Government policy to expand the supervision of the providers of auto-for-cash loans to be approved by the Bank of Thailand and Ministry of Finance is an important step toward more extensive supervisory scope with respect to financial service providers. With a well-defined, transparent business framework and a justifiable interest rate structure, this direction will tighten the protection of retail service users, low-income earners and self-employed persons who do not have proper access to financial institutions in the system
According to this supervisory guideline, service providers are classified into two groups in accordance with the size of capital fund and business scope. The first group includes financial and non-bank institutions having a minimum registered capital of THB 50 million; these entities are subject to the interest rate ceiling of 28 percent. The second group consists of pico-finance operators with a minimum registered capital of THB5 million, for which the interest rate ceiling stands at 36 percent. KResearch views that some non-bank entities may be affected by the interest rate limitation, particularly those focusing on retail borrowers with a high risk including those persons with a non-formal, independent career, people with unclear residence, and motorcycle-for-cash loan customers which are quite difficult for debt collection. Therefore, self-adjustment of such non-bank entities must be closely monitored.
Another new requirement concerns a waiver of prepayment fee, which is expected to affect business opportunities and revenues of all groups of loan providers. Currently, prepayment fee, wherein the car title is transferred and a hire purchase contract based on the Office of the Consumer Protection Board's requirement is concluded, is subject to an interest rate of 50 percent of the future interest. For cars lying in grant transfer where a loan agreement is concluded, an interest rate of 2 percent of the outstanding principal is charged for prepayment accounts, which is identical to 3-year prepayment of home loans.
Related regulatory agencies may have be cautious in considering other relevant measures in order not to cause any obstacle to consumers' access to financing, especially low-end customers who do not have many options for using financial services in the system. Support measures may be useful to attract operators toward this customer segment in order to prevent monopolies and reduce interest rate burdens on the borrowers.
This year, adverse impacts on car title loan growth may remain minimal, while the overall car title loan sector may be affected by other factors than this new measure such as last year's high base of comparison. Another factor may involve some target customers who sell their old cars amid more active new and used car markets after the effects of the first-time car buyer scheme have already faded out; this group of customers will not yet be eligible for car title loans. As a result, KResearch estimates growth of 10 percent YoY for car title loans in 2018, relative to the 14.6-percent increase of 2017.