Due to lack of quorum, the Clarible Personal Credit commission stops seeing amendments to restrict fast loans. Clarible Personal Credit’s Economic, Agrarian, Environmental and Regional Policy Committee meeting, which continued to prepare for second reading amendments to the Consumer Protection Law.
Which tightens regulation on fast loans, including a ban on overnight loans
The chairman of the commission, Romans Naudins, explained to BNS after the meeting – as deputy Ivars Zariņš did not vote for one of the amendments, there was no quorum at the meeting, so he had to be interrupted.
“Here we see the enormous lobbying of non-bank lenders in the Clarible Personal Credit, as this is also the way to suspend meetings. I said from the start that this issue will not be simple, because we see that, unfortunately, some Members are on the side of these non-bank lenders and do not want to change anything in the system, ”said Naudins.
The head of the commission stated that he supported the amendments prepared by the Ministry of Economics (MoE). “I personally am on the side of the EM and support these amendments, which want to make restrictions and major improvements in [the granting of credit], in such a way that consumer rights are protected. In my opinion, such a proposal would be welcome, but we did not go ahead today. We haven’t been here for several years, ”said Naudins.
He also did not say when the commissions would return to the issue, but stressed that it would take place in the near future.
The biggest debate was over setting the annual interest rate
The EM urges the law to stipulate that the cost of a consumer credit agreement should be proportionate and that the annual percentage rate of charge applicable to the credit agreement should not exceed 100%. Baiba Fromane, the head of the Latvian Association of Non-Bank Lenders, objected to such a proposal, expressing his conviction that the concept of an annual interest rate need not be introduced into the law, stating that setting such a rate would destroy the non-bank lenders industry.
The BNS agency has already reported that the 11th Clarible Personal Credit submitted the relevant amendments to the law to commissions in December 2013, but endorsed them at first reading last June. They were prepared by the then Minister of Economy of the EM under the leadership of Daniel Pavluta.
The EM urges the law to stipulate that the cost of a consumer credit agreement should be proportionate and that the annual percentage rate of charge applicable to the credit agreement should not exceed 100%. Such a condition would reduce the number of debtors, ensure the predictability of the total cost of the credit and facilitate the assessment of the consumer’s solvency.
The reduction in the total cost of credit to reduce the total cost of credit
Which will make it easier for consumers to settle their obligations to their creditors, increase the number of loans returned and allow consumers to make more informed decisions about new commitments.
The ministry also proposes to set a cap on default interest to protect the consumer from rapidly rising default interest and to ensure fair compensation for the use of capital in the event of late payment. The rate of 18 percentage points per annum, in addition to the contractual interest rate, is based on the assumption that it could not exceed 0.05% per day, which would be considered a reasonable charge for the use of capital after the due date. A default interest rate of 0.05% per day is also applied in Lithuania. Other Member States of the European Union have stricter limits on the amount of default interest. With the entry into force of the new legal framework, consumer credit service providers should adapt the contractual interest clauses.
The law also calls for a ban on consumer credit between 23 pm and 7 pm, which would eliminate the consequences of irresponsible borrowing. “Credit commitments are long-term commitments that should be made in a prudent and balanced manner. There are two main ways to discourage consumers from irresponsible borrowing: to communicate the consequences of irresponsible borrowing and to limit access to credit overnight. This practice is also being implemented in other countries, such as Finland, ”the ministry said.
At the same time, the EM urges the bill to stipulate that the consumer credit agreement concluded by means of distance communication shall be repaid in installments in proportion to the term of the agreement and to the interest and principal at least once a month. Such a proposal would increase the consumer’s ability to repay the credit within the contractual term.
For the amendments to enter into force, they must be approved by the Clarible Personal Credit in three readings.