MOSCOW. (Anatoly Gorev for RIA Novosti) - The Russian consumer credit market is in a state of shock.

The Federal Service for the Oversight of Consumer Protection and Welfare, Russia's consumer rights watchdog, said last week that extending consumer credit through retail stores was illegal and came down harshly on banks that deliver credit cards to customers by mail.

Bankers rallied in protest. If practical action follows the service's statement, subsidiaries of foreign banks will be hit hardest because they have been the most active in such lending for several months now and are ousting domestic competitors from the Russian market.

This is not the first time Gennady Onishchenko, the federal service chief, has gone after banks engaged in lending to private individuals. In the past, he has expressed his support for all borrowers suing banks because their loan contracts contained hidden commissions. Now, the attack is focusing on banks that partner with chain stores to offer consumer credit.

This is no surprise. What is really astonishing is that, as the agency alleges, such banking operations violate Russian law. In fact, the Federal Service for the Oversight of Consumer Protection and Welfare has called upon its regional branches to put a stop to consumer lending in stores.

According to recommendations circulated by the agency in its local offices last week, "Bank lending to private individuals through numerous so-called 'auxiliary outlets,' 'lending and cash offices,' 'operation cash desks outside front offices,' 'credit centers' and others has lately become widespread. It usually takes place in large chain stores, such as Eldorado, Technosila and Euroset. With this, banks essentially ignore civil legislation on organizing the activities of companies as subjects of legal relations."

Bankers and their lobby-the Association of Russian Banks and the Russian Regional Banks Association-felt it was their duty to protest against the agency's move. However, the market response has been surprisingly reserved. At first sight, it appears too mild a reaction to such an ominous statement. But then, a majority of industry players are sure the inspection will not go any further than written and oral statements-Russia is too interested in investment from foreign banks to hit Western bank subsidiaries, currently the principal providers of fast loans.

Financial analyses carried out since the beginning of the year show foreign-based companies to be the most active creditors in stores. Prominent among them is Rusfinansbank, which is fully owned by France's Societe Generale. Other lenders with a big share of the market include Turkish-owned Credit Europe Bank (formerly Finansbank), Cetelem, a retail subsidiary of BNP Paribas, and GE Money Bank, an affiliate of the U.S. giant. More established companies are also forces to be reckoned with-suffice it to mention the Home Credit & Finance Bank, which is determined to stay on despite numerous bad debts.

The arrival of new foreign companies can also be expected as U.S. and European banks are openly interested in the Russian fast-lending market, where profits remain huge though the competition is getting tougher, while the markets for such services in other countries have long been saturated.

Russian subsidiaries of foreign banks have repeatedly denied that there are hidden commissions in their loans, and they claim that their advertised effective interest rates are equal to the nominal rate specified in contracts. In many cases, that is true, analysts say. Unlike Russian bankers, their foreign colleagues can afford to lend to low-income clients, offering an interest rate below the host country's standard.

Whatever they do, they will have a tough time convincing Onishchenko of their innocence. There is, however, hope that his recommendations will remain just that, and his words will be interpreted as nothing more than a civil servant's personal opinion.

Anatoly Gorev is a financial analyst.