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Concumer Credit regulation - NeoFinance.com

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Concumer Credit regulation - NeoFinance.com

  1. 1. Regulation of Consumer Credits in Lithuania Bank of Lithuania Justina Taraseviciene Chief Legal Adviser 18 September 2019 Vilnius
  2. 2. 1. Main legal acts 2. Scope 3. Restrictions 4. Creditworthiness assessment 5. Cooling off and withdrawal 6. Cost of credit 7. Late payment 8. Peer-to-peer lending 9. Supervision 2 Content
  3. 3. Main legal acts
  4. 4. Main legal acts Binding • The Law on the Bank of Lithuania • The Law on the Consumer Credit (23 of December 2010) (the Law) • Regulations on the Assessment of Consumer Creditworthiness and on Responsible Lending (19 March 2013) • Rules on the calculation of annual percentage rate of charge Non binding • Guidelines on Consumer Credit (27 April 2015) • Guidelines on Advertising Financial Services (5 September 2012) EU practice Directive 2008/48/EC on credit agreements for consumers 18 December 2014 judgement of the Court of Justice of the EU in case C-449/13 18 September 2019 4
  5. 5. Scope
  6. 6. Scope • The Law is applicable to credit agreements. Credit agreement parties are 18 September 2019 6 Creditor person, other than a natural person, who grants or promises to grant credit in the course of his business Consumer a natural person who seeks to conclude or concludes a credit agreement for personal, family or household purposes and who is acting for purposes which are outside his business or profession. Exclusions Total amount of credit which exceeds EUR 75 000. The minimum amount of EUR 200 was not implemented. There is no minimum amount in the Law at all. Regulation of consumer credit = peer-to-peer lending (All the provisions of the Law, applicable to the creditor, are applicable to the peer-to-peer lending platform operator)
  7. 7. Restrictions
  8. 8. Restrictions Restrictions to credit agreements • Credit agreements may not be concluded with persons under 18 years old. • Credit agreements may not be concluded with persons incapacitated in certain areas, partially incapacitated persons in certain areas or persons who make decisions in certain areas with assistance. The creditor and the credit intermediary shall ensure that a person, who wishes to conclude a credit agreement, has not been declared incapacitated in certain areas. • Credit agreements may not be concluded from 22:00 hours to 7:00 hours. 18 September 2019 8
  9. 9. Creditworthiness assessment
  10. 10. Creditworthiness assessment Law Before the conclusion of the credit agreement, the creditor must, following the principle of responsible lending, assess the consumer’s creditworthiness on the basis of sufficient information obtained from the consumer and on the basis of the consultation of registers and information systems for the assessment of the creditworthiness of the consumer or justify the information supplied by the consumer with other evidence. The consumer must supply the information requested by the creditor needed to assess the consumer’s creditworthiness. The consumer must supply the information requested by the creditor needed to assess the consumer’s creditworthiness. Interest, penalties and charges in the case of late payments shall not apply to the consumer if the creditor inappropriately assessed the consumer’s creditworthiness not through the consumer’s fault. 18 September 2019 10
  11. 11. Creditworthiness assessment The Law lays down the obligation for the supervisory authority to lay down the principles for the implementation of the responsible lending obligation. Regulations • Principles of responsible lending; • Information that should be obtained from consumer; • 40 per cent rule; • Requirements for sustainable income; • Where the consumer is married, the information and evidence about the consumer’s income, expenses and obligations to financial institutions should be assessed together with the information and evidence about the consumer spouse’s income, expenses and obligations to financial institutions. 18 September 2019 11
  12. 12. Regulations 17. For the purpose of assessing the consumer’s creditworthiness the creditor and peer-to- peer lending platform operator must collect and assess the following information and evidence about: 17.1. the consumer’s income (sources of income, their diversity, sustainability, possible changes in the future, etc.); 17.2. the consumer’s obligations to financial institutions (credits related to real estate, other consumer credits, financial lease, repayments under the credit card limit schedules, loans, etc.); 17.3. the consumer’s credit history of at least 6 last months and information on whether the consumer defaults or had defaulted on his financial obligations to financial institutions, as well as information about the consumer’s debts to financial institutions; 17.4. the impact of circumstances notified by the consumer or known to the creditor or peer- to-peer lending platform operator regarding the economic and financial position of the consumer and the consumer’s possibilities to properly fulfil their financial obligations; 17.5. other significant circumstances connected with the consumer’s financial position and/or possibilities to properly fulfil their financial obligations. 18 September 2019 12
  13. 13. Regulations 9. The creditor shall be deemed to comply with the responsible lending principle when, at the time of conclusion of the credit agreement, the average monthly amount of credit payment of the consumer under all obligations to financial institutions does not exceed 40% of sustainable income of the consumer, excluding the case specified in paragraph 91 of the Regulations. 10. The credit granting decision shall be based on the history of average sustainable income of the consumer of at least four last months and on the assessment of sufficiency of the sustainable income earned during the consumer credit repayment period fixed in the credit agreement for the fulfilment of all obligations to financial institutions. Sustainable income shall be the income of the consumer which can be reasonably expected during the credit granting period. When calculating the consumer credit payment amount payable by the consumer, the creditor and the peer-to-peer lending platform operator shall assess the consumer’s expenses that are and/or might be known to the creditor and are related not only to the repayment of the credit, but also to other existing obligations of the consumer to financial institutions and shall take into account income remaining after repayment of the credit by the consumer. 18 September 2019 13
  14. 14. Cooling off and withdrawal
