On 19 November 2015 the Lithuanian President signed the amended and supplemented Law on Consumer Credit (“the amended Law”), which was adopted by the Lithuanian Parliament earlier in the month. Regulation on consumer credit activities will be amended by tightening existing regulation and establishing rules on peer-to-peer (P2P) lending. The amended Law should come into force on 1 February 2016.
New rules and requirements for activities by the consumer credit provider (the Lender) set in the amended Law are mainly related to:
- creditworthiness and the annual percentage rate of charge;
- restrictions on concluding consumer credit agreements and disbursing credit;
- requirements of good repute;
- advertising restrictions;
The amended Law regulates P2P lending and sets requirements for:
- P2P platforms and their operators;
- P2P lending.
CREDITWORTHINESS AND ANNUAL PERCENTAGE RATE OF CHANGE
The amended Law requires a Lender to inspect databases and available registers whenever assessing customer creditworthiness, or to use other evidence to check information supplied by clients. In addition, before every significant increase in the total amount of consumer credit the Lender must update available financial information about the client and reassess their creditworthiness. Previously the Lender had a duty to do so only if information obtained from the customer was insufficient or unreliable.
Moreover, the amended Law reduces the maximum annual percentage rate of charge from 200% and sets that the overall cost of consumer credit is considered to be unreasonable if:
- at any moment during a consumer credit agreement the percentage rate is over 75% and all other daily expenses (other than interest) included in the overall other cost of consumer credit are over 0.04% of the total amount of the consumer credit; or
- the overall cost of consumer credit (ie, all expenses, including interest, commission fees and any other fees related to a consumer credit agreement payable by the consumer, except for notarial costs) is above the overall amount of the consumer credit.
In the case of delay, Lenders may not calculate default interest for longer than 6 months.
RESTRICTIONS ON CONCLUDING CONSUMER CREDIT AGREEMENTS
The amended Law introduces new restrictions:
- A Lender must not enter into a consumer credit agreement with a person under 18, a person who is legally incapable or a person whose legal capacity is limited and persons who are listed in the register of persons banned from taking consumer credit.
- The amended Law sets a “cooling-off” period. This allows the client to cancel an agreement without specifying reasons for their decision and to repay the amount of consumer credit without paying interest or any other taxes, expenditure or compensation. The “cooling-off” period is two calendar days.
- Consumer credit cannot be concluded from 10 pm to 7 am.
OTHER AMENDMENTS TO THE AMENDED LAW
One feature of the amended Law is a requirement that the management and shareholders of a Lender must be of good repute. The amendments will also prohibit advertising Lenders or indicating them as sponsors at specific places and events. Moreover, failure to comply with the requirements of the amended Law could result in a fixed penalty plus a certain percentage of gross income.
The amended Law introduces regulation of P2P lending. This type of lending is currently not regulated in Lithuania but existing Lithuanian P2P lending platforms are associated with Lenders and must be included in the public list of credit providers prior to starting their activities.
In general P2P lending activities will be regulated in the same way as consumer lending. For example, the operator of a P2P platform will be required to be listed on the public list of P2P platform operators administered by the Bank of Lithuania and comply with the same requirements set for Lenders, such as advertising limitations, pre-contractual information requirements and creditworthiness assessment rules.
However, the amended Law contains some specific requirements for operators of P2P platforms:
- the authorised capital of an operator should be at least EUR 40,000;
- an operator must prepare and approve a business continuity plan setting measures and procedures to ensure that P2P lending platform activities are carried out continuously and without interruption, as well as ensuring the smooth functioning of consumer credit contract administration and continuous implementation of contractual obligations in case of unforeseen circumstances;
- an operator must publish certain information about itself and the lending process on its website as well as disclosing certain information to the lender prior to concluding a loan agreement.
The amended Law also introduces some controversial provisions:
- legal persons cannot be lenders on P2P platforms;
- each lender may lend to a particular borrower up to EUR 500 for any 12-month period;
- the total amount that may be lent by one lender to all borrowers via one single P2P platform is EUR 5,000 for any 12-month period;
- an operator of a P2P platform may calculate its commission fee only from repayments already paid by the borrower to the lender.