New Consumer Credit Act to be adopted
The adoption of the new Consumer Credit Act, exacerbating the process of assessing the creditworthiness of consumers and imposing new obligations on creditors, is expected.
The new Consumer Credit Act (ZPotK-2) is currently on its second reading with the National Assembly of the Republic of Slovenia. ZpotK-2 transposes into the Slovenian legal system Directive 2014/17/ЕU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property. This Directive was adopted in response to the economic crisis and the consequent rise in personal bankruptcies, higher repayments on consumer loans (mainly Swiss-franc denominated loans for the purchase of real estate), increasing number of non-performing loans, irresponsible behaviour by market participants including credit intermediaries and non-bank creditors, etc.
The main change to be introduced under ZPotK-2 is an extended definition of consumer credit, covering both consumer loans secured by a lien on the property as well as consumer loans the purpose of which is to acquire or retain property rights to an existing or planned property, bridging loans and loans for buy-to-let property.
Moreover, in contrast to acquiring ordinary consumer credit, when applying for a loan for the purchase of real estate consumers will be faced with a strict procedure for evaluating their creditworthiness. The current arrangement allows the creditor to evaluate a consumer’s creditworthiness by accessing the central credit register maintained by the Bank of Slovenia, but only where deemed necessary by the creditor. However, regarding loans for purchasing real estate ZPotK-2 now requires that a check of the consumer’s credit history be made using the information held in the central credit register and stipulates that the assessment of a consumer’s creditworthiness shall be based not only on data on the consumer’s income, but also on data on consumer expenditure.
ZPotK-2 also introduces a consumer-friendly provision concerning general information provided to consumers, i.e. information that must be communicated by the creditor to the consumer prior to the conclusion of the credit agreement and the duration of the credit relationship. Creditors will have to provide the consumer with further clarification, particularly as regards the consequences of default under the credit agreement and including the possibility of extreme action (execution/seizure of property), and further clarification of the potential risks associated with property loans denominated in a foreign currency. Creditors should regularly keep consumers abreast of changes in the exchange rate, where the change would result in the credit principal increasing by 10% or more.
In addition and with respect to obtaining loans for real estate, ZPotK-2 imposes the obligation for creditors to provide property valuations, which until now was only optional however it was usually done in practice by creditors. Furthermore, the property valuations must be done in accordance with applicable international standards.
If ZPotK-2 is adopted and enters into force, it will not affect the existing credit agreements i.e. it will not apply retroactively.
