Introduction |
Separate and apart from the general legal framework for the protection
of consumers in Romania set forth in Government Ordinance no. 21/1992
(hereinafter the “GO”), a niche had existed for creditors enabling them
to modify the interest and fees that they charged for certain consumer
loans by increasing them as much as they wanted -- such as the law
regarding mortgages (Law 190/1999) and the law regarding consumption
credits (Law 289/2004). As a consequence, consumers often paid more and
more to the banks as interest or fees were arbitrarily increased. This
led to many complaints addressed to the Consumer Protection Office and
to the courts. Trust in credit institutions was shaken. In reaction to
this, the Government enacted Emergency Ordinance no.147 (hereinafter the
“EGO”) that was published in the Official Gazette of Romania no. 795,
Part 1 on November 27, 2008 and became effective on December 27, 2008.
The EGO is designed to put a stop to abusive practices by credit
institutions. |
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The GO Protection Framework |
The EGO introduced three new articles in the GO (i.e., 9¹ - 9³) for the
protection of consumers who conclude credit contracts. The general
protection provisions state that when asked by the consumer for a credit
offer, a financial services provider (i.e., the creditor) must offer,
free of charge, in hard copy, a reimbursement format or other document
detailing the total costs of the credit to be borne by the consumer and
a copy of the draft credit agreement.
Financial services providers will have to abide by the provisions of the
GO in regard to each type of credit agreement they offer to customers.
Therefore, if the credit applies interest or any other costs for the
consumer, the credit institutions must supply the consumer with the
following information: the interest rate, whether fixed or variable; the
total cost of the credit; the effective annual interest; the duration of
the credit contract; and the total amount that a consumer could pay. The
information regarding the costs has to be written in an easily visible
manner by using fonts of the same size as the rest of the text. |
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Conditions for The Conclusion of Credit
Agreements |
According to the amended GO, financial services providers must adhere to certain
requirements when suggesting a draft credit agreement to an individual. The
first condition is that all clauses have to be written in a visible and easy to
read manner by using a font size of at least 10 point. The agreement must be
drafted in two originals, each of them going to one party. Another condition is
that all interest, commissions, fees, prices and bank expenses or any other
costs related to the credit or regarding services related to the credit, which a
consumer cannot refuse, must be clearly stated in the agreement. Additionally,
the agreement must include clauses regarding the costs for any account
operations such as deposits, extractions, or administration expenses.
In order to prevent abuses by financial services providers during the credit
period, they are prohibited from increasing commissions, fees, prices and bank
expenses or any other costs that are mentioned in the agreement or to introduce
new ones that are not mentioned in the agreement.
The EGO provides for certain conditions to be met for credits with variable
interest rates such as an independent determiner of the interest (i.e., the
increase of the interest does not depend on the financial services provider but
on contractual or legal reference indices). Another provision states that the
interest may fluctuate according to the financial services provider’s reference
interest, as long as it is unique for all the credits granted to natural persons
and if it does not breach the limit in the credit agreement. Furthermore, the
formula used for the determination of the interest rate has to be set forth in
the agreement as well as the periods of time and conditions under which it
fluctuates. In this manner, the consumer has more security and can appraise more
accurately the sum of money he owes to the financial services provider.
The EGO prevents provisions in the agreement from allowing the financial
services provider to modify the clauses if an addendum to the agreement is not
concluded with the consumer concerning such an amendment. If the financial
services provider seeks to amend the provisions of the agreement, it has to
notify the consumer using the means of notification provided by the agreement
and wait for an answer. The lack of answer does not amount to an acceptance of
the amendment.
The agreement may provide that if the consumer does not pay his installments on
time, he will be reported to the Credit Office or to any other similar
institution. |
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The Special Credit Law – The Consumption
Loan - Law 289/2004 |
While the GO represents the general framework for consumer protection,
Law 289/2004 regulates the specific field of consumption loans. The main
feature of Law 289/2004 is that it only targets natural persons
(referred to as consumers) and not legal entities. The law might thus be
considered a special facility granted for natural persons.
According to Article 3 of Law 289/2004, it does not apply to real estate
loans. The law applies to leasing agreements which ultimately aim at the
transfer of ownership title to the lessee, but does not apply to
ordinary rental contracts. Loans which do not apply interest rates or
any other expenses represent another exception from the object of the
law as well as loans which do not provide for interest payment if the
debtor agrees to reimburse the entire credit at once. Moreover, the law
does not apply to credits that are granted as payment advances for
credit lines supplied by a credit or financial institution if not
covered by a payment instrument such as a credit card. |
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Preliminary Obligations for The Creditor |
The consumer has a wide range of agreements that he can conclude with a
creditor, but in order to insure his protection the law provides for
certain obligations by the creditor. The original text of article 6(a)
of Law 289/2004 provided that before the conclusion of the credit
agreement the creditor had to present the types of credits it grants and
the sums to be provided by taking into account the consumer’s financial
status, the advantages and disadvantages implied by the type of credit
and also the purpose for which it had been requested.
