New conditions for loans
On Wednesday, August 22, the government approved a draft amendment to the Consumer Credit Act. If the amendment is passed in the Chamber of Deputies and the Senate, new rules should apply in the near future for ordinary consumer loans.
Borrowing money will be safer
The main objective of the amendment is to provide greater protection for ordinary citizens. Due to the increasing indebtedness of Czech households (households borrowed 53 billion dollars in the first half of the year alone), the number of personal bankruptcies is also growing at a dizzying rate.
While in 2008 there were only 737 personal bankruptcies, in the previous year (2011) there were already 11,651 and in the first half of 2012 there are 9380 (by the end of the year there may be over 20,000).
Many people are getting into a debt trap and financial counseling bursts under the onslaught of desperate people looking in vain to help repay their big loans.
What will be the new conditions for loans
- Promissory notes and checks are canceled: the amendment prohibits the use of promissory notes and checks to secure a loan. This should limit the various Good Finance practices where credit firms have signed blank bills and then recover large sums
- New conditions for the guarantee of real estate: generally, the value of the collateral (or collateral) of the loan must not be out of proportion to the amount of the loan granted. This means that it should not be possible for you to guarantee a loan worth USD 30,000 worth half a million dollars
- Ban on toll-free lines: it will no longer be possible to use toll-free phone lines for loans. While credit companies are now pulling huge amounts of people out of expensive phone calls, it would now be a crime
- Intermediary restrictions: the amendment to the law should limit the various lending intermediaries. Newly, the contract on credit intermediation will have to be concluded in writing and the client will be able to withdraw from it within 14 days without any penalty.
- Loans only free of charge: the amendment also prohibits the possibility of enforcing payment of the fee in advance. The fee may be charged by the loan intermediary only after the submission of the outcome of its activity, that is, after approval or rejection of the loan.
- Loans will be supervised by the Czech National Bank: newly, the Czech National Bank should also supervise non-bank loans. It will be able to impose a fine of up to USD 20 million.
Will the new law help?
If the law is passed, as well as deputies and senators, it could most likely come into effect from the beginning of 2013. We can only speculate on how much the law will help. There are already a large number of credit firms that violate the applicable conditions.
Last year alone, the Czech Trade Inspection Authority, which controls non-bank lending companies, has encountered errors in more than 50% of cases. The same situation is now. The amendment to the Act will tighten the conditions. But that does not mean that credit firms will only start offering fair loans. It can be expected that there will continue to be a number of Good Finance loans.