New rules on consumer credit agreements: greater protection for consumers

Szerző: István Gárdos - Kádár-Judit Füzes

letöltés

New rules on consumer credit agreements: greater protection for consumers

Contributed by Gárdos Füredi Mosonyi Tomori

April 01 2010

Consumer Credit Act

New decree on prudent retail lending and creditworthiness

Further restriction on contractual autonomy

Further steps have been taken to reinforce the rights and extend the protection of consumers concluding credit agreements. The measures also restrict certain essential rights enjoyed by financial institutions.

Consumer Credit Act

In December 2009, in a further attempt to regulate certain aspects of financial institutions' lending activity and to provide protection for the consumers, Parliament adopted the Consumer Credit Act 162/2009. The act brings Hungary's legal framework into line with the EU Consumer Credit Directive 2008/48/EC.
The scope of the act is similar to that of the directive in that it applies to credit agreements concluded with consumers. However, it covers a wider range of credit agreements, as some of its rules also apply to credit agreements secured by mortgages, and the total amount of credit does not automatically cause an agreement to fall outside the scope of the act. In addition, certain provisions of the act apply to financial lease agreements. Certain articles of the act - those regulating open-ended credit agreements, the right of withdrawal, linked credit agreements and early repayment - entered into force on March 1 2010; the rest become effective on June 11 2010.
Like the directive, the act introduces rules of two kinds, which either (i) regulate financial institutions' obligations to provide information before a loan agreement is signed, or (ii) provide for certain consumer rights after signing.
One of the most significant information requirements prescribes the pre-contractual information that must be provided to the consumer in good time before the consumer is bound by a credit agreement (as a result of completing an information form as indicated in the annex of the act). The use of a standard information form makes it easier for consumers to (i) compare the different types of credit arrangement offered by different financial institutions, and (ii) understand all of the conditions of the credit arrangement.
Consumer protection is also the aim of the requirements for compulsory information in loan agreements. If a signed loan agreement lacks a compulsory element, it is considered null and void.

In compliance with the directive, the act also regulates:

  • a financial institution's obligation to assess a consumer's creditworthiness;
  • the consumer's right to withdraw from the agreement during a 14-days cooling-off period;
  • the consumer's early repayment rights and the maximum fee that an institution may charge in connection with early repayment;
  • the consumer's termination right in respect of an open-ended credit agreement, which may not set a notice period of more than one month - similarly, the financial institution may exercise its termination right with a minimum of two months' notice, if the loan agreement so provides;
  • linked credit agreements; and
  • the assignment of a financial institution's rights.

New decree on prudent retail lending and creditworthiness

In December 2009, in connection with the act and on the basis of the authorization therein, the government adopted Decree 361/2009. The decree defines the general requirements on prudent retail lending and sets a maximum threshold for loans provided to consumers. The former provisions entered into force on March 1 2010; the latter provisions enter into force on June 11 2010.
An assessment of consumer creditworthiness must be based on the consumer's income position and its credit limit should be defined on that basis. The credit limit constitutes the basis for defining the maximum monthly instalment. The principles of creditworthiness (eg, the terms on which the consumer's other loans should be taken into account) must be laid down by the financial institutions in an internal regulation.
The decree sets a maximum amount for two types of loan: mortgages and loans for purchasing vehicles. Within these two types, the maximum amount varies according to the basis of the currency and depending on whether the sum is provided within the framework of a loan or financial lease. The table below summarizes the maximum amounts defined by the decree


Currency of the loan/financial lease

Secured with mortgage on real estate(1)

Granted for vehicle purchase(2)

Loan

Lease

Loan

Lease

Forint

75%

80%

75%

80%

Euro or euro-based currency

60%

65%

60%

65%

Other currency

45%

50%

45%

50%

(1) Based on the market value of the real estate.

(2) Based on the market value of the vehicle.

Further restriction on contractual autonomy

Another act was adopted by Parliament on the same day as the Consumer Credit Act. One of its articles, which comes into effect on June 1 2010, further restricts the contractual autonomy of both consumers and financial institutions. A financial institution may grant a client only one loan of a particular type in a calendar year if the annual percentage rate of charge exceeds 65% and the amount does not exceed Ft250,000.
The government originally proposed an interest rate cap for all loans, which would have meant the end of some financial institutions that specialize in personal loans.
For further information on this topic please contact István Gárdos or Judit Füzes at Gárdos, Füredi, Mosonyi, Tomori by telephone (+36 1 327 7560), fax (+36 1 327 7561) or email (gardos.istvan@gfmt.hu or fuzes.judit@gfmt.hu).

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