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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 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 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 (hereinafter CCD) 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. 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 Estonian legislation Article 8 CCD Article 5(6) CCD § 4032 LOA + some clarifications LOA § 4032 • Obligation to comply with the principle of responsible lending • The creditor has to: Acquire relevant information; Carry out a creditworthiness assessment; Provide adequate explanations to the consumer. 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 Acquiring necessary information (2) • Information is to be obtained: from relevant 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. Creditworthiness assessment • Obligation to assess, whether the consumer is able to pay back the credit under conditions stipulated in the credit agreement. 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 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 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. Infringements and sanctions • Article 23 CCD • In Estonian law: Sanctions by the Estonian Consumer Protection Board Contractual remedies, for example compensation for damages Compensation for damages • Decision 3-2-1-136-12 by the Estonian Supreme Court, 27th of 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. 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. 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 Questions? Thank You!