On 7 December 2012, the Chamber of Deputies of the Parliament of the Czech Republic approved a government bill amending the current Consumer Credit Act. It could thus deny the abusive practices of various entities that misuse clients’ ignorance and enrich themselves unfairly at their expense.
The amendment will not affect classic mortgages, but may in particular affect the method of liability for so-called American mortgages (up to USD 1,880,000), where the adequacy of the collateral will be emphasized. The draft amendment to the Act was also drafted by the need to transpose Directive 2011/90 / EU, which seeks to harmonize the predictive value and comparability of this rate by adjusting the assumptions for calculating the annual percentage rate of charge (APRC). Finance Minister Jiro Palosek, whose ministry prepared the draft amendment, said that the aim of the change is to “prevent unfair practices” and to ensure “strengthening consumer protection and the principle of responsible lending”. The amendment should come into effect after approval by the Senate and signed by the President.
New obligations of credit providers
The lender will be obliged to assess with due care the ability of the consumer to repay, and only in this case will the consumer be able to provide the consumer credit. The information in the credit agreement shall be presented in a clear, concise and clear manner. In connection with the provision of consumer loans, the use of bills of exchange, which duplicated not only guarantees, but in practice often the debt itself, as well as overpriced telephone lines for the provision or intermediation of loans, will be completely banned. An important new consumer right will also be the possibility to withdraw from the mediation contract without penalty within 14 days of its conclusion. The Czech National Bank and the Czech Trade Inspection Authority as supervisory bodies will be able to impose fines of up to USD 20 million for violating the law.
End of real estate?
The benefits of the above measures to consumers are evident. For some other measures, the effect is no longer so clear. Prohibiting collateral for loans significantly higher than the value of the loan is likely to lead to a decrease in guarantees such as real estate; required.
The amendment is not omnipotent, clients must remain cautious
Obviously, the amendment seeks to limit the damage caused by human stupidity and ignorance. The new regulation should also prevent fraudulent companies, which are not concerned with lending alone, but only with the unfair luring of money from consumers in the pre-credit process. On the other hand, the amendment did not aim to set interest ceilings, as is the case in some EU Member States. Consumers should not, in any case, feel that legislation will protect them from everything: awareness, financial literacy and a responsible attitude remain the only real defense.