Press Release: Providers of bank and non-bank loans will have to carefully consider who they will and who they will not. If your eye is narrowed and you are in delay, they will not only have problems with installments. Many non-bank lenders will end up – they must have a registered capital of at least 20 million crowns.
On the other hand, you will have the option to repay the loan at any time or to transfer it from another currency. This is the impact of the Senate Bill on Consumer Credit. At present, only the President’s signature is missing and the bill will be valid. We will have to wait for its effectiveness. Still, it’s good to know what this change will bring.
Harder conditions for non-bank providers
Providers of non-bank loans will have more difficult conditions for functioning on the Czech market. Only the Good Lender Bank will grant licenses. Pursuant to Section 14 of the Consumer Credit Act, these providers will have to have an initial share capital of at least USD 20,000,000.
Subsequently, it must maintain the share capital of at least 5% of the volume of loans outstanding and outstanding, which it shall report at the end of the calendar year. Moreover, the capital must not fall below the minimum amount of initial capital.
The law will have a negative impact on rogue lenders in particular, will enable better supervision of the honest lenders as well as the enforceability of law in this area.
They must assess your creditworthiness
Under Section 86 of the Consumer Credit Act, lenders will now be required to assess your creditworthiness. This means your ability to repay the agreed regular installments of the consumer loan. They will have to assess:
- Before concluding a consumer credit agreement.
- Before changing the obligation of such a contract, which consists in a significant increase in the total amount of credit.
The assessment shall be made on the basis of a comparison of revenue and expenditure and a comparison of the way in which existing debts have been settled. If the consumer credit is to be repaid in whole or in part by the proceeds of the sale of the property, the value of the property will also be assessed. In addition, however, other factors must be taken into account in the assessment, such as the presumption of succession proceedings, the sale of real estate and others.
Consequently, the loan may only be granted to you if the resulting assessment shows that you are able to repay it. If it fails to verify your ability to repay and provides the loan, the contract becomes invalid. And you have the opportunity to repay the loan interest-free and according to your possibilities.
Pay at any time
Section 117 of the Consumer Credit Act regulates the possibility of early repayment. You are now entitled to repay this loan in full or in part at any time during its term. At the same time, you have the right to reduce the total cost of this loan by:
- The amount of interest that you would be required to pay in the event of early repayment.
- Other costs that you would otherwise have to pay if you did not repay the loan early.
According to the law, the practice should look like this: You have concluded a consumer loan and repay it. After 2 years you have the option to pay the remaining 3 years of repayment at once. You will notify the lender and the lender will provide you with the following information without undue delay:
- It will calculate the amount you have to pay. This will be divided into principal, interest and other early repayment costs.
- It will give you information about the amount of reimbursement. They must state all assumptions and calculate these costs.
- It will give you information on other consequences of early repayment.
Right to reimbursement
However, a creditor, such as a bank, has the right to require you to be reimbursed in the event of early repayment of the costs incurred in connection with such early repayment. However, the costs must be purposefully incurred and proven to be due to the early repayment of the loan. And they may not claim these costs at all if you paid them for one of the following reasons:
- As part of insurance coverage intended to ensure repayment of consumer credit.
- Where the consumer credit has been granted in the form of an overdraft facility.
- If you have repaid it during a period for which no fixed interest rate has been set.
- The amount charged by the creditor shall not exceed 1% of the early repayment, provided that the period between the early and agreed repayment and the agreed end of the consumer credit exceeds 1 year.
- If the period is less than 1 year, the creditor shall not charge you more than 0.5% of the prepaid portion of the total amount of the consumer credit.
- Also, the amount of reimbursement may not exceed the amount of interest that you would otherwise have paid if you paid regularly until the end of the agreed period. In other words, you can only save on early repayment of consumer credit.
- However, this does not apply to housing credit . You can only repay it fully if the contract lasts for more than 2 years. The fee may not exceed 1% of the prematurely paid amount and its maximum amount is limited to USD 50,000.
Limitation of sanctions
There has also been a clear definition of penalties for debt recovery and default. Newly, a creditor will only be able to charge you for the following:
- Purposefully incurred costs related to debt recovery.
- Legal default interest.
- A penalty of 0.1% for each day of delay (max. 50% of the outstanding amount and max. USD 200,000).
You can convert foreign currency credit
Consumer loans in foreign currency will also undergo a change. If you take it, you run the exchange rate risk. As the rate develops to your disadvantage, the loan becomes more expensive and you may not have enough money to repay it.
Therefore, according to § 116 of the Consumer Credit Act, the provider must allow you to change the currency of this credit to:
- The currency in which you had your primary income at the time when your creditworthiness was associated with that loan.
- the currency in which you held the assets from which this loan is to be repaid. Again, at the time your creditworthiness for this loan was last assessed,
- the currency of the Member State where you were resident at the time of the conclusion of the contract,
- the currency of the Member State where you reside at the time you request the change.
In addition, pursuant to Section 103 of the Consumer Credit Act, a foreign currency credit provider must inform you at least once a year of:
- the amount remaining to be paid,
- the amount of each installment,
- conditions for applying any currency change,
- other risk mitigation measures arising from changes in the exchange rate.
What does she have to tell you?
Section 94–98 of the Consumer Credit Act defines the information that the credit provider must provide to you before you conclude the contract. Among other things, it is obliged to publish information on the intermediary and its commission on its website. The contract will be required in writing only in specific cases, such as exclusive contracts.
If you require advice from the provider, the provider has the right to charge it. However, the resulting advice or output must be printed.
Payment only after signing
Pursuant to Section 83 of the Consumer Credit Act, the right to any remuneration will not be newly granted to the provider or intermediary. The exception is:
- Right to reimbursement of taxes.
- Right to reimbursement of administrative fees.
- Right to reimbursement of other similar cash benefits and reasonable costs.
Withdrawal within 14 days without giving any reason
Even if you sign a consumer credit agreement, you have the right to read the agreement under Section 118 and cancel it without any penalty within 14 days of conclusion. You must resign in writing.
In order to be considered as being complied with, you must send this withdrawal to the consumer credit provider in paper form by postal service no later than the last day of the 14-day period.
Change in the use of the lien
The Consumer Credit Act also affects the lien and the creditor. The pledgee will have to notify you 6 months in advance that he is planning to sell the mortgaged property in order to satisfy his claim. At the same time, it cannot prevent you from selling it for debt repayment.
If the creditor fails to comply with the aforementioned deadline and enters the lien in a public list or register, the period of 6 months shall commence only from the date of such registration. And you can’t even agree with a creditor that you only need to notify you in less than 6 months.
When to expect changes?
The Act will come into effect at the beginning of the fourth month after its publication in the Collection of Laws. Therefore, even if it was announced in July 2016, it will not take effect until 1 November 2016.
Contracts that will be concluded after the effective date will be fully governed by the new law. Contracts concluded prior to the effective date of the Act shall be governed by this Act only if the terms and conditions change. However, the level of individual sanctions will be governed by all contracts as of the effective date of the Consumer Credit Act.
What is important, however, is that these changes are brought to the attention of consumers, so that they know how to behave in key situations.
The Ministry of Finance should devote time and funds to educate consumers in the awareness raising campaign and to protect the benefits that the new law has given them the right to use.