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Legislative Measures for Promoting R esponsible L ending in Estonia

Legislative Measures for Promoting R esponsible L ending in Estonia. Nordic-Baltic Seminar  “Consumer Credit in Nordic-Baltic Area: From SMS-Loans to Responsible Lending?” 26.09.2013 Kristiina Koll, Adviser , Ministry of Justice , Estonia. General aim of responsible lending.

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Legislative Measures for Promoting R esponsible L ending in Estonia

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  1. Legislative Measures for Promoting Responsible Lending in Estonia Nordic-Baltic Seminar “Consumer Credit in Nordic-Baltic Area: From SMS-Loans to Responsible Lending?” 26.09.2013 Kristiina Koll, Adviser, Ministry of Justice, Estonia

  2. General aim of responsible lending • Responsible lending – credit products are appropriate for consumers’ needs and are tailored to their ability to repay the credit • Aim to avoid over-indebtedness

  3. Consumer Credit Directive • Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (hereinafterCCD)

  4. Transposition of CCD • The law amending the Law of Obligations Act and other Acts (võlaõigusseaduse ja teiste seaduste muutmise seadus) • The changes in the Law of Obligations Act (hereinafter LOA) came into force on the 1st of July 2011.

  5. Recent amendments • The Law amending the Law of Obligations Act and the Advertisement Act (võlaõigusseaduse ja reklaamiseaduse muutmise seadus) • The changes came into force on the 1st of July 2013

  6. Estonian legislation

  7. LOA § 4032 • Obligation to comply with the principle of responsible lending • Thecreditor has to: • Acquire relevant information; • Carry out a creditworthiness assessment; • Provide adequate explanations to the consumer.

  8. Acquiring necessary information • Obligation to gather information, including: • the consumer's financial situation, • regular income, • other financial obligations, • performance of earlier payment obligations • and the impact of potential increase of the financial obligations arising from the consumer credit contract. • List non-exhaustive

  9. Acquiring necessary information (2) • Information is to be obtained: • fromrelevant databases • or from the consumer • The creditor is obligated to inform the consumer of the information the consumer has to submit to the creditor. • The creditor is prohibited from encouraging the consumer not to provide the information required for the creditworthiness assessment.

  10. Creditworthiness assessment • Obligation to assess, whether the consumer is able to pay back the credit under conditions stipulated in the credit agreement.

  11. Adequate explanations • Obligation to provide adequate explanations to the consumer taking inter alia account the creditworthiness assessment • The aim – place the consumer in a position where the consumer to assess whether the proposed consumer credit contract corresponds to his needs and to his financial situation

  12. Legal nature • Informed decision upon conclusion of the contract • No prohibition to grant credit to a consumer, who is not creditworthy • A part of pre-contractual information duties

  13. Burden of proof • In case of a dispute the creditor shall demonstrate the performance of the obligations required for compliance with the principles of responsible lending.

  14. Infringements and sanctions • Article 23 CCD • In Estonian law: • Sanctions by the Estonian Consumer Protection Board • Contractual remedies, for example compensation for damages

  15. Compensation for damages • Decision 3-2-1-136-12 by the Estonian Supreme Court, 27thof November 2012 • If the creditor does not perform the obligation to implement the principle of responsible lending, the consumer has the right to claim compensation for damages.

  16. Compensation for damages (2) • The aim is to place the person claiming for damages in a situation as near as possible to that in which the person would have been if the circumstances which are the basis for the compensation obligation had not occurred, • In this context the aim is to place the consumer in a position, as if he had not concluded the credit agreement.

  17. Compensation for damages(3) • Damages – all of the negative consequences, which have arisen from the credit agreement, for example late payment interest, contractual penalties, loss of assets. • Right to set-off the claim for compensation of damages against the claim for repaying the credit

  18. Questions?

  19. Thank You!

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