The amendment to the Consumer Credit Act will change the market for non-bank loans
In December 2016, an amendment to the Consumer Credit Act came into force. The requirement to amend the legislation came from the European Union, which even planned a deadline of 21 March 2016. The changes will affect the providers of non-bank loans.
Proponents of the amendment and many lawyers argue that it will improve consumers’ rights, as well as turn dishonest consumer credit providers and, above all, usurers. The amendment should focus on all consumer loans, non-bank loans, as well as modern deferred payments. The same meter and minimum space to circumvent the law.
The amendment will affect already regulated consumer loans as well as previously unregulated mortgages, building savings loans and bridging loans. Leasing and popular credit cards will not be avoided. The regulation will also apply to smaller loans up to USD 5,000, which still represents a significant problem on the market. Except for the amendment to the Act, only business loans will remain.
Changes in the amendment to the Consumer Credit Act
Non-bank lenders will have to provide the consumer with a wealth of information. The advantage for the consumer is then the exact form and structure of the loan document, which allows easy and very transparent comparison of several loan products. Providers of non-bank loans can thus not deceive and make the documents unclear. Loan applicants will have up to 14 days to reflect and the provider must not force them to sign the contract immediately or without thought. He faces a fine of up to 20 million dollars.
The amendment to the Consumer Credit Act pushes for a more thorough assessment of the financial situation of a consumer who applies for a non-bank loan. The approach to each is then more individual based on a number of factors that are assessed.
This includes revenues and expenditures; any delay in repayment of the lease and other historical liabilities or overdraft overdrafts, which may lead to loan disapproval. The whip against the provider in this respect is a new possibility for the customer to invoke the invalidity of the contract up to three years after the conclusion of the contract with the provider of the non-bank loan.
It is now possible to repay a consumer loan at any time for its entire duration, both partially and completely. If this happens, the client has the right to reduce the total cost of the non-bank loan, both by the amount of interest and by all other costs that he was obliged to pay so far. On the other hand, the non-banking provider has the right to reimbursement of the costs reasonably incurred, together with the institution of early repayment.
Who will be able to provide consumer loans?
Until now, a trade license was sufficient and although it was a tied trade, practically only a school-leaving examination or a three-year practice was sufficient to operate it. Newly, only a person authorized by the Good Finance will be able to provide non-bank consumer loans.
Good Finance takes control of the market for non-bank loans after the Czech Trade Inspection Authority. Existing non-bank lenders must file an application with the Good Finance within six months of the amendment to the Consumer Credit Act. If they fail to do so, their authorization expires.
The application and the necessary annexes had to be submitted to the Good Finance no later than the end of February 2017. At the time of submitting the application, the applicant for the license had to have an initial capital of at least USD 20,000,000. Existing providers that are able to file an application with the Good Finance for the approval of a non-bank lender may subsequently continue their activities until the Good Finance has made a final decision on their application. However, no later than 31 May 2018.
The authors of this law expect this relatively strict measure to reduce the number of non-bank providers of consumer loans, the so-called micro-loans, of which there are approximately 60 thousand on the Czech unregulated market.
Who will be able to mediate consumer loans?
Another person affected by the amendment is non-bank loan intermediaries. An independent consumer credit intermediary and tied agent must meet the so-called professional competence. Until 1 December 2016, it was also possible to mediate consumer credit only on the basis of a trade license.
The application of the tied agent to the register shall include a school-leaving certificate or proof of higher education, or a certificate of successful completion of the professional examination. This test is to be organized for groups of expertise around the provision and intermediation of housing loans, non-housing loans, and tied consumer loans.