Tens of thousands of moneylenders are affected by the new Act on Consumer Credit (the “Act”) which entered into force on 1 December 2016. The Act introduces a stringent licensing procedure with the Czech National Bank (CNB) for non-bank loan providers and loan intermediaries. It requires providers to possess a capital stock of at least 20,000,000 CZK (over 740,000 EUR), while significantly increasing the protection of consumers by capping fees and penalties. Additionally, the Act introduces educational and professional requirements for loan providers and intermediaries. It applies to all loans, including deferred payments and mortgages that are offered to consumers.
All loan providers, whether banks or otherwise, are now required to carry out an assessment of the borrower’s financial situation. They may not provide loans if there are doubts concerning the borrower’s ability to repay the loan. A breach of this duty renders the contract null and void and the borrower will only be required to repay the principal sum, in a time period dependent on his capabilities.
Another feature of the Act is that consumers are granted a 14 day consideration period for mortgages. After consumers are presented with the terms and conditions of a proposed mortgage contract, the loan provider may not rescind or amend the offer for 14 days.
Existing money lenders operating on the basis of a trade license are required to apply for a loan provider license by February 2017 with the CNB, which must issue a decision within 15 months of the application. Existing loan providers are entitled to continue operating during the entire length of the licensing proceedings.
New loan providers also must apply for loan provider licences. However, as they will not be permitted to provide loans until their licence is approved, the CNB will issue decisions for new loan provider applications within four months.
The CNB will act as a supervisory body for loan providers and intermediaries. Providing loans without a license or not adhering to the new consumer protection requirements is subject to a penalty of up to 20,000,000 CZK (over 740,000 EUR).
The Act presents a significant change for Czech loan providers, as moneylenders could previously operate on the basis of an easily obtainable trade license. The increased requirements may lead to a slight increase in credit and mortgage rates, but are generally expected to prevent over-indebtedness among Czech households.