Significant changes affecting consumer loans regulation in the Czech Republic are coming.
The new consumer loans law (Act No. 257/2016 Coll., on consumer loan) was approved during the summer and will be effective as of 1 December 2016. It implements current European Directives into Czech laws, in particular the Directive on credit agreements for consumers and the Directive on credit agreements for consumers relating to residential immovable property.
The aim of the new consumer loans law is strengthening the position of the consumers and protection of their rights, as well as unifying the regulation of consumer loans and residential immovable property consumer loans (loans either secured by a mortgage or provided for purposes of residential real estate financing). One of the most significant changes is a new requirement for non-banking institutions providing consumer loans to obtain licence from the Czech National Bank.
As mentioned, consumer loans providers and independent consumer loans intermediaries will be newly required to obtain a license from the Czech National Bank to be able to provide consumer loans. It will no longer be sufficient to provide consumer loans based on a trade license only. The non-banking consumer loans providers and intermediaries will also fall under the supervision of the Czech National Bank and will be required to be registered with it.
The non-banking consumer loans providers must satisfy certain requirements specified in the new law, in particular relating to their form of incorporation, minimum registered capital requirement, supervisory body establishment, credibility, expertise, implementation of anti-money laundering rules, business plan based on real economic calculations, etc.
The license of the non-banking consumer loans provider will be granted for five years (until the end of the year which follows five years after the year in which the license was granted) and may be extended repeatedly for another 60 months.
Consumer loans providers carrying out their business activity based on a trade license (in accordance with the current Consumer Loans Act) must submit a license application to the Czech National Bank within three months from the date when the new consumer loans law comes into force (i.e., by 1 March 2017). Until the Czech National Bank decides on the license, those providers are entitled to provide their services based on a trade license only, however, not longer than 18 months from the effective date of the new consumer loans law.
Similar rules also apply for the independent consumer loans intermediaries. However, they will be able to obtain the license for one year only (until the end of the year which follows the year in which the license was granted) with possible extension of twelve months.
Currently, a case regarding the interpretation of consumer loans intermediaries is pending before the Court of Justice of the European Union (Case No. C-127/15). It is expected to be decided that even a debt recovery agent instructed by, and acting on behalf of, lenders to enforce outstanding debts from borrowers in default (for instance, agreeing with them on deferred repayment) acts as a credit intermediary. In the case of such ruling, a debt recovery agent would be required to satisfy requirements (including credibility and expertise) for credit intermediaries under the new consumer loans law and obtain a license.
Other New Conditions
In order to ensure high standard of consumers’ protection, information provided by providers regarding consumer loans must be clear, precise and comprehensive for the consumers. It must include, among others, information on a type and total amount of the loan, its duration, drawdowns, interest rate, prepayment right, default interest, other charges and conditions for the termination.
The consumer loans providers must ensure appropriate assessment of creditworthiness of the consumer based on reliable, sufficient and appropriate information acquired from the consumer, from the database enabling assessment of consumer’s creditworthiness or from other sources.
New consumer loans regulation also contains more strict rules in relation to communication with the consumer, information duties, prepayment right (as to the maximum amount and exclusion cases), withdrawal of consumer loan agreements, contractual penalties, security enforcement, etc.