The
EGO amends the above noted provision stating that a creditor has to
offer, free of charge, in hard copy a reimbursement scheme and a copy of
the draft credit agreement, when asked by the consumer for a credit
offer, according to the general consumer protection framework. As a
consequence, the consumer can recognize more easily the advantages and
disadvantages of a credit offer and whether he can bear the rates for
reimbursement. Also, the new text provides the opportunity to the
consumer to discuss the clauses of the draft credit agreement with the
creditor.
Formerly, article 6(b) of Law 289/2004 allowed the creditor to supply
the precise and complete information that is necessary for the
conclusion of the credit agreement. The meaning of the word “necessary”
was construed in favor of the creditor; therefore, it could have hidden
the “unnecessary” information that might have caused the consumer not to
enter into the deal. The EGO amends article 6(b) by erasing the
construable “necessary”- the creditor must now provide correct,
complete and precise information regarding the envisaged credit
agreement. According to article 6(c) of the law and also to the EGO, the
creditor must provide the consumer with information regarding the entire
documentation that is necessary in order to obtain a credit.
Under the amended EGO, the consumer must supply the creditor with a
current accurate presentation of his own financial position, as set
forth in the regulations and also demonstrate the means to guarantee the
entire payment of the debt, and if necessary an appraisal of the goods
representing the guarantee. Article 6(c) of the law had provided for an
extra condition – the credit documentation must contain an appraisal of
the financial situation covering the entire reimbursement period. The
EGO sets aside such a provision due to the unpredictability of the
financial environment, and therefore exempts both the consumer and the
creditor from such an improbable estimation. |
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Conditions of The Credit Agreement |
As previously noted, just like the credit offer presented by the
creditor when requested, the credit agreement must also be concluded
with the consumer in hard copy in at least two originals out of which
one remains with the consumer. The law provides that the credit
agreement must contain at least the names and the addresses of the
parties; the value of the interest; the value of the total costs of the
credit supported by the consumer; a list regarding the value, number and
frequency of the reimbursement payments or the payment dates; the credit
documentation; the possibility of reimbursement for the entire credit
added to a proportional reduction of the credit costs; and other clauses
as per the annexes of the law.
Mention should be made that the EGO modifies some of the clauses
provided by the law. The clause related to interest plays a major role
in the fight against creditors’ abuses. More precisely, the EGO restates
the amendments that were also added to the general consumers’ protection
framework. Therefore, in a consumption loan agreement, the interest has
to be well defined as fixed or fluctuating. In case the interest is
fluctuating, its variability must be independent of the creditor’s will
and it can only fluctuate because of the fluctuation of some verifiable
references which are mentioned in the agreement or because of the
provisions of the law.
Special attention is given to agreements that refer to credits granted
as payment advances for credit lines supplied by a credit or financial
institution - credits that are covered by a payment instrument such as a
credit card. For these types of credit agreements, the consumer has to
be informed by the creditor of the limit of the credit, if any; the
annual interest and the applicable costs as well as the amending
conditions; and the procedure by which the credit agreement might
terminate. The creditor has to inform the consumer in writing of any
modification of the annual interest or other costs, if such a
modification is ulterior to the execution of the contract.
The amendments regarding the necessary conditions for the conclusion of
a consumption loan are also to be observed at the conclusion of a
particular type of agreement which implies three parties: a services or
goods provider; the creditor and the consumer. This type of agreement
implies a pre-existing agreement between the services or goods provider
and the creditor. The pre-existing agreement provides that the creditor
grants credits only to the clients of the services or goods provider
(i.e. the consumer).
The penalty for not observing the amended conditions of the law is that
the agreement is null and void. |
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Conclusion |
The
discretionary possibility of credit institutions to modify clauses in a
credit agreement in their favor without the prior consent of the
consumer led to a lack of trust in such credit instruments and to a
decrease of investments made on the basis of such credits. The EGO
provides more security for consumers and investors who obtain this type
of credit.
However, a new problem has lately arisen – the possibility that the
limitations and conditions provided by the EGO will eventually lead to a
diminished number of credit agreements as credit institutions may
introduce harsher conditions to be met by the consumers when applying
for credit. This is due to two factors that now influence credit
operations: on the one hand the limitations regarding the variability of
interest and the credit costs imposed by the EGO, and on the other hand,
the credit institutions’ mistrust of the current economic environment
combined with the increase of the interest rate at which credit
institutions grant credits to each other. As a result, credit
institutions may well impose harsher conditions for the credits that are
granted to consumers in order to secure their businesses. Hopefully, the
entire economic environment, shaken by the world economic crisis, will
soon heal and, as a consequence, credit institutions will drop their
harsh conditions regarding credits. |
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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 2009 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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