out by banks subjected to the supervision of the Central Bank of Egypt, even if they are for the purpose of financing to purchase consumer goods or services. The provisions of this law also do not apply to activities organized under the provisions of real estate finance, financial leasing, factoring, microfinance or purchasing real estates through real estate developers, nor to providers of consumer finance whose annual financing is less than the limit set by FRA’s BOD (not less than 25 million pounds).
Dr. Omran added that the first chapter of the draft law dealt with a number of definitions, rules and general provisions of this new activity which will be subjected to FRA’s supervision. In the first article of the second chapter, the draft law stated that the license of the consumer finance activity should not be permitted except for companies licensed by Authority and listed at FRA’s registry. Consequently, the Authority shall ensure the existence of the conditions set by FRA’s BOD. These conditions are as follow: the company shall be a joint stock company and it’s issued and paid-up capital shall not be less than the limit decided by FRA’s Board of Directors, provided that it shall not be less than ten million Egyptian pounds. Also, the company’s founders shall be Legal persons by not less than 50% of the company’s capita. In addition, the proportion of financial institutions’ contribution shall not be less than 25% of the company’s capital.
It also requires the availability of certain conditions and professional experience for Managing Director and Financial managers. These conditions shall be issued pursuant to FRA’s BOD decision. Besides, the company’s activity is limited to consumer finance activity only, unless authorized by the Authority to engage in other non-banking financial activities.
FRA’s Chairman pointed out that the draft law was prepared in five chapters. It regulates the relationship between the client and consumer finance companies. The draft law obliges the latter to conclude a contract with their clients in accordance with the form set by the Authority, including a number of certain points. These points include: defining the financed goods and services clearly, certain disclosures such as the price of goods upon purchasing , the amount paid by the financing agent upon signing the contract, specifying the amount of financing provided by the company and period of payment, the number of installments and the value of each of them. That is besides defining the rate of return that is used mainly to calculate financing value and whether it is fixed or variable, without complying with the limits stipulated in any other legislation. Besides, a statement obtained by financing company, including prohibition from making transaction until meeting the financial obligations and the client’s approval to authorize financing company to disclose financing data to the Authority and the credit-query companies. The contract shall include the right of the company to sell or deduct the debts owed to it.
The draft law also allows consumer finance companies to provide financing through commercial payment cards and payment systems, based on their contract with a network of vendors and providers of consumer goods and services. Upon the conclusion of the contract with their clients, Consumer finance companies shall make a list the vendors and providers of goods and services and state how to update this list all over the period of contract and this is in accordance with the form set by FRA. Also, the draft law specify the maximum amount of financing provided by the company , terms of payment and the rate of return that is used as the basis for calculating financing account whether it is fixed or variable, without complying with the limits stipulated in any other legislation.
Dr. Omran stressed that the draft law obligates consumer finance companies to prepare periodic and annual financial statements in accordance with Egyptian accounting standards. Also, it obliges the companies to submit a quarterly report to the Authority, including the company’s business, the size of financing and its distribution according to the financed goods, volume of faltering financing, its proportion to the total activity, and its commitment to apply financing ratios according to the client’s willingness.
FRA’s Chairman also noted that the draft law obliges consumer finance providers – whose main activity is to manufacture, distribute or sell the financed goods and services – to obtain a license from the Authority. Besides, it shall be listed at a special registry whenever the financing value granted by them – annually- exceeds the amount set by FRA’s BOD (at least 25 million pounds). In addition, the Executive Director responsible for consumer finance activity shall meet the conditions and professional experience issued by the Board of Directors’ decision. Also, the company shall inquire about its clients with a credit company. It shall have separate financial accounts and independent financial statements regarding consumer-finance activity.
FRA’s Chairman also praised series of meetings conducted by the Authority with participants in consumer finance activity. He added that such meetings showed the importance of raising awareness of the said activity, protecting the rights of its clients and maintaining the competitive climate that enhances its growth and that was clearly stated in a separate chapter in the draft law.
Dr. Omran added that the provisions of the draft law granted the Authority the right to practice its regulatory role over consumer finance activity. In this respect, FRA shall monitor the registries, documents, data and electronic media in the headquarters of consumer finance companies and consumer finance providers and its branches and places where they are located. In addition, the draft law grants FRA powers of judicial control to prove crimes that violate the provisions of the law or decisions issued in this respect.
In order to achieve stability within the market and protect the rights of clients dealing with consumer finance companies and consumer finance providers, FRA’s BOD shall take one or more measures among a number of measures stated in the draft law or it shall obligate these companies to enhance their financial adequacy in accordance with a fixed schedule. Also, FRA shall take these measures upon violating the provisions of the law or the decisions issued in this regard, or upon missing one of license conditions.
FRA’s Chairman noted that the draft law contains grievance mechanism against FRA’s decisions. He added that the provisions of chapter four stipulated the establishment of one or more committees to consider the grievances submitted by stakeholders against the administrative decisions issued in application of the provisions of this law. He emphasized that the committee shall include one of the vice-presidents of the State Council and two counselors of the State Council chosen by the Head of the State Council, a representative from FRA chosen by FRA’s Chairman, an experienced member chosen by the competent Minister. The complainant shall be present before the Committee by himself, by a deputy, or by his representative.
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