2020-01-15 See how you can define a loan company, bank and best bank. On what principles do such institutions operate and what do they actually do? The financial market in Poland is strictly regulated, so it is easy to see what rights and obligations have individual financial institutions.
What is a loan company?
A loan company is simply a company that specializes in granting loans. All companies that choose to grant loans as the main area of their business must meet a number of formal requirements. This is regulated by the Financial Supervision Act and the Consumer Credit Act. Such a company must act as a limited company or joint-stock company. Its minimum share capital is 200,000. USD, and members of the management board or the supervisory board cannot be convicted of economic crimes.
When starting a business, the loan company must obtain an entry in the Register of Loan Institutions, supervised by the Polish Financial Supervision Authority. Her sensitive data is subject to banking secrecy. The detailed operating conditions of the loan company are regulated by art. 59a of the Consumer Credit Act 1 . All paid loans granted by loan companies are also regulated by the provisions of this Act. For this reason, you can always terminate a loan agreement, for example.
All companies can borrow money for a fee, but this does not automatically qualify them as loan companies, as long as it is incidental. In this case, the money is borrowed based on the provisions of the Civil Code. The same terms can be borrowed by private individuals who do it as part of a business, although compared to companies, they will settle accounts differently with the tax office.
What is a bank?
Loan companies are strictly regulated by law, but the amount of laws they produce cannot be matched by banks. Banks’ activities are regulated by the Banking Act 2 , which has 231 pages, and indirectly also a number of other acts, including already mentioned about consumer credit and financial supervision. Lending is only part of the business that banks can do, although there are some that deal almost exclusively with it. Credits and loans may be unintentional or for a specific purpose – such as a car loan or a home mortgage.
One of the distinguishing features of banks is the deposit guarantee system. Thanks to it, you don’t have to worry about amounts deposited in such institutions up to the amount of 100,000. euro. Banks are an essential part of any modern economy. They enable investments and issue of money, allocate capital where it is needed. Their activities are supervised by a Central Bank independent of the government, which ensures the stability of the financial system, and the Polish Financial Supervision Authority. It is because of their significance for the entire economy that banks must be so closely supervised, both by various institutions and by extensive law. Their massive collapse could cause a financial crisis, as was the case in 2009, when American banks were too eager to grant mortgages. Therefore, at present, banks must carefully examine the credit risk associated with granting financing.
Financial institutions: differences between the bank and the company
It is easy to identify differences between a bank and a loan company. Banks are the only financial institutions that can grant loans. Loan companies only grant loans.
Most of the loans granted by banks and loan companies are subject to the same legal act, i.e. the Consumer Credit Act, i.e. they have the same maximum loan cost limits, information obligation, obligation to examine the customer’s creditworthiness and the same form of contract.
Banks borrow from own funds and money deposited on their accounts, and loan companies from own funds and investors’ funds. In addition to this difference, banks, compared to loan companies, conduct a much wider activity – they take deposits, send money, issue securities and many more.
What are best banks?
For the activities of loan companies and banks is strictly regulated and determined on the basis of specific acts, the Polish law lacks the definition of a best bank. In the most general sense, best banks (from a couple from Greek – next to, close) can be called any institution that deals with some areas of the business of banks and is similar in that sense, e.g. sending money, taking deposits or granting loans. Most often, however, this term is used to refer to institutions that accept deposits.
Such best banks are, for example, popular credit unions, which offer virtually all banking services or fintechs that allow you to store money on their accounts (even PayPal). The very name para-bank may suggest that such financial institutions are in some way inferior to banks, but this does not have to be the case. Due to the fact that one or another financial institution deals with only one area of activity, it can be more efficient and offer its services in better quality and cheaper than a typical bank. In case of doubt as to whether a given financial institution is safe, you can always check the list of KNF public warnings. We would like to remind you that on this list already in December 2009 was the famous, bankrupt institution Amber Gold.
Interestingly, the Financial Stability Committee (the institution responsible for overseeing the stability of the financial system in Poland) has its own definition of a best bank. According to her, institutions that are not covered by the PFSA supervision cannot be best banks, i.e. they are not credit unions or loan companies 3 . A good indication of which institution is honest and which is not to provide the nominal interest rate instead of the more reliable APRC (actual annual percentage rate).
Either way, equating loan companies with best banks is wrong. According to the broader definition of best banks, as all companies dealing in banking-like services, they are only one of many various such institutions. On the other hand, in the narrower definition, i.e. as institutions that accept cash deposits, they are not at all.