Inconsistencies and Excessive Interest Rates Charged by Fintech Lending Companies

Seventy-seven percent of fintech lending companies on mobile apps or Internet platforms charge their clients a financial cost (FC) that exceeds 150% annually, while the FC of more than half of them is over 400% annually. This is the outcome of a survey carried out on website and mobile apps by the BCRA in the first week of June.

Thus, 46 fintech lending and payment service companies were surveyed on the basis of the information, examples and simulators published on their platforms. Out of all the surveyed fintechs, 24% do not post any information on lending costs.

The main conclusions are as follows:

• About 50 companies use mobile apps or internet platforms as sole or supplementary channel in order to offer and grant loans (mainly for consumption).
• Out of a total of 46 fintech lending companies, the BCRA found out that 11 of them (24%) do not publish any information on their lending costs.
• Out of the other 35 companies that do post information on their costs and/or whose FC can be deduced from the installments posted, 27 (77% of the 35 reporting companies) charge a FC that exceeds 150% annually and, 18 (51% of companies) charge a FC over a 400% FC annually.

In addition, the survey revealed that companies follow different criteria to provide information about financing costs. In some cases, they inform the annual/monthly nominal interest rate; in other cases, FCs are shown in nominal but not in effective terms. In many cases, FCs are wrongly informed (as the FC does not agree with that of the example or simulator) or else the value of installments is informed in lieu of the FC.

The BCRA is particularly interested in the development of fintech activities because of their potential to improve the population’s financial inclusion. These companies let users make electronic payments in shops, pay for services online, transfer funds, recharge mobile phones—through electronic wallets—and have access to online cash loans.

Through monitoring, the BCRA seeks to assess the development of this activity, its potential risks and aspects related to financial consumer protection and financial inclusion. As regards risks, the BCRA is concerned, in particular, about those related to financial stability, as fintechs can have access to bank funding and capital markets under certain circumstances.

June 10, 2020.