In the Slovak consumer lending market, in addition to banks, an important role is also currently played by other providers, which are usually denominated as non-banking companies.
Until recently, and in contrast to banks, such non-banking companies were not required to obtain a license from the National Bank of Slovakia ("NBS") or from other state authorities in order to provide loans, and were only subject to NBS supervision to a limited extent. Act No. 129/2010 Coll. on consumer loans, as amended ("Act"), which serves as legal basis for the provision of consumer loans, stipulated that the only obligation of non-banking companies was to register in a so-called "creditors registry" administered by the NBS. This main obligation of a non-banking company, when compared with the licensing procedures of other entities in the financial sector (such as the previously mentioned banks or insurance companies), represented a significantly simpler entrée to the Slovak market, without the need for fulfilling more demanding procedures. This, however, is set to change.
On 3 February 2015, the National Council of the Slovak Republic adopted an amendment to the Act ("Amendment"), which introduces various substantial changes concerning the regulation of consumer lending. The majority of the Amendment will be effective as of 1 April 2015.
The Amendment introduces legal regulations under which only an entity which has obtained a license from the NBS will be entitled to provide consumer loans. If the person or entity listed as the creditor in a consumer loan agreement provides said loan without the respective license, the agreement is invalid.
The requirement to obtain a license will not apply to a domestic bank, a foreign bank, or a branch of a foreign bank, since these entities provide loans on the basis of a bank license from the NBS. In addition, other obligations defined by the Act will not apply to these banking entities.
To obtain a license, the applicant will have to fulfil various conditions. For instance, the applicant must be either a joint stock or limited liability company with a fully paid monetary contribution to the registered capital of at least EUR 500,000, and must have a supervisory board. In addition, the applicant is required to fulfil various conditions related to its personnel, to establish internal departments (such as an internal control department) and to have a system for assessing the consumer’s capability of repaying a loan. An applicant must also have its seat or a branch office within the territory of the Slovak Republic.
A creditor which seeks to provide loans only to a limited extent will be required to fulfil simplified conditions. In addition, natural persons will also be able to obtain a licence for issuing loans to the same limited extent. This simplified regime will apply to creditors providing consumer loans totalling no more than EUR 10,000 in every 12-month period, with the first period starting upon the first provision of a consumer loan.
Consumer loans registry
Another important change introduced by the Amendment is the use of a consumer loan registry and the introduction of an obligation for consumer loan providers to check said registry to verify the ability of a respective consumer to repay the loan. There are currently three similar registries in Slovakia. Nevertheless, the Amendment introduces an obligation that creditors, or their association, must establish at least one such registry –however, the creditors will not be allowed to directly operate said registry.
Further significant changes brought by the Amendment
Besides the abovementioned two main changes, other changes introduced by the Amendment are:
- In contrast to the current regulation, supervision of consumer loans provision and providers will carried out by the NBS and not by the Slovak Trade Inspection;
- The NBS will be empowered to impose sanctions on entities providing consumer loans (e.g. monetary fines up to EUR 140,000; eventually also the withdrawal of licenses);
- Licenced entities providing consumer loans will be required to obtain the prior consent of the NBS for making certain changes in their entities (NBS consent will be required, for instance, for the selection or appointment of members of the statutory body or for the acquisition of a qualified interest in an entity of a creditor) – a similar requirement already applies to other entities in the financial sector;
- An obligation to directly state, in the consumer loan agreement, that that agreement is in fact a consumer loan.
Impact on the existing providers
Entities providing consumer loans pursuant to current legal regulations (without need for a licence) will be entitled to provide such loans on this basis until 31 August 2015, provided that they submit a request for a licence to the NBS by 31 May 2015, otherwise their registration in the registry of creditors (and thus also their factual entitlement to provide consumer loans) will be cancelled as of 31 August 2015.
The aim of the Amendment
Obligatory licensing for entities providing consumer loans and fulfilment of requirements for obtaining said licences will have a significant impact on the market, according to statements from both state officials and the associations representing such entities. A reduction in the number of non-banking entities from the current level of approximately 200 to a maximum of 50 entities is envisaged. The Amendment should ensure a greater degree of consumer protection and also provide more transparency to this lending market.