Thailand Tightens Rules for Consumer Loan Agreements

The Contract Committee of Thailand’s Consumer Protection Board has issued new requirements and prohibitions for consumer loan agreements. The Notification of the Contract Committee Re: Stipulation of Loan Business for Consumers as a Contract-Controlled Business B.E. 2565 (2022) was published in the Government Gazette on December 13, 2022, and will take effect after 90 days (i.e., on March 13, 2023).

The notification repeals and replaces the Contract Committee’s previous notifications regarding the same subject matter, which were issued in 2001 (Nos. 1–2), 2002 (No. 3), and 2015 (No. 4). The notification enhances protection for consumers by extending the scope of application and stringently regulating the content of agreements for loans to individual consumers.

Key Definitions

The scope of the notification is largely indicated by its definitions of a few key terms:

• “Loan business for consumers” refers to a business in which the operator enters into an agreement to grant a loan to a consumer (i.e., not a juristic person) or to allow the consumer to borrow money from the business operator, whereby the consumer will spend money for a purpose other than their occupation or business to earn income. This includes granting loans to consumers through an electronic channel. The notification can also apply to personal loan businesses, digital loan businesses, and peer-to-peer lending businesses regulated by the Bank of Thailand.
• “Business operators” include financial institutions under the law relating to financial institutions; banks established under specific laws; individuals who carry out a loan business in their ordinary course of business; and juristic persons that engage in loan business, securitization business, or asset management of rights to monetary claim. Certain types of businesses and organizations—such as cooperatives—are excluded from the scope of this notification.
• “Interest” means legal interest in accordance with the Civil and Commercial Code, and it includes compensation, profits, and other benefits with the same characteristics as legal interest, regardless of name.

Required Loan Agreement Content

The notification requires that the loan agreement be clearly legible in Thai language, and it must be executed in two copies for both the lender and the borrower. The font size must not be smaller than two millimeters, with no more than 11 characters within one inch. The details that must be stipulated in the agreement include:

• Interest rate and other expenses together with calculation formula;
• Details about collection fees and expenses;
• Conditions on default—in bold, italic or underlined text, or otherwise made more clearly visible than other terms and conditions;
• Conditions for assignment of rights to claim repayment;
• Conditions for payment in installments;
• Notification duties and address to receive notifications by post or email;
• Data protection rules, especially in case of disclosure of personal data to a third party; and
• Conditions on guarantee by person.

If the loan agreement gives the lender the right to adjust the interest rate, the lender must notify all borrowers concerned in writing by registered post or email regarding any interest rate adjustment, depending on circumstances as stipulated in the Contract Committee’s notification.

Prohibited Loan Agreement Content

The Contract Committee’s notification prohibits the loan agreement from including certain clauses that provide excessive benefits to the lender, including:

• Restriction or exemption of liabilities of the lender in case of its default.
• Allowing the lender to claim for outstanding debt or call for repayment before the due date of the repayment period when the borrower is not in default.
• Allowing the lender to terminate the agreement without written notification.
• Allowing the lender to adjust the interest rate, fees, or expenses unless otherwise permitted under this notification.
• Requiring the borrower to apply for insurance, except for a housing loan or loan with collateral.
• Granting the lender the right to charge a penalty or fees before the due date for receiving payment has passed in accordance with the period specified in the agreement, except in certain circumstances prescribed in this notification.

Online, electronic, and digital loan businesses must also comply with this notification and ensure that the content of loan agreements complies with the specified requirements and prohibitions. Operators of platforms that act as an intermediary, such as peer-to-peer lending, must facilitate the distribution of loan agreements to the concerned parties (particularly the borrower).

Grandfather Clause
The provisions under this notification do not apply to loan agreements executed before the new notification’s effective date (i.e., March 13, 2023), which would have to be in accordance with the Contract Committee’s previous notification on consumer loans.  

As the new notification has an extensive scope of application and notable requirements and prohibitions, business operators—particularly nonfinancial institutions—should prepare for these more rigid provisions and review their draft loan agreements to ensure full compliance.

By Tilleke & Gibbins, Thailand, a Transatlantic Law International affiliated firm. 

For further information or for any assistance please contact thailand@transatlanticlaw.com

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