Government wants to step up consumer credit protection

The government on Thursday sent to parliament a final bill of amendments to the Consumer Credit Act to put under control the expenditures which banks impose on citizens during the duration of the credit agreement.

Finance Minister Slavko Linic said it was noticed that "new credit-related fees are constantly being made up" and that this prompted the government to move that those fees must be related to the real cost of granting credit and to ban the imposition of new fees after the signing of a credit agreement.

The amendments authorise the Finance Ministry to stipulate which fees are allowed on housing loans, and oblige the creditor to warn the consumer in writing about risks stemming from changes to the exchange rate, the interest rate, and loss of income.

Regarding the changeable interest rate, the government recommends precisely defining the parameters which can be used to change said rate to prevent banks from abusing the determination of parameters based on which they correct the changeable interest rate, said Linic.

He said banks used to raise the margin if the value of a loan or money declined. "We believe that under the Civil Obligations Act, it's not right that a citizen should pay for both the exchange rate difference and interest rate growth, while a bank makes more money in relation to the starting position in the contract."

The government also moved imposing an interest rate ceiling on housing loans which must not exceed the average interest rate on approved housing loans increased by one third. The amendments also define the interest rate ceiling on other loans which must not exceed the average interest rate increased by one half.

Regarding overdrafts on current accounts, the creditor would have the duty to inform the consumer about a decrease or increase of the overdraft allowed at least 30 days before the change.

Prime Minister Zoran Milanovic said the bill was about consumer protection and that the focus of discussion was the extent to which the state could intervene.

He said the government was trying to limit banks' arbitrariness, bearing in mind that everything would fall apart if banks started losing money. "That must be prevented and banks are in a privileged position here," he said, adding that on the other hand one should intervene when citizens coped poorly and banks greatly, making extra profits.

Milanovic said the bill would probably be the subject of discussions and lawsuits but stressed that the government's task was to protect citizens, while also seeing to banks' interests, so that citizens could enter credit agreements more safely.

The government also moved temporarily suspending incentives for home savings in 2014. Linic said that although the state had paid more than HRK 2 billion in such incentives, building society lending was very low at about HRK 3.5 billion, or only 5.5 per cent of all housing loans.

The average credit-deposit ratio in home savings was 54.1 per cent at the end of 2012, which indicates that depositors use building societies for more favourable savings than in commercial banks to obtain state incentives, said Linic.

After five years, citizens withdraw the money saved, together with the interest rate and the state incentives, and use it for purposes other than housing, he added.

Milanovic said incentives for home savings were not being rescinded but corrected for one year.

(Hina)



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