Circular Letter No. 3/95/DSB of 26/01/95: Interpretation of Decree-Law No. 220/94 of 23 August

Banco de Portugal
Circular Letter No. 3/95/DSB, of 26/01/95
SUBJECT: Interpretation of Decree-Law No. 220/94, of 23 August.
With the aim of promoting the uniform application of Decree-Law No. 220/94 of 23 August, the Banco de Portugal deems it necessary to inform institutions subject to the discipline of the aforementioned instrument that, in its understanding:
a) The expression "account statement", which appears in paragraph 5 of Article 5, covers only the statements specifically related to the credit operation in question, not covering, therefore, the statements relating to current deposit account movements, where flows related to the same operation may eventually be shown. However, if there is an obligation for the credit institution to inform the client of modifications made to the contract and if the information in question is not provided by another means, the provisions of the cited rule are applicable to current deposit account statements where movements related to the execution of the credit operation are shown; b) Paragraph 5 of Article 5 is applicable to operations contracted before the entry into force of the instrument only in cases where the renewal or extension of the maturity date occurs; c) The instrument is not applicable to operations carried out by establishments of credit institutions located abroad, but applies to operations carried out by external financial branches and international financial branches; d) Subparagraph c) of paragraph 1 of Article 4 does not cover deposit balances given as security for credit operations contracted or to be contracted, provided that such balances are remunerated under normal market conditions; e) In all cases where the Effective Annual Percentage Rate (TAE) is indicated, the commissions and other payments referred to in subparagraph d) of paragraph 1 of Article 4 must be explicitly stated, in order to allow their comparability with the equivalent TAE calculated by other credit institutions; f) In subsidized credit operations, the rate to be considered for the purposes of determining the nominal rate and the TAE is the contractual rate, without deduction of the applicable subsidy; g) For the purposes of the provisions of subparagraph a) of paragraph 4 of Article 3, the indices, the determination of which does not depend on a decision of the institution (for example, LIBOR, LISBOR), will only be identified, without the need to explicitly state their current value at each moment. If the determination of the index value depends on a decision of the credit institution, the current value at each moment must be advertised, in accordance with the provisions of the instrument; h) The "prime-rate" or "preferred interest rate" must be considered as an index for the relevant purposes of the instrument; i) The disclosure of the "prime-rate" or "preferred interest rate" is mandatory for credit institutions whenever they use this indicator in their commercial practice; j) The indication of the TAE is not mandatory for consumer credit operations, since, for these, the Annual Percentage Rate of Charge (TAEG) must be calculated, in accordance with the provisions of Decree-Law No. 359/91, of 21 September; l) For the purposes of the provisions of sub-subparagraph ii) of subparagraph f) of Article 2:
i) For the existence of "certain previously determined dates" to be verified, it is sufficient that the relevant dates are merely determinable by applying a clear and objective criterion stipulated in the contract, which enables the debtor to know, at each moment and with reasonable advance notice, the time at which the interest rate may be modified by the credit institution;

ii) The expression "provided that the client has the option, as an alternative to maintaining the current interest rate, to demand early repayment of the credit, without any penalty" must be understood as meaning: "provided that the client has the option to demand early repayment of the credit, without any penalty, in which case the credit institution may opt to maintain the current interest rate". __________________________________________________________________________________ Sent to:
Banks, Caixa Geral de Depósitos, Savings Banks and Central Credit Agricultural Mutual.