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2023-01-15

Added

DFIM Circular Letter No. 01: Schedule of Fee/Charges/Commission for Financial Institutions

The Department of Financial Institutions and Markets amends Instruction 4 of Circular Letter No. 01/2018 to cap prepayment fees at a maximum of 1% of the outstanding balance, while exempting micro and small enterprises. It mandates that financial institutions provide at least one month's prior registered mail notice to customers before adjusting interest or profit rates, ensuring proof of receipt is retained in loan files. Additionally, institutions must recalculate and provide updated repayment schedules following any rate changes, and waive prepayment fees if a customer chooses to fully settle the loan within one month of the rate adjustment date.

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Bangladesh Bank

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Department of Financial Institutions and Markets Bangladesh Bank Head Office Dhaka. Ref No.: DFIM.Circular.01 DFIM Circular Letter No.-01 To, Managing Director/Chief Executive Officer All Financial Institutions operating in Bangladesh.

Dear Sir,

Regarding the imposition of fees/charges/commissions on Financial Institutions.

  1. Reference is invited to DFIM Circular Letter No.-01, dated: 03 April 2018.

  2. Through the aforementioned circular, instructions were issued regarding the provision of notice to customers regarding changes in interest/profit rates on loans/leases/investments by financial institutions, and regarding the imposition of fees/charges/commissions for providing various services. According to Clause 4 of the circular, if there is a need to re-determine the interest/profit rate based on the loan agreement, the financial institution is obligated to provide the customer with a one-month prior notice stating the justification for the increase in the interest or profit rate on the loan/lease, and to ensure that such notice is received by the relevant customer. In such a case, if a customer wishes to terminate the contract by repaying the principal of the loan or investment within one month from the date of the increase in interest or profit rate, no prepayment fee shall be charged before the maturity date. Instructions to this effect have also been issued.

  3. It has recently been observed that some financial institutions are not ensuring the receipt of notice by customers regarding the re-determination of interest/profit rates in accordance with the provisions of DFIM Circular Letter No.-01/2018. Furthermore, it is often observed that customers realize after paying the final installment according to the loan agreement schedule that their loan has not been fully paid off/settled; due to the change in the interest/profit rate by the institution, customers have to pay additional installments/loan dues. This causes confusion among customers, and complaints regarding such issues become protracted through communication with the institution, eventually reaching Bangladesh Bank, which is undesirable. Additionally, the need for rationalization of the existing prepayment fee rate has been observed.

  4. In view of the above, Instruction 4 of DFIM Circular No.-01/2018 is hereby replaced as follows:

(a) In the case of prepayment of the principal of a loan/lease/investment by the customer before maturity, a prepayment fee (Prepayment Fee) at a maximum rate of 1% on the outstanding balance of the loan/lease/investment may be charged. However, no such fee shall be charged for the settlement of loans provided in the Cottage, Micro, and Small (MSE) enterprise sectors before maturity.

(b) If there is a need to re-determine the interest/profit rate under the loan agreement concluded with the customer within the limit prescribed by DFIM Circular No.-06/2022, the customer must be notified at least one month prior at the latest updated contact address kept in the loan file, stating the justification for the change in the interest or profit rate on the loan/lease/investment, via registered post, and proof of receipt of the notice by the customer must be kept in the relevant loan file.

(c) The subsequent reduced/additional principal amounts to be paid due to a decrease/increase in the interest/profit rate under the loan agreement must be adjusted with the total amount, and a new repayment schedule must be provided to the customer.

(d) If, due to a decrease/increase in the interest or profit rate, a customer wishes to terminate the contract by fully repaying the principal of any loan/lease/investment within 01 (one) month from the date of re-determination of the interest or profit rate, no prepayment fee (Prepayment Fee) shall be charged.

  1. Other instructions mentioned in DFIM Circular No.-01/2018 shall remain unchanged.

These instructions are issued under the powers conferred by Section 18(c) of the Financial Institutions Act, 1993, and shall come into force immediately.

Yours faithfully,

(Md. Amir Uddin) Director (DFIM) Phone: 9530178 15 January 2023 Date:

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