Newsletter on The Amendments Made with The Law on Financial Leasing, Factoring and Financing Companies and Amendments in Other Laws
Law on Financial Leasing, Factoring and Financing Companies published in the Official Gazette dated December 13, 2012 and numbered 28496 has been amended with the Law on Financial Leasing, Factoring and Financing Companies and Amendments on Other Laws published in the Official Gazette dated March 7, 2021 and numbered 31416. With this amendment, legal regulations have been introduced regarding companies that provide savings finance services which have become highly preferable in the recent years. As a result of the extensive amendment, the name of the relevant law has also been changed to the Law on Financial Leasing, Factoring, Financing and Savings Finance Companies (the “Law”).
The substantial amendments introduced under the Law are summarized as follows:
- Introduction of Regulation on Savings Finance Company:
- Savings Finance Company:
With the new amendment, the customer is granted the right to use financing for the acquisition of housing, roofed workplace or motor vehicle, on condition that the pre-determined conditions are met within the scope of the agreement executed in accordance with the requirements specified in the Law. In return, according to the principles of interest-free financing, the right of organization fee and the obligations to manage the accumulated savings amount, to provide repayment and financing for savings finance companies have been regulated. The Law also stated that an independent savings and financing plan will be prepared for the customers and customer groups by savings finance companies. Furthermore, it is also stated that savings finance companies are obliged to separate savings fund pool accounts from their other accounts and any restrictive disposal activity by the savings finance companies thereon will be forbidden.
- Conditions of Establishment of the Savings Finance Company;
The savings finance companies to be established in Turkey (i) should be established as a joint stock company, (ii) the term “Savings Finance Company” should be included in their trade name, and (iii) the capital should be at least TRY 100,000,000.00 (hundreds of millions of Turkish Liras). In addition, the other establishment requirements set forth in the Law shall apply to savings finance companies as well.
The conditions for the founders of savings finance companies are subject to the same conditions as other companies covered by the Law.
- Savings Finance Agreement:
The savings finance agreement has been regulated in detail under the Law in order to regulate the relationship between the savings finance company and the customer and to protect customer’s interests in particular. With the regulation, the agreement will be executed in written form or an information or electronic communication device determined by the Banking Regulatory and Supervisory Authority (“BRSA”) as a substitute for the written form and with methods that will allow customer identity verification.
- Transactions that the Savings Finance Companies Cannot Carry Out :
Unlike other companies covered by the Law savings finance companies:
- Obtaining funds for savings finance companies will not be prohibited.
- Will be prohibited from financing any debts unless the debt arising from the acquisition of housing, roofed workplaces or motor vehicle.
- Will be prohibited from providing financing other than savings finance agreements.
- Will not be able to lend money to third parties, acquire shares of another company.
- Will not be able to use expressions and statements that will create “impression of a bank”and the phrase “participation” in all kinds of documents, announcements and advertisements.
In addition to the above, savings finance companies will only be able to finance purchases of domestically registered housing, roofed workplace or motor vehicles. It should also be noted that savings finance companies will not be able to carry out business and transactions that other companies under the Law are prohibited to carry out.
- Precautionary Regulations for Savings Finance Companies:
As per the new regulation, in the events stated in detail under the Law, the BRSA is authorized to ask the company to take certain measures that are deemed appropriate and within a period and a plan that will approved by BRSA, as well as to delay allocation dates for the savings finance companies. Additionally, in the event of liquidation of savings finance companies, they are obliged to set aside five per thousand of the organization fees from their income accounts in order to pay the savings owners. The Law also regulates that BRSA has the right to change the abovementioned rate.
- Financial Institutions Association:
All companies within the scope of the Law, including savings finance companies, are obliged to become a member of the Financial Institutions Association within 1 (one) month after obtaining their operating licenses.
- Sanctions:
In addition to the judicial and administrative fines related to various situations specified in the Law, an embezzlement clause has been regulated with this amendment. Accordingly, judicial penalty provisions have been imposed on the chairman and members of the savings finance company board of directors and other members who commit the crime of embezzlement by transferring the money or other goods that substitute money to them or someone else.
- Transition Period:
With the provisional clause, a period of 1 (one) month has been granted for companies engaged in savings finance activities on the effective date of the amendment, and it has been stated that in this period these companies should apply to the BRSA by stating that they will fulfil the conditions specified in the Law no later than 6 (six) months. Within this period, different sanctions such as liquidation or administrative fines have been regulated in the Law for companies that did not apply to the BRSA or failed to fulfil the required conditions despite having made an application. It should be noted that it is important for companies that are currently engaged in savings financing activities to comply with the transition period so that they would not face a sanction to be imposed by the BRSA.
- Amendments On Other Laws:
In addition to the amendments made to the Law, amendments have been also made in the Land Registry Law No. 2644, Banking Law No. 5411, Population Services Law No. 5490 and Capital Market Laws No. 6362. The term “Savings Finance Company” has been also included in these laws, and a crucial amendment has been brought to the Land Registry Law. Accordingly, it has been regulated that upon the request of the parties, the mortgage transactions of the immovable properties that are collateralized against the financing provided or to be provided to the customers by the savings finance companies based on the executed savings finance agreement, are allowed to be registered in the title deed directorates.
2.Changes In Financial Leasing, Factoring and Savings Financing Companies:
With the amendments made, in addition to the regulation of savings finance companies, some changes were made regarding financial leasing, factoring and financing companies.
- Amendment On Minimum Capital Amount:
One of the most important amendments made is that the establishment capital of financial leasing, factoring and financing companies should be at least TRY 50,000,000 (fifty million Turkish Liras). In accordance with the regulation of the Law, financial leasing and financing companies have to increase their capital to this amount within 6 (six) months from the effective date of the Law. Except in cases where the BRSA extends this period, the operating licenses of the companies that do not reach the new minimum capital specified within 6 (six) months will be cancelled.
- Cancellation of Restriction on the Founder Number:
The prohibition of less than 5 (five) founding partners was cancelled before the amendment in the Law in accordance to the amendments.
- Amendments On Precautionary Regulations:
As a result of the supervision to be carried out by the BRSA within the scope of precautionary regulations, in the presence of the situations specified under the Law in detail, the BRSA may request companies to take the necessary measures within a period it deems appropriate and within a plan it will approve.
In addition, in accordance with the new clause added to the Law, it has been stated that the conditions regarding the acquisition of participation in the country or abroad by the companies other than the savings finance companies will be determined by the BRSA.