DOES THE DEFINITION OF THE COST OF CONSUMER CREDIT ACCORDING TO THE REGULATIONS SUPPORT CREDIT DECISIONS?
RESULTS OF INDIVIDUAL IN-DEPTH INTERVIEWS WITH EXPERTS
Keywords:
Annual Percentage Rate, APR, Annual Effective Rate, AER, Consumer Credit, Credit Costs, Time Value of Money, Simple Interest, Compound Interest, Opportunity CostAbstract
According to the regulations in force, including in Poland, loan institutions must disclose the costs of consumer credit. However, these costs can be presented in many ways. By conducting in-depth interviews with experts, we analyse whether the way in which the applicable regulations are imposed supports the credit decisions of the average consumer. Experts\' statements show that the regulatory solutions currently in use may deliver far from what is expected. AER, annual effective rate (RRSO in Poland), the key measure of the cost of consumer credit introduced in Poland by the provisions of the Consumer Credit Act, is very ambiguous and, in the opinion of experts, in many cases distorts the actual cost of credit, thus making it difficult for consumers to make rational credit decisions. The conclusions of the study may be of significant importance both for institutions regulating the consumer credit market and for entities operating on this market.
