Contractual versus regulatory interest rate cap/floor
Please clarify how to report the data attributes “interest rate cap” and “interest rate floor” given that the interest rate may be subject to contractual and regulatory/legal constraints.
This case concerns a promotional loan, for which the contractually agreed interest rate floor is 0.68% and the interest rate cap is 1.47%. Additionally, an interest rate cap for this kind of promotional loan is imposed by the authorities (after loan inception), which in this case is the secondary market yield (SMR) + 0.25%. In a period of low interest rates, the legal interest rate cap overrules the contractual interest rate cap. How are the interest rate cap and interest rate floor to be reported in AnaCredit in the following two examples?
Example 1: the legal interest cap is below the contractual interest rate cap, but above the contractual interest rate floor (e.g. legal interest rate cap = 0.9%).
Example 2: the legal interest cap falls below even the contractual interest rate floor (e.g. legal interest rate cap = 0.5%).
We kindly ask you to also clarify the effect of legal restrictions on contractually set caps/floors in full generality, as there are then two values (one set by the contract and one set by law applicable in certain situations) that need to be taken into consideration.
The interest rate cap and floor indicate the upper and lower limits of interest rate that can be charged on the outstanding nominal amount. The floor and ceiling constitute a corridor for the possible interest rates and are used to protect against interest rate fluctuations. Typically, they are contractually agreed between the creditor and the debtor. However, in certain cases these can be additionally dictated or imposed (for example, after loan origination) by national regulatory or legal arrangements or special practices. These can include national conventions, institutional arrangements and specific deposit or lending products offered at national level.
Against this background, we would like to clarify that, under AnaCredit, the values reported for the data attributes “interest rate cap” and “interest rate floor” always reflect the contractual arrangements in this regard, while any regulatory restrictions, unless already reflected in the contract, are disregarded.
More specifically, where the interest rate that can be charged can additionally be dictated or imposed by national regulatory or legal arrangements or special practices, these need not be reflected in the interest rate cap and floor reported to AnaCredit, unless they are already accounted for at loan origination. These may include national conventions, institutional arrangements and specific deposit or lending products offered at national level.
For example, assume that the debtor and the creditor agree on an interest rate cap and floor such that the annualised interest rate floor Contractual lower bound = A and the annualised interest rate cap Contractual upper bound =B. Later in the lifetime of the loan, the loan is also subject to regulatory arrangements which determine that the interest rate charged per annum cannot be lower than Regulatory lower bound = X and cannot be larger than Regulatory upper bound =Y. In this case, only the contractual arrangements in this regard are taken into account when reporting to AnaCredit, even if at the reporting reference date both or either of the regulatory values are active (e.g. when or ).