A TRIO of proposed laws to regulate dubious, high-interest loans from non-banking companies and the property seizures that frequently result, look set to be part of parliament’s future legislative agenda.

At its January 8 session, the cabinet approved the Concept of Protection of Consumers on Financial Markets, which proposes a package of measures to be passed during the years 2015-17. On the same day two MP initiatives were introduced. The first, prepared by Otto Brixi and Anton Martvoň from the ruling Smer, seeks to alter six laws that the pair says will put an end to usurious practices. The second, authored by independent MPs Lucia Žitňanská and Miroslav Beblavý, is focused on agreements over consumer loans and distrainment proceedings.

“Providers of financial services currently play some kind of power-play against clients, both from the view of informational asymmetry and the conditions under which they offer their services,” Finance Ministry spokeswoman Alexandra Gogová told The Slovak Spectator.

The cabinet-approved package aims to target several areas. Among the most crucial changes is broadening the powers of the central bank, Gogová added. The National Bank of Slovakia (NBS) will be responsible for issuing and checking the licences for non-banking lenders and will also supervise their activities and carry out inspections. Only licensed firms will be able to provide loans.

At present, non-banking lenders are overseen by the Slovak Trade Inspectorate (SOI), which checks whether the services provided on the financial market comply with the law. The Finance Ministry, however, considers the current procedure unsystematic.

The concept also includes proposals to improve out-of-court solutions to disputes between financial institutions and their clients, to support financial education and financial literacy and to boost cooperation between associations protecting consumers, Gogová said.

Through these changes, not only will the protection of consumers improve, but the consumers will be encouraged to apply their rights on financial markets, Gogová said.

The changes should help those who borrow from non-banks under unfair conditions, Ivan Kahanec, executive secretary of the Association of Consumer Loans Providers (APSÚ), told The Slovak Spectator.

“We can also expect that the consumer loan market will be purified from such companies,” Kahanec said.

With an increased regulatory framework this should contribute to better financial market stability, NBS spokeswoman Martina Solčányiová told The Slovak Spectator. The realisation of these goals will, however, depend on all institutions of the state and public administration, she added.

Kahanec pointed out how important the specifics of the changes would be to their effectiveness.
“For legal certainty of consumers and companies it is important that the law definitions will not be vague and inaccurate,” he said.

MP initiatives

MPs say their own proposals will also bolster consumer protection. Martvoň and Brixi, who prepared the measures in cooperation with the Justice Ministry, suggest changing the definition of usury in the Civil Code; setting the maximum requital for a loan; providing only cashless consumer loans; and setting the size of the font used in contracts as of 2014. People working for non-banking lenders will need to have a university education and at least five years of experience in the banking or insurance sector, according to the proposal.

The new rules should also prevent non-banking lenders from loaning money to people already in debt. Moreover, MPs suggest a ban on distrainment proceedings if debts do not exceed €2,000, Brixi and Martvoň said. The proposal would also allow terminating an agreement with a non-banking company if it violates any such rules, SITA reported.

The measures should help to restrict abusive lending and “stop the gold rush of non-banking companies in Slovakia”, Martvoň told The Slovak Spectator.

Ivan Štefanec, an MP for the Slovak Democratic and Christian Union (SDKÚ), agrees that consumer protection deserves greater attention, but he regards the initiative of Smer MPs as a duplication of the ministry concept.

Brixi and Martvoň however say that their proposals include specific measures rather than planned concepts. Moreover, the ministry document covers more areas with which they do not deal, like licensing the non-banking companies and changing the powers of the national bank and SOI, Martvoň added.

For their part, Žitňanská and Beblavý propose three changes: to let the ordinary courts decide over the distrainment proceedings of debtors; to limit the period for applying interest rates to three years; and to fix the interest rate for consumer agreements to 70 percent, which was set as a threshold for usury by the Constitutional Court in the neighbouring Czech Republic.

At present, arbitration courts decide over distrainment proceedings. These courts, however, are often “satellites” of non-banking companies and the Justice Ministry lacks measures to regulate them effectively, Žitňanská told The Slovak Spectator.

The changes should not make it more difficult for creditors to get their money or protect irresponsible consumers, but to “impact those non-banking subjects whose main business aim is to benefit as much as possible from the inability of debtors to pay off their commitments”, Žitňanská said.

According to Kahanec, the proposal to cap the interest rates is nothing new in Slovakia. The government passed something similar in 2008, but abolished it two years later as it did not improve consumer protection. Conversely, it decreased the variety of products the non-banking companies offered to their clients and resulted in the closure of some firms, he said.

If the government wanted to set the interest rate cap for consumer loans, despite all its negatives, it should take into consideration the type of loan, the borrowed amount, maturity date and method of securing, Kahanec said, adding that consumer loans are sometimes lower and the repayment period is shorter than in banks.

He also criticised the proposal to stop cash loans, saying that the clients who do not have a bank account will lose the possibility “to borrow money legally”.