Following infringements of consumer loan providers in the consumer solvency assessment process, the PTAC approves new guidelines for a more detailed and thorough assessment of consumer solvency, when granting a loan
27.04.2018. The Consumer Rights Protection Centre (hereinafter referred to as the PTAC) has approved new “Guidelines for assessment of the consumers' ability to repay a loan to loan providers, providing loan services to consumers” (hereinafter referred to as the Guidelines). The guidelines provide that consumer loan providers will have to be more deeply and in more details sure about a consumer's ability to repay a loan without having to rely on unverified consumer income information, when the loan will be EUR 200 and more (in place of the previous 427 EUR). In 2017 and 2018, the PTAC, in carrying out monitoring activities to verify, how loan providers ensure the consumer solvency assessment before making a decision on granting of a loan, identified an infringement for all loan providers, where the inspections were carried out.
The purpose of the consumer's solvency assessment is to ensure that only such loan agreements are concluded, where the consumer is able to comply with envisaged obligations. According to the Consumer Rights Protection Law, prior to the conclusion of consumer loan agreement, the loan provider is obliged to assess the consumer's ability to repay a loan.
Guidelines define the main principles to be followed by the loan provider in assessing the solvency of a consumer:
- define the purpose, for which the type of loan offered is suitable in order not to encourage irresponsible borrowing;
- establish a detailed procedure for the assessment of solvency, which provides for the reception, evaluation and adoption of relevant amounts of a loan for the type of loan concerned;
- essential principles for making a decision, such as balance of income, expenditure and loan liabilities, guarantor or the existence of immovable property are only risk mitigating factors that do not confirm the consumer's ability to repay the loan.
- the guidelines no longer provide that the loan provider may rely on information received exclusively from the consumer, if the loan does not exceed EUR 427, in accordance with the case law of the Court of Justice of the European Union on the interpretation of Directive 2008/48/EC (applicable to loans exceeding EUR 200), on the information received from the consumer it is possible to rely in case, when it is sufficient and documented.
Established in the Financial Services Monitoring Project
In 2017 and 2018, the PTAC is implementing a financial services monitoring project (hereinafter referred to as the Project) with a purpose of verifying the compliance of activities of licensed consumer loan providers with regulatory requirements and the practices actually implemented in accordance with the developed internal procedures for solvency assessment, evaluating the ability of consumers to repay loans.
In the framework of the project, presence checks have been carried out so far at 16 loan providers, examining 152 loan cases, where loan decisions regarding the issuance of a loan were adopted in March 2017. The checks were selected for companies with a high proportion of poor quality loans in the loan portfolio - the most delayed payments. Of the loans selected for verification, 67 were remote loans, 57 were consumer loans, 23 were leasing and 5 were mortgage loans. In the course of the PTAC project, bigger or smaller irregularities were detected for all 16 loan providers.
- The most significant infringement detected by the PTAC - in 55 cases of 152 loan cases, loans were issued with such payments that a consumer is likely to be unable to repay, taking into account the income. It is therefore established that loan providers do not comply with their internal procedures and the agreed allowed monthly loan liabilities for income.
- EUR 300 per month is granted for the consumer with income of EUR 750 and repayment in one payment, although the loan provider had information that the consumer's existing monthly loan liability payments amounted to EUR 1524.21.
- a loan of EUR 300 with repayment in one payment is issued to the consumer with income of EUR 258.94.
- In 23 cases of 94 loan cases, in which the loan was above €427, it was found out that loan providers were unsure of the veracity of the consumer's income (do not request income supporting documents and do not verify the amount of the consumer’s income, such as the State Revenue Service or the State Social Insurance Agency database).
- loans issued to a consumer for large amounts, such as EUR 1000, 1200 EUR, 1500 EUR, EUR 3400, without making sure of the veracity of income indicated in the loan application. Mostly, loan providers have relied on past cooperation and took note of the fact that these consumers have already taken the loan on several occasions and have repaid it in a timely manner.
- There were 17 cases where, when deciding on granting of a loan, loan providers had taken into account the additional or informal income indicated by the consumer, which was not documented.
- In one case, it was found out that the consumer was issued a loan based solely on the guarantor’s income, which had not been documented.
In the context of the loan providers’ monitoring project, in 3 cases the commercial practice cases have been terminated because the fixed infringements were irrelevant and prevented, while 1 commercial practice case was terminated for other reasons. With merchants whose commercial practice cases have not been terminated, the work continues, both by coordinating action plans and internal procedures for improving consumer solvency assessment, both through follow-up verifications and in deciding the necessity of issuing an administrative act. 3 loan providers have submitted a plan of measures to ensure adequate consumer solvency and have made changes to their internal procedures.
To ensure that loan providers comply with the promised, the PTAC will carry out further follow-up verifications.
Consumer Information and Communication Department