Consumer Credit Regulations

Purchasing on credit has become a common business transaction. What we are not always fully conscious of is that purchasing something this way means that the money needs to be repaid sooner or later and payback is almost always more than the amount borrowed.

Whenever we need to take a loan, we should keep in mind that ‘credit’ is a financial service and, to ensure we buy the best service, we need to shop around and compare what creditors are offering.

To make the right choice, we need to acquire comprehensive information about the credit, its total cost and obligations involved. The new Consumer Credit Regulations, which came into force at the beginning of this month, ensure that we are given all the necessary information before and after we enter into a credit agreement.

The credit agreements excluded from the obligations of these regulations are those which amount to less than €200 or more than €75,000, and home loans

When credit is offered by a creditor or a credit intermediary acting on behalf of a creditor, before the credit agreement is concluded, consumers are entitled to specific information to help them compare offers and to reach an informed decision on whether or not to conclude a credit agreement with the creditor.

The pre-contractual information provided to consumers should, among others, include information on:

• the type of credit to be provided;

• who is the creditor, or credit intermediary, and geographical address;

• the total amount of credit to be provided and the conditions under which the credit is given;

• the duration of the credit agreement;

• when credit comes in the form of deferred payment for specific goods or services, information on goods, services and cash price should be provided;

• what is the borrowing rate and what conditions may change this rate. If different rates could eventually apply, this should be made known to consumers in the pre-contractual information;

• the annual percentage rate and the total amount payable by the consumer. If we query about different credit agreements, we should be given the different total costs involved;

• the amount, number and frequency of payments we will be making;

• the charges involved, where applicable, for maintaining an account to be able to make the payments;

• where applicable, the obligation to take out an insurance cover if such insurance is needed to obtain the credit;

• the interest rate applicable in the case of late payments and any charges payable for default;

• a warning relating to the consequences of missing payments;

• the existence or absence of a right of withdrawal from the credit agreement;

• the consumer’s right of early repayment and, where applicable, the creditor’s right to compensation;

The Consumer Credit Regulations provide a specific form to be filled by the creditor, or his intermediary, thus ensuring that the pre-contractual information required by law is provided to consumers who are about to purchase credit.

The new regulations also regulate the information given to consumers when they make a specific credit agreement, such as, for instance, an overdraft. This information is meant to eliminate the current practice of only providing general information in ‘fine print’.

Once the credit agreement is concluded, the consumer is entitled to a copy of the final agreement. In this regard, the regulations also set a standard of minimum information that should be included in such contracts. This includes the obligation to regularly inform the client of any changes made to borrowing rates.

The regulations also establish the right of the consumer to withdraw from the credit agreement within 14 days of its conclusion. Should the consumer decide to exercise his right of withdrawal, it is, however, necessary he informs the creditor in writing before the 14-day deadline expires.

When such a decision is taken, the consumer is to repay the creditor the credit provided and also pay accrued interest. This repayment should be made within 30 days from notification of withdrawal and interest should be calculated from the date the credit was drawn until the date when it is repaid.

This right of withdrawal does not apply to credit agreements which, by law, are required to be concluded before a notary public.

The regulations also prevent credit providers from imposing unreasonable penalties in cases of early repayment, whereby the consumer is entitled to a proportional reduction of the total cost of the credit.

Consumers will not be penalised for exercising this right, but may be required to pay any fair and reasonable costs specified or established in the credit agreement.

The regulations, in fact, specify the maximum amount of compensation the creditor may charge consumers when the credit is paid before the agreed termination.

Unless the creditor proves that the loss suffered from early repayment exceeds the amount determined by law.

The regulations provide for more transparency when it comes to consumers’ right to be informed on the cost of the credit facility. This is especially so in connection with consumer advertising.

Such advertisements should, in fact, provide an example containing specific information, like the borrowing rate; charges included in the total cost of the credit; the total amount of credit; the annual percentage rate; the duration of the agreement; in cases of deferred payment for specific goods or services, the cash price and the amount of any advance payment; and, where applicable, the total amount payable by the consumer and amount of each repayment.

Such advertisements should also include a clear statement on the need to purchase an insurance to obtain the credit. The aim of all this is to become fully aware of all fees included in the total cost of the credit facility

Consumer credit is subject to complex rules and procedures. Therefore, improved transparency in the costs incurred when making such transactions improves comparability and creates better informed choices.

Furthermore, transparency ensures effective competition in the credit market.

customer@timesofmalta.com

odette.vella@gov.mt

Ms Vella is senior information officer, Consumer and Competition Department.