The proposed draft of the Law on Amendments and Supplements to the Law on Consumer Credit with the signature of the National Assembly No. 454-01-8, adopted at the first reading in the Committee on Budget and Finance on 06.02.2014, contains certain provisions that improve transparency and the level of consumer awareness and should be supported, as §1; §2, item 1, §6; §8 after refining some of the texts for compliance with the current regulatory framework.
The bill provides better protection for consumer credit customers, while at the same time preserving the balance in the relationship between creditor and borrower. From this perspective, the proposals submitted so far seem reasonable and should have a positive impact on the market. An important change is the inclusion in the scope of the law of loans under BGN 400, which until now were not regulated. In this way, users will receive the same information about them as borrowers above this amount. In this number, they will receive a standard European form in which the most important parameters of each consumer loan are described – interest, fees, commissions, number and size of repayment installments, final amount to be returned, etc. As a result, consumers of loans under BGN 400. they will already know which provider is the most profitable for them to get credit from. The inclusion of loans under BGN 400 in the scope of the Consumer Credit Act will also reduce unfair practices in the industry, as some of the companies on the market that only grant loans up to BGN 399 take advantage of the lack of regulations and save important information to consumers , while others comply with the provisions of the law. An important consequence is also the regulation of the admissible interest for late payment, namely for late payment by the debtor, the latter only owes legal interest for late payment, since by charging excessive amounts of penalties on the principals for loans under BGN 400, the interests were violated At the same time, in the spirit of market logic, the legislator did not allow the possibility of a right to refuse this type of credit, because it would render the provision of such a service pointless.
We believe that the draft law guarantees the rights and interests of consumers and achieves the targeted optimization of the current regulation of consumer loans.
At the same time, the draft law contains provisions that cannot be supported, as they represent an attempt to unfounded administrative regulation of the price of consumer credits and will lead to results contrary to the declared goals in the reasons for the draft law.
In particular, the provisions of §3 and §7 cannot be supported categorically, for the reasons set out below. The adoption of such texts will not lead to the fulfillment of the objectives of the draft law, declared in its reasons, on the contrary. With the acceptance of the proposed texts, prerequisites will be created for reducing the transparency in the granting of loans and even increasing the price of credit for consumers.
The text proposed in §3 of new Art. 10a is legally unfounded and creates a risk of a real increase in the cost of consumer credit and a decrease in the transparency of the products used by consumers. The provision represents an attempt to administratively limit the amount of consumer credit costs. The experience of this type of administrative intervention is that it usually leads to market distortion, promotion of the gray economy or an increase in the price of the relevant service for the consumer.
The main principle in the regulation of consumer credit relations according to EU law is to increase the transparency of the offered credit products and the awareness of consumers. To this end, Directive 2008/48/EC on consumer credit contracts and the APR introduce the concept of "annual percentage rate" (APR). The purpose of the GPR is one and only - to provide the user with a clear idea of the cost of the loan, without limiting the creditor's right to collect fees and commissions to cover the costs associated with granting and/or managing the loan. Such expenses are objectively and economically justified. Both Directive 2008/48/EC and the legislation of a number of EU member countries (Great Britain, Austria, Spain, Romania, etc.) expressly allow and recognize the introduction of approval fees and credit management fees. It should be emphasized that none of the other member states has an explicit ban on the introduction of management or lending fees, since their presence does not affect the awareness of consumers about the real cost of the loan.
The systematic interpretation of the propositions of para. 1 and para. 2 of the new art. 10a, shows that the intention of the importers is that the creditor has the right to charge separate fees and commissions only for additional services other than the basic credit service. Since lenders objectively incur costs for approving and managing each loan, the practical effect of such a requirement will be to include these costs in the interest on the loan. Since a large part of the administrative costs of the loan are usually expressed as one-off fees (for example, an approval and/or disbursal fee), the economic effect of including them in the main interest rate of the loan will be to increase the price for consumers, especially for consumer credit with a term longer than a year.
An additional effect of adopting the proposed ban will be to reduce the transparency of consumer credit pricing. The current legislation, which complies with Directive 2008/48/EC, enables the consumer to receive clear and accurate information about the types of costs that the creditor transfers to the consumer. This creates an opportunity for the user to make an informed decision when choosing a product and/or lender. The proposed ban will not only objectively lead to a decrease in transparency, but will also be an incentive to introduce fees and commissions for additional services that are not necessarily included in the calculation of APR. This can lead to a decrease in the level of consumer awareness of the actual cost of the used credit.