  15. 15. Cooling off and withdrawal Cooling off Withdrawal 18 September 2019 15 The right to withdraw from a credit agreement within 14 calendar days without giving any reason Within 30 calendar days consumer has to pay: • the credit amount • interest (for period until the date the capital is repaid) • compensation for charges to public administrative body No other compensation The right to withdraw from a credit agreement within 2 calendar days from the date of disbursement of credit Consumer has to pay only the credit amount. No interest, other fees, expenses or compensation
  16. 16. Cost of credit
  17. 17. Cost of credit The total cost of the credit to the consumer shall be deeded not to comply with the requirements of reasonableness, fair business practices, ensure a balance of interests of the consumer, if: • Interest rate laid down in the credit agreement shall exceed 75 percent and any other costs that are included to the calculation of the total cost of the credit, excluding the daily interest, exceed 0,04 per cent of the total cost of the credit • The total cost of the credit shall exceed the total amount of the credit 18 September 2019 17 Total cost of the credit to the consumer means all the costs, including interest, commissions and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs. Include the costs of: maintaining an account; the costs of using a means of payment; any other costs deriving from the payment transactions; costs in respect of ancillary services relating to the credit agreement, in particular insurance premiums.
  18. 18. Cost of credit 18 September 2019 18 76,68 60,37 50,03 2016 m. 2017 m. 2018 m. Average annual percentage rate of charge 45,67 37,99 29,33 2016 m. 2017 m. 2018 m. Average annual borrowing rate 2016 2017 2018 21,0 26,4 30,8 538,50 680,32 886,90 Average duration of consumer credit, months Average amount of consumer credit, Eur
  19. 19. Late payment
  20. 20. Late payment Penalties applicable to the consumer in the case of late payments may not exceed 0.05 % of the overdue amount for each day of delay. Penalties cannot be calculated for a period exceeding 180 days. No other penalties and charges may be applicable to the consumer for the default on the financial obligations provided for under the credit agreement. 18 September 2019 20
  21. 21. Peer-to-peer lending
  22. 22. Peer-to-peer lending Requirements for peer-to-peer lending Peer-to-peer lending means an activity where a natural person (hereafter referred to as “creditor”) grants or promises to grant to a consumer credit through a peer-to- peer lending platform. • The authorized capital of a peer-to-peer lending platform operator shall not be less than EUR 40 000. • The total amount of consumer credit granted by a creditor to one consumer in one peer-to-peer lending platform shall not exceed EUR 500. • peer-to-peer lending platform operator is not allowed to take all the amount of remuneration after the conclusion of consumer credit agreement. Such a requirement is not applicable where the peer-to-peer lending platform operator invests in consumer credit (at least 12 per cent of the total amount of the consumer credit). 18 September 2019 22
  23. 23. Peer-to-peer lending Requirements for peer-to-peer lending The peer-to-peer lending platform operator must: • prepare and approve a business continuity plan. • act honestly, fairly and professionally under optimum conditions for the creditor and the consumer and in their interest; also not to discriminate against the consumers and the creditors. • hold and use credible measures and procedures that are necessary for the operation. • sufficiently disclose all relevant and necessary information for the creditor and the consumer. • implement and apply efficient organizational and administrative measures for preventing conflict of interest. • ensure the storage of information. 18 September 2019 23
  24. 24. Peer-to-peer lending Requirements for peer-to-peer lending The peer-to-peer lending platform operator shall provide the following: • fees and other charges applied to the creditor by the peer-to-peer lending platform operator; • results of the assessment of creditworthiness of the consumer; • detailed recovery procedure, in the case when the consumer does not meet the financial commitments laid down in the credit agreement; • information on the business continuity plan of the peer-to-peer lending platform operator; • information on the fact if the creditor has the right to assign the whole claim or part of it to another person; • other rights and duties of the creditor, the consumer or the peer-to-peer lending platform operator related to peer-to-peer lending. 18 September 2019 24
  25. 25. Supervision
  26. 26. Types of Examinations  Inspections (on-site)  Investigations  Evaluative visits  Mystery Shopping 18 September 2019 26
  27. 27. Complaints handling process 18 September 2019 27 20 working days Evaluation 90 daysInvestigation Sanction applied Application of sanctions Possibility to forward complaint within 5 working days The right to make on-site inspection Information is published on the website
  28. 28. Decision making process 18 September 2019 28 Director of the Supervision Service Prior consultation with the Committee of the Supervision Service
  29. 29. List of sanctions 19 July 2019 29 Warning for the shortcomings and violations of their activities and set the term for the elimination of such shortcomings and violations Imposition of fine Public disclosure of the violation of the law and legal acts and the person who committed it Obligation for the consumer credit lender or the operator of the peer lending platform to replace the manager Removal of a person from the list of public credit lenders, public independent consumer credit intermediaries or the public lending platform operators
  30. 30. Fines 18 September 2019 30 Legal persons: 5 percent of the total annual turnover At least twice the amount of the benefit derived from the infringement where that benefit can be determined, even if that exceeds the maximum amounts established by laws Natural persons: EUR 25 000
  31. 31. Stop consumer credits The service was launched on 2016-11-01 The service is dedicated: • for persons who can't resist borrowing • for safety reasons when a person wants to protect himself from taking credit on his behalf 18 September 2019 31
  32. 32. Statistics 666 person in the list (1 by court decision) Age 19-92 m. 57 percent men 43 percent women Period varies 1-1000 years Most popular 3-5 years 130 000/1 month queries from consumer creditors 18 September 2019 32 2019-03-18 data:
  33. 33. Thank you! Justina Taraseviciene Chief Legal Adviser 18 September 2019 Vilnius

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