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  • CM-7.5 CM-7.5 Disclosure requirements

    • Disclosure of key terms

      • CM-7.5.1

        Licensees must make clear to potential counterparties, prior to entering into a consumer finance agreement, all relevant key terms of the agreement.

      • CM-7.5.2

        These terms should be summarised in plain English and Arabic in a short "key terms disclosure" document; this document must be signed and dated by counterparties (in duplicate) as having been read and understood, prior to signing a consumer finance agreement. One copy should be retained by the counterparty and the other must be retained by the licensee in their customer file.

      • CM-7.5.3

        The "key terms disclosure" document must, amongst other things, make clear:

        (a) the amount being received or the credit limit being offered, its maturity and repayment schedules;
        (b) the nominal amount of the cost of credit to be provided to the customer;
        (c) whether this cost of credit is fixed or can go up and / or down, and under what circumstances;
        (d) the basis on which the cost of credit is calculated and when capital repayments are taken into account in the calculation, together with an illustration of the calculation method;
        (e) a breakdown of all other costs not included in (b), (c) and (d) above and associated with the credit, such as arrangement fees, documentation fees, late payment fees (if permitted by the Shari'a Board), and obligatory payment protection insurance costs;
        (f) the full costs associated with top-ups of installment facilities or early repayments of amounts due (in full or in part if permitted by the Shari'a Board), including the treatment of remaining profit and the payment of premium for insurance; and
        (g) the Profit Rate, as defined in paragraph CM-7.5.5 below.

      • CM-7.5.4

        Licensees are free to design the layout and wording to be used in their "key terms disclosure" document, as they see fit, providing they contain the information specified in paragraph CM-7.5.3 above. BMA will monitor compliance with the spirit as well as the letter of the requirements in this chapter. If necessary, BMA will consider prescribing a standard template to be used by all licensees engaged in consumer finance.

    • Annual Profit Rate "APR"

      • CM-7.5.5

        The APR is a standard measure that allows consumers to compare total charges for credit facilities to be compared on a like-for-like basis. The APR allows the consumer to compare the total charge for credit over differing periods (e.g. — two versus three years) with differing payment profiles and taking into account the payment of any other fees payable as a condition of the contract, such as documentation fees or insurance premium.

      • CM-7.5.6

        The APR should be shown clearly on the facility document and "key terms disclosure" document (as set out in paragraphs CM-7.5.1 to CM-7.5.4 above).

      • CM-7.5.7

        The APR methodology should also be utilised in advertisements for credit. Any deferral of profit or principal announced by the bank should also take account of the APR methodology, and the new APR should be given to the client or made public in advertisements.

      • CM-7.5.8

        The total charge for credit payable by a consumer includes the following items:

        (a) Effective rate of profit on the credit;
        (b) Documentation or administration fees;
        (c) In the case of ijara or deferred purchase contracts, any fees for purchasing the asset (e.g. an option to purchase fee payable at the end of the contract); and
        (d) Any fees or charges payable under any linked or mandatory contract entered into as a condition for the granting of the credit facility, such as payment protection insurance.

      • CM-7.5.9

        The APR must be calculated using the following methodology:

        K=m
        ∑
        K=1        		 Ak
        (1 + i) tk        		 = K'=m'
        ∑
        K'=1        		 A'k'
        (1 + i) tk'

      • CM-7.5.10

        The meaning of letters and symbols used in the above formula are:

        K is the number identifying a particular advance of credit;
        K' is the number identifying a particular instalment;
        Ak is the amount of advance K;
        A'k' is the amount of instalment K;
        ∑ represents the sum of all the terms indicated;
        M is the number of advances of credit;
        M' is the total number of instalments;
        tk is the interval, expressed in years between the relevant date and the date of advance K;
        tk' is the interval expressed in years between the relevant date and the date of instalment K';
        I is the APR, expressed as a decimal.

      • CM-7.5.11

        For the purpose of this chapter, the "relevant date" is the earliest identifiable date on which the customer is able to acquire anything which is the subject of the agreement (e.g. delivery of goods), or otherwise the "relevant date" is the date on which the credit agreement is made.

      • CM-7.5.12

        In the case of instalment finance such as a credit facility, where there is no reimbursement of cost of credit in the event of early repayment, then the residual cost of credit in the old facility must be added to the cost of credit for the new facility, and the APR amended accordingly.