Last but not least, account must be taken of the accounting complications that may arise from including all the costs of providing the loan in the interest on the loan. According to the accounting standards currently in force in Bulgaria, interest and fees and commissions on the loan are generally subject to different accounting treatment. Lumping them into one category can lead to accounting problems for lenders, especially those applying international accounting standards or preparing consolidated statements, as well as distorting the objectivity of the accounting statements.
From a legal and technical point of view, the introduction of para. 1 of Art. 10a is not necessary, since the creditor's right to introduce fees and commissions for additional services is explicitly recognized in existing texts of the Civil Code. Al. 2 cannot be supported by both the legal and economic arguments set out above.
Al. 3 is vaguely worded, and it is not clear whether the aim is to prohibit the collection of different fees and commissions for the same action or to prohibit the collection of separate fees and commissions for repeated actions. The second alternative is unfounded and may again lead to an increase in the level of fees charged.
Al. 4 is unfinished. The proposed draft law also lacks a transitional provision that would regulate the implementation of the proposed new art. 10a, to welded legal relations.
The amendment proposed in §7 to Art. 33, para. 4 creates limitations in the rights of creditors, which is legally and economically unjustified. The proposed text obliges the creditors to take mandatory action on forced collection within 1 month of an overdue loan after it is declared to be due in advance. The text is declarative and lacks clarity regarding the consequences in the event of failure to comply with the deadline provided for in the said provision, in which enforcement actions should be taken after declaring the loan as due in advance. Formed in this way, the clause does not become categorically clear as to the nature of this term - preclusive or instructive. The bill lacks any reasons regarding the purpose of the proposed text. If the intended consequences are repayment of the right to enforcement, then this provision is in direct conflict with the basic principles of Bulgarian civil law regarding the statute of limitations, defined by the Law on Obligations and Contracts. Does it mean that if no action is taken within the one-month period under Chapter 37 of the Civil Code, the creditor loses the right to exercise his rights to collect his claims under this order? And if so, this clause contradicts Art. 110 and Art. 111 of the Civil Code, which governs the limitation periods.
It is also not clear from the proposed wording which of the actions under Chapter 37 of the Code of Civil Procedure must be taken within the one-month period and (e.g. the appeal by the creditor of the execution order regarding the costs under Article 413, Paragraph 1 of the Code of Civil Procedure , the filing by the creditor of a claim to establish the claim after an objection by the debtor under Article 415, paragraph 1, etc.).
The proposed provision is also not in favor of the consumers, since by limiting the period for voluntary implementation, in practice, the costs for the consumers, who will have to pay and the costs of compulsory implementation of the creditor, are increased.
We offer specific comments on some of the remaining provisions:
1. According to Art. 33a, para. 1 and paragraph 1, item 6 of the Additional Regulations:
We accept the idea that the methodology for forming the reference interest rate should be a formula composed of objective indicators and indicating their specific weight when calculating the interest rate. However, it is unacceptable to limit the constituent parts of the formula to "a market index or a combination thereof and/or indicators". Assessing the specifics of his activity, the creditor should be free to determine which indicators are most appropriate to include in his formula, as long as they are: 1) objective; 2) publicly available; and 3) not depend on his unilateral will.
2. Regarding the repeal of Art. 144, paragraphs 1 and 2 of the Consumer Protection Act:
The abolition of these provisions is unacceptable, not least because they apply not only to loans but also to other financial services. Al. 1 and 2 of Art. 144 have been adopted by the consumer protection directive and it is not right for creditors in Bulgaria to be deprived of the opportunities that apply in other EU Member States.
3. Regarding the change in Art. 60, para. 2 of the Law on Credit Institutions:
The proposed text should be added in Art. 60 of the Civil Code as a new paragraph 5, and not to completely replace this paragraph. 2 of it.
And in this text, we propose to provide for the possibility that the sale was carried out voluntarily, and not only in the order of forced execution.
4. According to Art. 10, para. 4 and paragraph 1, item 5a of the Additional Regulations:
We believe that the law should allow the creditor to unilaterally reduce the costs of the loan, correspondingly reduce the contractual allowance. The opposite would mean, for example, that any promotion of existing loans must be done by signing annexes with the borrowers.
5. According to paragraph 14 of the Transitional and Final Provisions:
We propose to change the term specified in this provision to 6 months.
In addition, we believe that it is necessary to provide a definition of the term "housing loan", which is introduced with the new changes. A given loan may be secured by a mortgage, but not granted in connection with the purchase of a home, i.e. not "residential". It is unclear whether the provisions of the Code of Criminal Procedure, specified in Art. 4, para. 1, item 2 and item 3.
http://www.turbulence.tech