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Introduction |
 Romania’s
consumer protection legislation has been recently strengthened by the
enactment of a law meant to restrain the abuse of consumers who enter
into credit agreements in order to purchase goods and services. Law
289/2004 Concerning Credit Agreements (hereinafter “the Law”) embodies
the provisions of EEC Directive 87/102/EEC of December 22, 1986,
concerning consumer credit, creating a legal framework in Romania in a
field which was previously unregulated. Although the credit business was
qualified as a banking activity by Law 58/1998 – Banking Law, some
“undertakings” i.e., credit providers, began granting consumer credit
without observing the provisions of the Banking Law. This was possible
because the Banking Law did not expressly forbid non-banks to pursue
credit activities. As of the entry into force of the Law, the persons
who wish to engage in offering consumer credit need to be licensed and
must observe special consumer protection rules related to
pre-contractual information, specific contractual clauses, repayment in
advance and other matters commonly involved in such transactions in the
European Union. |
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Definitions |
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According to the Law, a consumer is the natural person who, in
agreements covered by the Law, is acting for the realization of a right
or legitimate interest which can be regarded as outside of his trade or
profession. A creditor is a natural or legal person who grants credit to
consumers in the course of its business or profession. The Law also
allows for consumer credit brokerage - a credit broker being defined as
any natural or legal person that, in exchange of a fee, is acting as an
intermediary by presenting or offering credit agreements, or by
performing other works in preparation of such agreements. Also, a credit
agreement is a legal transaction or act in law based on which a creditor
grants or promises to grant, and the consumer accepts a credit in the
form of a loan, deferred payment or other similar financial
accommodation. |
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Licensing and Supervision of Creditors and
Brokers |
 In order to operate a consumer credit business, creditors and the credit
brokers must be licensed. According to the Law, the manner of
registration and authorization, as well as the competent authority to
issue licenses, will be established by government resolution. Credit
institutions that already require authorization from the National Bank
of Romania are not subject to the licensing procedures provided in the
Law. Also, after Romania’s accession to the European Union, natural
persons or the branches and representative offices of creditors and
intermediaries with headquarters in one of the EU or European Economic
Area member states, who are authorized under the laws of such states to
provide consumer credit services, will be exempt from the obligation to
obtain a Romanian license. The National Consumer Protection Authority,
as well as the competent authority designated by the government, will
supervise and investigate the business activities of creditors and
credit brokers. The National Consumer Protection Authority will receive
all complaints from consumers related to credit agreements and crediting
conditions, will institute the complaints’ processing procedures in view
of their analysis and amicable settlement, and will apply sanctions for
infringements of the Law. The competent authority will supervise
compliance with the registration and issuance of licenses to the
creditor or, as applicable, to the intermediary. |
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Informing Consumers |
Prior to the execution of the credit agreement, the creditor must
provide consumers with the proposed credit agreement, the type and total
amount of the credit, the advantages and disadvantages associated with
what is being offered in light of the consumer’s financial position, as
well as the purpose of the credit. Also, consumers have to be completely
and accurately informed regarding the envisaged credit agreement and the
documents necessary for the grant of credit, which must at a minimum be
comprised of:
- a description of the applicant’s and any potential guarantor’s
current financial position, including a cash flow projection for the
period of repayment of the credit and payment of the interest;
- a description of the means of guarantee intended for the full
reimbursement of the loan and, as applicable, an evaluation of any
goods pledged; and
- a description of the credit conditions, comprising the amount of
the credit, the amount of the annual percentage rate of charge, the
interest rate, the repayment schedule, and the borrower’s objectives
or destination of the loan.
Related to the credit agreements under which the credit is granted in
the form of advances on a current account (credit lines) other than on
credit cards, the consumer has to be informed, in writing, at the latest
upon the execution of the agreement, of the credit limit, if any, the
annual rate of interest and the charges applicable from the time that
the agreement is concluded, the conditions under which they may be
amended and the procedure for terminating the credit agreement.
According to the Law, any advertisement or any offer of consumer credit,
which is displayed in a public place must clearly and intelligibly
mention the annual percentage rate of charge and observe the provisions
of Law 148/2000 related to publicity. The commercial purpose of such
information must be clearly stated in common language. During the period
of the agreement, the consumer must be informed of any change in the
annual rate of interest or in the relevant charges occurring after the
execution of the contract, at the time it occurs. |
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Form and Content of Credit Agreements |
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The
credit agreements must be made in writing, and in at least two original
counterparts. The Law provides for a list of mandatory clauses to be
inserted in all credit agreements such as the amount of the annual
percentage rate of charge as well as a statement of the conditions under
which it can be amended, a statement of the amount, number and frequency
or dates of the payments which the consumer must make in order to repay
the credit and the payments for interest or other charges, and the
specific credit documentation as established by the creditor etc.
