Loans are usually associated with banks. According to the Banking Law, only banks can grant loans. Credit unions can also do it for their members. The most-similar loan is a cash loan. I wrote about the differences between a loan and a loan from a legal point of view: What is the difference between a loan and a loan?
In addition to banks and credit unions, there are also many different companies on the financial market that specialize in granting loans. Some of them can even be seen on TV recently, heard on the radio, not to mention the internet advertisement.
Consumer credit has one face.
Banks granting loans to consumers, i.e. natural persons not conducting business or professional activity, are obliged to comply with the requirements of the Consumer Credit Act. Consumer lending companies should also comply with the same requirements. This is because the loan taken by the consumer in such a company is also classified as a consumer loan. Consumer credit should be understood as an economic loan, i.e. a lender (entrepreneur) granting any financial assistance to a consumer, and not only in the form of a loan agreement regulated by the Banking Law. So, the consumer loan will also be a loan of no more than PLN 25,550 granted to the consumer by the loan company. More on what is consumer credit I wrote here: “Consumer credit, what it is and why it is worth knowing.”
Loan companies like banks have many responsibilities.
For consumers, this is of great importance since loan companies lending to consumers are obliged, just like banks, to comply with the provisions of the Consumer Credit Act.
They must, therefore, include:
- advertise a loan in a way that is clear and comprehensible to the consumer,
- provide reliable loan data on special information forms before concluding a contract with the client,
- provide before the conclusion of the contract pre- contractual assistance, i.e. provide explanations on the previously provided information and the provisions of the proposed agreement,
- at the customer’s request, provide the draft contract for analysis free of charge before signing.
I wrote about these obligations here: “Consumer’s rights before entering into a consumer credit agreement.”
The loan agreement itself should be concluded in writing, be formulated in a clear and understandable way for the consumer and, what is extremely important, should contain many mandatory entries, including:
- name, surname and address of the consumer and name, surname (name) and address (registered office) of the lender;
- the duration of the contract;
- the total amount of the loan;
- deadlines and method of loan payment;
- the interest rate on the loan and the terms of its change;
- the actual annual interest rate and the total amount to be paid by the consumer determined on the day the consumer credit agreement is concluded, including all assumptions used to calculate it;
- rules and dates of loan repayment,
- information on other costs that the consumer is obliged to incur in connection with the consumer credit agreement, in particular fees, commissions, margins and costs of additional services, if known to the creditor, and the conditions under which these costs may change;
- the annual interest rate on overdue debt, the terms of its change and any other fees related to arrears in repayment of the loan;
- effects of non-payment;
- the method of securing and insuring repayment of the loan, if the contract provides for it;
- the date, manner and consequences of the consumer’s withdrawal from the contract,
- the consumer’s right to repay the loan ahead of schedule;
- information on the lender’s right to reserve in the contract the commission for repaying the loan before the deadline and the rules for determining the amount of the commission;
- terms of termination of the contract
- information on the possibility of using out-of-court dispute resolution and access rules to this procedure, if such a right is granted to the consumer;
- indication of the competent supervision authority in matters of consumer protection.
After concluding an agreement with a loan company, the consumer has a number of rights. He may withdraw from the contract without giving a reason within 14 days of its conclusion. If the loan company breached the requirements of the Consumer Credit Act as to the form of the contract and mandatory provisions that should be included in the contract, the consumer may take advantage of the free credit sanction. In addition, the consumer is always entitled to early repayment without giving a reason. You will find more on this topic in this publication: “Consumer credit agreement and consumer rights based on it.”
Reality far from ideal.
Since loan companies lending to consumers are required to comply with the requirements of the Consumer Credit Act, whether they actually do so, has been checked by the Office of Competition and Consumer Protection. UOKiK analyzed the activity of 30 loan companies. As the audit report indicates, their practice is far from ideal in this respect and consumer rights are repeatedly violated. Irregularities were detected in all audited lenders. They consisted, among others, in:
- unreliable information to clients about fees and fees that do not correspond to real activities performed by loan companies (fees were charged eg for receiving installments at home, preparation of a contract, extension of the loan repayment time, or so-called detective operations);
- unreliable transfer of loan data on the information form prior to the conclusion of the contract (all companies audited violated the provisions on the obligation to provide the customer with information about the loan before it was provided on the information form) Some companies did not submit these forms at all, others did not provide information on all loan costs ;
- providing false data on the actual annual interest rate (APRC). APY is an indicator that shows the relationship between the monetary amount that the customer receives from the loan / loan and the costs incurred by him on this account. When counting, all costs that the consumer is obliged to incur in connection with the contract, in particular interest, fees, commissions, taxes and margins, if known to the creditor and the costs of additional services, if they are necessary to obtain a loan, should be taken into account the costs of notarial fees borne by the consumer. I wrote more about it here: “Actual annual interest rate and consumer credit”. (8 audited companies did not take into account the cost of home loan servicing in the APRC calculations, eg the lender indicated that the APRC is 34.91%, and according to the findings of UOKiK, it was 310.65%);
- inadequate determination of the cost of loans in relation to the activities undertaken by loan companies (12 companies collected fees for receiving loan installments at the customer’s home.) They were set as a percentage of the loan, thus not corresponding to the costs of actually taking actions. 500 zlotys for 57 weeks, the client would have to pay as much as 417.24 zlotys for servicing a loan at home);
- collection of grossly excessive fees (eg for providing false data, the penalty was 4 times the loan, and for detective activities related to the determination of the address outside the town where the borrower had previously stayed – 1000 PLN)
The UOKiK audit also showed that in the case of two companies, the consumer signing the contract and paying the required high fees could not be sure that he would receive the money. The contracts required him to establish a large security after the conclusion of the contract. If he was unable to do so, the company retained all fees collected. UOKiK decided that the source of revenues of these companies is not granting loans, but retaining fees collected from customers.
In the case of all 30 loan companies audited, proceedings were initiated regarding infringement of collective consumer interests. In addition, UOKiK intends to submit 12 complaints to court to recognize the applicable contractual clauses as illegal.