Appendix 1 to the Law indicates the minimum mandatory clauses of credit
agreements according to their respective subject matter (e.g. financing
of the acquisition of goods and services). |
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Annual Percentage Rate of Charge |
In order to increase the transparency of the real credit cost, the Law
has introduced the concept of “annual percentage rate of charge”, which
is defined as the total cost of the entire credit to the consumer,
expressed as an annual percentage of the amount of the credit. The
annual percentage rate of charge, which equalizes, on an annual basis,
the present value of all commitments represented by loans, repayments
and charges, future or existing, agreed by the creditor and the
beneficiary of the credit, is calculated in accordance with the formula
set out in Appendix II to the Law. For the purpose of calculating the
annual percentage rate of charge, the total costs of the credit to the
consumer must be determined, with the exception of the charges provided
for in the Law (e.g. charges payable by the
 borrower for non-compliance
with any of his commitments laid down in the credit agreement, charges
for the transfer of funds and charges for keeping an account intended to
receive payments towards the reimbursement of the credit, the payment of
interest and other charges except where the consumer does not have
freedom of choice in the matter and where such charges are abnormally
high, charges for insurance or guarantees). The annual percentage rate
of charge must be calculated at the time the credit contract is
concluded, based upon the assumption that the respective credit
agreement will remain valid for the duration provided for in the
agreement based on the parties’ covenant and that the parties shall
fulfill their respective obligations according to the terms and
conditions laid down in the agreement. In the case of credit agreements
stipulating clauses allowing variations in the rate of interest and the
amount or level of other charges contained in the annual percentage rate
of charge but unquantifiable at the time when it is calculated, the
annual percentage rate of charge will be calculated on the assumption
that interest and other charges remain fixed and will apply until the
end of the credit contract. |
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Breach of Contract |
In regard to credit agreements granted for the acquisition of goods, in
the event of a consumer’s breach of contract, the creditor may seek all
legal remedies required in order to repossess the goods after the
expiration of an additional period of 30 days as of the due date of the
last unpaid installment. Within such additional period of time, before
attempting to repossess the goods, the creditor must immediately notify
the consumer, justifying its decision and requesting the consumer’s
written consent regarding the repossession of the goods. In the event
the creditor repossesses the goods, the respective obligations of the
parties must be settled in such a manner as to insure that the
repossession of the goods does not give rise to unjustified gains. If
the seller recovers the goods, it must reimburse the creditor for its
cost. If the goods and services that are the subject matter of the
credit agreement are not supplied, are partially supplied or do not
conform to the contract concluded for their supply, the supplier and the
creditor will be jointly and severally liable for indemnification of the
consumer, subject to the following conditions:
- the consumer concludes a credit agreement with a person other than
the supplier of goods or services;
- the grantor of the credit and the supplier of goods or services
have a pre-existing agreement whereby the credit is made available
exclusively by the creditor to the clients of the respective supplier;
or
- the consumer has been given the credit by virtue of such a
pre-existing agreement.
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Other Consumer Rights |
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The Law provides for the consumer’s right to discharge, fully or
partially, his obligations under a credit agreement, before the time
fixed by the agreement. In the event of the discharge of obligations in
advance, the consumer is entitled to an equitable reduction of the
credit costs, pro rata, for the period during which the credit
was used. Where the creditor’s rights under a credit agreement are
assigned to a third person, the consumer is entitled to assert against
such third person any contractual right that he has against the original
creditor, including set-off. The consumer cannot be obliged to pay to a
third party any amounts additional to those determined under the initial
credit agreement. |
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Sanctions |
 When the issue of an infringement of the Law is being assessed, the
competent authorities mentioned above may order the withdrawal or
annulment of the license, as well as any other measures meant to limit
damage to the consumer’s material interests, including requiring a
creditor to incur the indemnification resulting from the agreement, or
requiring a creditor who cannot comply with the provisions of the
agreement to transfer its obligations to a third party. The infringement
of the provisions related to the calculation of the annual percentage
rate of charge, the information that must be provided to consumers, the
mandatory clauses in the credit agreements and the anticipated
repayment, as well as of the provisions regarding publicity and the
authorization procedures, are considered minor offences and subject to
fines of up to ROL 100,000,000. |
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Conclusion |
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In principle, the Law is excellent; in practice, its enforcement may
raise significant problems. For example, according to the Law, the
manner of registration and licensing of creditors and credit brokers, as
well as the competent authority, should have been established by
government resolution within 90 days as of the publication of the Law in
Romania’s Official Gazette. That deadline has long passed and yet there
is no sign of any such government resolution. So, even if the Law has
entered into force, the “undertakings” that are willing to grant
consumer credit have to wait and see who they have to apply to for a
license. Moreover, even if the legislature hoped to avoid the misleading
of consumers with regard to the total cost of their loans by the
introduction of the concept of the annual percentage rate of charge, the
complexity of the calculation scheme provided for by the Law makes it
even harder for the consumers to compare different financial products. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2005 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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